<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1995
REGISTRATION NO. 33-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADOBE SYSTEMS INCORPORATED
(Exact name of each Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 77-0019522
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
1585 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-1225
(415) 961-1225
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
COLLEEN M. POULIOT
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ADOBE SYSTEMS INCORPORATED
1585 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-1225
(415) 961-1225
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. KENNEDY DAVID SEGRE
Shearman & Sterling Wilson, Sonsini, Goodrich & Rosati
555 California Street Professional Corporation
San Francisco, California 94104 650 Page Mill Road
(415) 616-1100 Palo Alto, California 94304-1050
(415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE
AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND CERTAIN OTHER CONDITIONS
UNDER THE
MERGER AGREEMENT ARE MET OR WAIVED.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED (1) BE REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, without par
value (including associated
Preferred Share Purchase 9,480,002
Rights) Shares (2) $59.50 (3) $564,060,119 (3) $106,919.49 (3)
<FN>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of Common Stock of Frame Technology Corporation, a
California corporation ("Frame"), in the proposed merger of Frame with a
wholly owned subsidiary of the Registrant.
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
(2) Represents the maximum number of shares of the Common Stock of the
Registrant which may be issued to shareholders of Frame pursuant to the
Merger described herein.
(3) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the average high and low prices of Frame Common Stock on the Nasdaq
National Market on August 22, 1995. $87,584 was paid under Section 14(g) of
the Securities Exchange Act of 1934 in connection with the filing of
preliminary proxy materials on July 7, 1994.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION PROSPECTUS
--------------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus;....... Facing Page; Cross Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Table of Contents; Available Information; Incorporation
of Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................. Summary; Selected Historical and Pro Forma Financial
Data; Comparative Per Share Data; Market Price and
Dividend Information; Pro Forma Combined Condensed
Financial Information; Risk Factors; The Merger; The
Merger Agreement and Related Agreements
4. Terms of the Transaction....................... Summary; The Merger; The Merger Agreement and Related
Agreements; Comparison of Shareholders' Rights
5. Pro Forma Financial Information................ Selected Historical and Pro Forma Financial Data; Pro
Forma Combined Condensed Financial Information
6. Material Contacts with the Company Being
Acquired...................................... Summary; The Merger; The Merger Agreement and Related
Agreements
7. Additional Information Required for Re-Offering
by Persons and Parties Deemed to be
Underwriters.................................. *
8. Interests of Named Experts and Counsel......... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.... Available Information; Incorporation of Certain
Documents by Reference; Summary; The Merger; The
Merger Agreement and Related Agreements; Market Price
and Dividend Information; Selected Historical and Pro
Forma Financial Data; Pro Forma Combined Condensed
Financial Information
11. Incorporation of Certain Information by
Reference..................................... Incorporation of Certain Documents by Reference
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
12. Information with Respect to S-2 or S-3
Registrants................................... *
13. Incorporation of Certain Information by
Reference..................................... *
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants................... *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies...... Available Information; Incorporation of Certain
Documents by Reference; Summary; The Merger; The
Merger Agreement and Related Agreements; Market Price
and Dividend Information; Selected Historical and Pro
Forma Financial Data; Pro Forma Combined Condensed
Financial Information
16. Information with Respect to S-2 or S-3
Companies..................................... *
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies..................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited............ Facing Page; Outside Front Cover Page; Summary; The
Special Meeting; The Merger; The Merger Agreement and
Related Agreements; Comparison of Shareholders'
Rights; Other Matters; Shareholder Proposals
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................. *
<FN>
------------------------
* Omitted because inapplicable or answer is negative.
</TABLE>
<PAGE>
FRAME TECHNOLOGY CORPORATION
333 WEST SAN CARLOS STREET
SAN JOSE, CA 95110
AUGUST 29, 1995
TO: THE SHAREHOLDERS OF FRAME TECHNOLOGY CORPORATION
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
Frame Technology Corporation ("Frame") to be held at 11:00 A.M. local time, on
September 28, 1995, at Frame's executive offices, 333 West San Carlos Street,
San Jose, California (the "Special Meeting").
At the Special Meeting you will be asked to consider and vote on the
following proposals:
1. To approve and adopt the Agreement and Plan of Merger and Reorganization
(the "Merger Agreement"), dated as of June 22, 1995, by and among Adobe Systems
Incorporated ("Adobe"), J Acquisition Corporation, a wholly owned subsidiary of
Adobe ("Merger Sub"), and Frame, and to approve the merger (the "Merger") of
Merger Sub with and into Frame pursuant to the Merger Agreement. As a result of
the Merger, Frame will become a wholly owned subsidiary of Adobe and each share
of common stock of Frame will be converted into and exchanged for 0.52 shares of
Adobe common stock.
2. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
FRAME'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF FRAME AND ITS
SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER.
Details of the proposed Merger and other important information concerning
Adobe and Frame are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
Proxy Statement/Prospectus at any time before it has been voted at the Special
Meeting. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
L. George Klaus
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
FRAME TECHNOLOGY CORPORATION
333 WEST SAN CARLOS STREET
SAN JOSE, CA 95110
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 28, 1995
TO: THE SHAREHOLDERS OF FRAME TECHNOLOGY CORPORATION
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of FRAME
TECHNOLOGY CORPORATION, a California corporation ("Frame"), will be held at
11:00 A.M., local time, on September 28, 1995, at Frame's executive offices, 333
West San Carlos Street, San Jose, California (the "Special Meeting"), to
consider and vote upon the following proposals:
1. To approve and adopt the Agreement and Plan of Merger and Reorganization
(the "Merger Agreement"), dated as of June 22, 1995, by and among Adobe Systems
Incorporated ("Adobe"), J Acquisition Corporation, a wholly owned subsidiary of
Adobe ("Merger Sub"), and Frame, and to approve the merger (the "Merger") of
Merger Sub with and into Frame pursuant to the Merger Agreement. As a result of
the Merger, Frame will become a wholly owned subsidiary of Adobe and each share
of common stock of Frame will be converted into and exchanged for 0.52 shares of
Adobe common stock. A copy of the Merger Agreement is attached as Annex A to the
Proxy Statement/ Prospectus accompanying this Notice.
2. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on August 11, 1995 as
the record date for the determination of the holders of Frame common stock
entitled to notice of, and to vote at, the Special Meeting. Accordingly, only
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the Special Meeting and any adjournment or postponement
thereof. The affirmative vote of a majority of the outstanding shares of Frame
common stock entitled to vote thereon is necessary for approval and adoption of
the Merger Agreement and approval of the Merger.
Details of the proposed Merger and other important information concerning
Adobe and Frame are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
All shareholders are cordially invited to attend the Special Meeting in
person; however, to ensure your representation at the Special Meeting you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. ANY SHAREHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN
IF HE OR SHE HAS RETURNED A PROXY.
Sincerely,
L. George Klaus
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
San Jose, California
August 29, 1995
<PAGE>
[LOGO]
[LOGO]
FRAME TECHNOLOGY CORPORATION
PROXY STATEMENT
---------------------
ADOBE SYSTEMS INCORPORATED
PROSPECTUS
---------------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, no par value ("Frame Common Stock"), of Frame Technology Corporation, a
California corporation ("Frame"), in connection with the solicitation of proxies
by the board of directors of Frame for use at a special meeting of Frame
shareholders (the "Special Meeting") to be held at 11:00 A.M., local time, on
September 28, 1995, at Frame's executive offices, 333 West San Carlos Street,
San Jose, California, and at any adjournment or postponement thereof for the
purposes set forth herein and in the accompanying Notice of Special Meeting of
Frame Shareholders.
This Proxy Statement/Prospectus constitutes a prospectus of Adobe Systems
Incorporated, a California corporation ("Adobe"), with respect to the issuance
and delivery of shares of common stock, no par value, of Adobe ("Adobe Common
Stock") in connection with the merger (the "Merger") of J Acquisition
Corporation, a California corporation and wholly owned subsidiary of Adobe
("Merger Sub"), with and into Frame, pursuant to the Agreement and Plan of
Merger and Reorganization, dated as of June 22, 1995, by and among Adobe, Merger
Sub and Frame (the "Merger Agreement"). As a result of the Merger, Frame will
become a wholly owned subsidiary of Adobe. Upon the effectiveness of the Merger,
(i) each outstanding share of Frame Common Stock will be converted into 0.52
shares of Adobe Common Stock and (ii) each outstanding option to purchase Frame
Common Stock will be converted into an option to purchase a number of shares of
Adobe Common Stock determined by multiplying the number of shares of Frame
Common Stock subject to such option by 0.52, at an exercise price per share
equal to the exercise price of the option divided by 0.52.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE SECURITIES REFERRED TO HEREIN.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of Frame on or about August 29, 1995.
The date of this Proxy Statement/Prospectus is August 29, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AVAILABLE INFORMATION..................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 1
TRADEMARKS................................................................................................ 2
SUMMARY................................................................................................... 3
Business of Adobe....................................................................................... 3
Business of Frame....................................................................................... 4
Date and Place of the Special Meeting................................................................... 4
The Merger; Purpose of the Special Meeting.............................................................. 4
Shareholders Entitled to Vote........................................................................... 5
Vote Required........................................................................................... 5
Dissenters' Rights...................................................................................... 5
Recommendation; Fairness Opinions....................................................................... 5
Effective Time of the Merger............................................................................ 6
Conditions to the Merger................................................................................ 6
Termination............................................................................................. 6
Surrender of Certificates............................................................................... 6
Accounting Treatment.................................................................................... 6
Certain Federal Income Tax Consequences................................................................. 7
Regulatory Matters...................................................................................... 7
Interests of Certain Persons in the Merger.............................................................. 7
Operations Following the Merger......................................................................... 7
MARKET PRICE AND DIVIDEND INFORMATION..................................................................... 8
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................................................... 9
COMPARATIVE PER SHARE DATA................................................................................ 12
RISK FACTORS.............................................................................................. 13
THE SPECIAL MEETING....................................................................................... 16
General................................................................................................. 16
Matters to Be Considered at the Special Meeting......................................................... 16
Record Date; Voting at the Special Meeting; Vote Required............................................... 16
Proxies................................................................................................. 16
THE MERGER................................................................................................ 18
General................................................................................................. 18
Background of the Merger................................................................................ 18
Frame's Reasons for the Merger; Recommendation of the Frame Board....................................... 20
Adobe's Reasons for the Merger.......................................................................... 21
Operations Following the Merger......................................................................... 21
Fairness Opinions....................................................................................... 21
Certain Federal Income Tax Consequences................................................................. 29
Accounting Treatment.................................................................................... 30
Interests of Certain Persons in the Merger.............................................................. 31
Regulatory Matters...................................................................................... 32
Rights of Dissenting Shareholders....................................................................... 32
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE MERGER AGREEMENT AND RELATED AGREEMENTS............................................................... 34
Effective Time of the Merger............................................................................ 34
Conversion of Shares.................................................................................... 34
Treatment of Frame Common Stock Options and Employee Stock Purchase Plan................................ 35
Business of Frame Pending the Merger.................................................................... 35
Solicitation of Alternative Transactions................................................................ 37
Business of Adobe Pending the Merger.................................................................... 37
Corporate Structure and Related Matters After the Merger................................................ 37
Certain Covenants....................................................................................... 38
Conditions to the Merger................................................................................ 38
Termination; Amendment.................................................................................. 39
Fees and Expenses....................................................................................... 39
Continuation Arrangements............................................................................... 40
Confidentiality Agreement............................................................................... 40
Agreements of Frame Affiliates.......................................................................... 41
Shareholder Voting Agreement............................................................................ 41
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION........................................................ 42
FRAME MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 51
COMPARISON OF SHAREHOLDERS' RIGHTS........................................................................ 57
Comparison of Articles of Incorporation and By-Laws..................................................... 57
Certain Charter Provisions.............................................................................. 59
Rights Plan............................................................................................. 59
EXPERTS................................................................................................... 61
LEGAL MATTERS............................................................................................. 61
OTHER MATTERS............................................................................................. 61
SHAREHOLDER PROPOSALS..................................................................................... 61
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS................................................... F-1
ANNEX A AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
ANNEX B OPINION OF HAMBRECHT & QUIST LLC
ANNEX C OPINION OF MORGAN STANLEY & CO. INCORPORATED
ANNEX D CALIFORNIA DISSENTERS' RIGHTS PROVISIONS
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Adobe and Frame are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 2000, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
In addition, material filed by Adobe and Frame can be inspected at the offices
of The Nasdaq Stock Market, Reports Section, 1735 K Street N.W., Washington,
D.C. 20006.
Adobe has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued by Adobe to holders of Frame Common
Stock. This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement. Such additional information may be obtained
from the Commission's principal office in Washington, D.C. Statements contained
in this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Adobe with the Commission are incorporated
by reference in this Proxy Statement/Prospectus:
1. Adobe's Annual Report on Form 10-K for the fiscal year ended November
25, 1994.
2. The Amendment on Form 10-K/A to Adobe's Annual Report on Form 10-K for
the fiscal year ended November 25, 1994, filed on June 29, 1995.
3. Adobe's Quarterly Report on Form 10-Q for the fiscal quarter ended March
3, 1995.
4. Adobe's Current Report on Form 8-K filed on June 29, 1995.
5. Adobe's Quarterly Report on Form 10-Q for the fiscal quarter ended June
2, 1995.
6. The description of Adobe's capital stock contained in Adobe's
Registration Statements on Form 8-A filed on November 19, 1986 and July 24,
1990.
The following documents filed by Frame with the Commission are incorporated
by reference in this Proxy Statement/Prospectus:
1. Frame's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
2. Frame's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1995.
3. Frame's Current Report on Form 8-K filed on August 8, 1995.
4. Frame's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1995.
5. The description of Frame's capital stock contained in Frame's
Registration Statement on Form 8-A filed on December 24, 1991, as amended.
All documents filed by Adobe and Frame pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus
and prior to the date of the Special Meeting shall be deemed to be incorporated
by reference in this Proxy Statement/Prospectus and to be
1
<PAGE>
a part hereof from the dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT
EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST. REQUESTS FOR ADOBE DOCUMENTS SHOULD BE
DIRECTED TO ADOBE SYSTEMS INCORPORATED, 1585 CHARLESTON ROAD, MOUNTAIN VIEW,
CALIFORNIA 94043 (TELEPHONE (415) 961-4400), ATTENTION: INVESTOR RELATIONS.
REQUESTS FOR FRAME DOCUMENTS SHOULD BE DIRECTED TO FRAME TECHNOLOGY CORPORATION,
333 WEST SAN CARLOS STREET, SAN JOSE, CALIFORNIA 95110 (TELEPHONE (408)
975-6000), ATTENTION: INVESTOR RELATIONS. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE PRIOR TO
SEPTEMBER 21, 1995.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN SO
AUTHORIZED BY ADOBE OR BY FRAME. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER
WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TRADEMARKS
PostScript, Adobe, Aldus, PhotoStyler and Adobe Acrobat are trademarks of
Adobe Systems Incorporated that may be registered in certain jurisdictions.
Frame, Frame Technology, FrameMaker, FrameViewer and the Frame logo are
registered trademarks of Frame and FrameBuilder is an unregistered trademark of
Frame. This Proxy Statement/Prospectus also contains trademarks of companies
other than Adobe and Frame.
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION ABOUT ADOBE, FRAME, THE
MERGER AGREEMENT AND THE MERGER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THIS PROXY STATEMENT/ PROSPECTUS, THE EXHIBITS HERETO AND THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN. SHAREHOLDERS ARE URGED TO READ THIS
PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING EXHIBITS IN THEIR ENTIRETY. SEE
"RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY THE
SHAREHOLDERS OF FRAME.
BUSINESS OF ADOBE
Adobe, established in 1982, is a California corporation that creates
computer software solutions to help people throughout the world effectively
communicate information and ideas. It first developed the PostScript page
description language, a powerful, high-level computer language that communicates
precise descriptions of computer-generated graphics, photos and text to any
output device with a PostScript interpreter. Over time, the PostScript language
has become an industry standard for printing electronic documents. Concurrently,
independent software vendors and Adobe used the power and flexibility of the
PostScript language to build a base of application products that is generally
recognized for facilitating the desktop publishing revolution. More than 5,000
applications support PostScript language output. These applications are
available for every major computer operating system and hardware configuration,
from desktop PCs to mainframes.
Adobe delivers its products and technologies through two divisions: the
System Products Division (SPD), which develops technology for information
distribution, and the Application Products Division (APD), which develops
packaged applications for information authoring.
SPD focuses on the development, marketing, sales and support of system-level
software tools and technologies that are embedded within the branded products of
original equipment manufacturers (OEMs). The division is organized into five
product groups: prepress products, information products, display products,
imaging systems products and printer products.
APD provides three categories of software products: graphics and video,
print publishing and consumer products. Graphics and video include digital
imaging and video products, illustration products, type products and
presentation products. Print publishing products include page assembly products
and some accessory products. Consumer products are personal publishing and
productivity software.
Adobe is now leveraging its leadership position in desktop publishing to
pioneer an industry transition to digital publishing. At the heart of this
initiative is technology for the representation of digital documents that are
independent of computer platform, application software and fonts. This
technology is embodied in the Adobe Acrobat family of document communication
products introduced in 1993. Version 2.0, which includes a significant number of
new features and expanded capabilities, was introduced in 1994. In addition,
Adobe offers an expanding suite of software tools for authoring multimedia
digital information.
Adobe develops, markets and supports its computer software products through
various channels, including distribution through the retail channel, value-added
resellers (VARs) and direct OEM licenses. Additionally, Adobe supports its
worldwide OEMs, distributors and end-user customers through several
international subsidiaries. The European operations are headquartered in
Edinburgh, with European offices in Amsterdam, London, Milan, Munich, Paris and
Stockholm. Offices in Tokyo and Sydney service the Asian and Pacific Rim
markets.
APD also markets products through the Image Club Graphics, Incorporated
("Image Club") subsidiary of Adobe, a developer and catalog marketer of content
software. Image Club provides original clip art, brand name and original display
fonts, stock photographic images plus a variety of third-party desktop
publishing products. It has a monthly catalog circulation of more than 600,000.
3
<PAGE>
On August 31, 1994, Adobe completed its acquisition of Aldus Corporation
("Aldus") following approval by shareholders of both companies. The acquisition
was accounted for as a pooling of interests and qualified as a tax-free
reorganization.
Adobe's executive offices are located at 1585 Charleston Road, Mountain
View, California, 94043-1225. Its telephone number at that location is (415)
961-4400.
BUSINESS OF FRAME
Frame develops, markets, and supports writing and publishing software for
the creation and distribution of critical business and technical documents.
Frame's flagship product, FrameMaker, provides an authoring environment that
fully integrates word processing, graphics, automatic and manual page layout,
tables, equations, authoring and editing, conditional text and electronic
distribution tools. FrameMaker operates in a networked, heterogeneous computing
environment and allows users to share files transparently across multiple
computer platforms (UNIX, Macintosh, and Windows-based PCs). Frame's
FrameBuilder product line is a powerful software environment for developing and
using structured-document applications. FrameBuilder is designed for
organizations with large inventories of documents that need to be structured and
managed as an enterprise-wide asset. The FrameViewer product provides on-line
viewing of FrameMaker documents, hypertext navigation within and among
documents, support for on-demand printing and multimedia. This product provides
a cost-effective multiplatform distribution mechanism on-line over a network or
via CD-ROM.
Frame's product strategy is to deliver a solution for managing
document-based information management: from authoring and electronic
distribution to document management. In addition, through its Advanced Products
Group, Frame offers a full range of high-quality professional services including
training, application consulting, customization and system integration. Frame
markets its products through direct sales, distributors, VARs and OEMs. As of
December 31, 1994, Frame had sold over 250,000 FrameMaker licenses and had an
installed base of over 500,000 end users in the aerospace, automotive,
transportation, government, legal publishing, pharmaceutical, computer,
telecommunications, banking and financial services industries and in higher
education.
On July 28, 1995, Frame acquired (the "Mastersoft Acquisition") Mastersoft,
Inc., an Arizona corporation ("Mastersoft"), a developer of file conversion,
viewing and document comparison software for original equipment manufacturers
and end users. Frame issued 1,200,000 shares of Frame Common Stock in connection
with the Mastersoft Acquisition, which was accounted for as a pooling of
interests.
Frame is a California corporation. Its principal executive offices are
located at 333 West San Carlos Street, San Jose, California 95110, and its
telephone number is (408) 975-6000.
DATE AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on September 28, 1995 at 11:00 A.M., local
time, at Frame's executive offices, 333 West San Carlos Street, San Jose,
California.
THE MERGER; PURPOSE OF THE SPECIAL MEETING
THE MERGER. As a result of the Merger, each outstanding share of Frame
Common Stock will be converted into the right to receive 0.52 (the "Exchange
Ratio") shares of Adobe Common Stock. Upon consummation of the Merger, each
then-outstanding option to purchase Frame Common Stock (a "Frame Option") will
be assumed by Adobe and will automatically be converted into an option to
purchase that number of shares of Adobe Common Stock equal to the product of the
number of shares of Frame Common Stock such option was exercisable for at the
time of the Merger multiplied by the Exchange Ratio at an exercise price equal
to the quotient of the per share exercise price of the Frame Option at the time
of the Merger divided by the Exchange Ratio. Subject to the consummation of the
Merger, on the last trading day prior to the Effective Time (the "Final Purchase
Date"), Frame will
4
<PAGE>
apply the funds then credited to each Purchase Plan (as defined below)
participant's payroll withholding account to the purchase of whole shares of
Frame Common Stock. See "The Merger Agreement and Related Agreements --
Conversion of Shares" and "-- Treatment of Frame Common Stock Options and
Employee Stock Purchase Plan."
THE SPECIAL MEETING. At the Special Meeting, the shareholders of Frame will
consider and vote upon proposals (i) to approve and adopt the Merger Agreement
and to approve the Merger and (ii) to transact such other business as may
properly come before the Special Meeting or any postponements or adjournments
thereof. See "The Special Meeting -- Matters to Be Considered at the Special
Meeting."
SHAREHOLDERS ENTITLED TO VOTE
The close of business on August 11, 1995 is the record date for
determination of holders of Frame Common Stock entitled to vote at the Special
Meeting. At that date, 16,300,661 shares of Frame Common Stock were outstanding,
held by approximately 301 holders of record. As of such date, directors and
executive officers of Frame and their affiliates may be deemed to be the
beneficial owners of shares of Frame Common Stock representing approximately 13%
of the outstanding voting power of Frame. See "The Special Meeting -- Record
Date; Voting at the Special Meeting; Vote Required."
The directors and executive officers of Frame have indicated that they
intend to vote the shares of Frame Common Stock held by them for approval and
adoption of the Merger Agreement and approval of the Merger. Charles N.
Corfield, Chief Technical Officer and a director of Frame, has agreed with Adobe
and Frame to vote his 2,143,333 shares of Frame Common Stock (approximately 13%
of the outstanding Frame Common Stock) in favor of the Merger Agreement and the
Merger. Mr. Corfield has also given Adobe an irrevocable proxy to vote these
shares in favor of the Merger Agreement and the Merger. See "The Merger
Agreement and Related Agreements -- Shareholder Voting Agreement."
VOTE REQUIRED
Approval and adoption of the Merger Agreement and approval of the Merger
will require the affirmative vote of the holders of a majority of the
outstanding shares of Frame Common Stock entitled to vote thereon. See "The
Special Meeting -- Record Date; Voting at the Special Meeting; Vote Required."
DISSENTERS' RIGHTS
Shareholders of Frame who vote against the Merger may be entitled to certain
dissenters' rights under California law. See "The Merger -- Rights of Dissenting
Shareholders."
RECOMMENDATION; FAIRNESS OPINIONS
THE BOARD OF DIRECTORS OF FRAME (THE "FRAME BOARD") HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT HOLDERS OF FRAME COMMON STOCK VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
HAMBRECHT & QUIST LLC ("HAMBRECHT & QUIST"), FRAME'S FINANCIAL ADVISOR, HAS
DELIVERED TO THE FRAME BOARD ITS WRITTEN OPINION DATED AS OF JUNE 22, 1995 TO
THE EFFECT THAT, BASED UPON AND SUBJECT TO THE VARIOUS CONSIDERATIONS SET FORTH
IN SUCH OPINION, AS OF THE DATE OF SUCH OPINION, THE EXCHANGE RATIO IS FAIR FROM
A FINANCIAL POINT OF VIEW TO FRAME AND THE HOLDERS OF FRAME COMMON STOCK.
The Adobe Board has approved the Merger Agreement and the issuance of Adobe
Common Stock in the Merger. In reaching its conclusion to approve the Merger
Agreement, the Adobe Board has considered, among other things, the opinion of
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Adobe's financial advisor,
delivered on June 22, 1995 to the effect that, based upon and subject to the
various considerations set forth in such opinion, as of the date of such
opinion, the Exchange Ratio is fair from a financial point of view to Adobe. See
"The Merger -- Adobe's Reasons for the Merger."
5
<PAGE>
Copies of the opinions of Hambrecht & Quist and Morgan Stanley, which set
forth the assumptions made, procedures followed, matters considered and scope of
review, are attached to this Proxy Statement/Prospectus as Annex B and Annex C,
respectively, and should be read carefully in their entirety. See "The Merger --
Fairness Opinions," which contains a discussion of the fees to be paid to
Hambrecht & Quist and Morgan Stanley and the conditions under which such fees
are payable. Certain portions of the fees to be paid to Hambrecht & Quist and
Morgan Stanley are contingent upon consummation of the Merger.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file a
certified agreement of merger with the Secretary of State of California. The
Merger will become effective upon such filing (the "Effective Time"), which,
assuming all conditions are met, is anticipated to occur shortly after the
Special Meeting. See "The Merger Agreement and Related Agreements -- Effective
Time of the Merger."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including but not limited to: (i) the approval and adoption of the
Merger Agreement by the requisite vote of the shareholders of Frame; (ii) the
absence of any restrictive court orders or any other legal restraints or
prohibitions, preventing or making illegal the consummation of the Merger; (iii)
the continuing accuracy in all material respects of the representations and
warranties made by each of Frame and Adobe in the Merger Agreement on and as of
the Effective Time; and (iv) the receipt by Adobe and Frame of certain opinions
regarding tax and accounting matters. See "The Merger Agreement and Related
Agreements -- Conditions to the Merger."
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the shareholders of Frame
under the circumstances specified in the Merger Agreement, including, without
limitation, by mutual written agreement of Adobe and Frame and by either party
if the Merger is not consummated by October 31, 1995.
Under certain circumstances Frame may be required to pay a termination fee
if the Merger Agreement is terminated. See "The Merger Agreement and Related
Agreements -- Fees and Expenses."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Adobe will mail a letter of transmittal
with instructions to all holders of record of Frame Common Stock as of the
Effective Time for use in surrendering their stock certificates in exchange for
certificates representing Adobe Common Stock and a cash payment in lieu of
fractional shares. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16, and it is a condition to Adobe's and
Frame's obligation to consummate the Merger that Adobe and Frame shall have
received letters from KPMG Peat Marwick LLP and Ernst & Young LLP to the effect
that such accounting treatment is appropriate. See "The Merger -- Accounting
Treatment."
6
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify as a tax-free reorganization under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
holders of Frame Common Stock will not recognize gain or loss for federal income
tax purposes by reason of the conversion of Frame Common Stock into Adobe Common
Stock, except for cash received in lieu of fractional shares or cash received by
dissenting shareholders. It is a condition to Adobe's and Frame's obligations to
consummate the Merger that they shall each have received opinions from their
respective tax counsel that the Merger will qualify as a tax-free reorganization
under Section 368 of the Code. See "The Merger -- Certain Federal Income Tax
Consequences."
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, the Merger may not be
consummated until notifications have been given and certain information has been
furnished to the Federal Trade Commission (the "FTC") and the Antitrust Division
of the United States Justice Department (the "Antitrust Division"), and
specified waiting period requirements have been satisfied. The waiting period
applicable to the Merger under the HSR Act expired on August 4, 1995. See "The
Merger -- Regulatory Matters."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Frame Board with respect to the
Merger, shareholders should be aware that certain directors and officers of
Frame have interests in the Merger that may present them with potential
conflicts of interest. See "The Merger -- Interests of Certain Persons in the
Merger."
OPERATIONS FOLLOWING THE MERGER
Following the Merger, Adobe plans promptly to integrate the operations,
facilities and personnel of the two companies. The result will be a single
sales, marketing and administration organization with a reduced headcount and
overhead structure. Adobe plans to continue to offer substantially all of the
existing products of the two companies.
7
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth the range of high and low sales prices
reported on the Nasdaq National Market for Adobe Common Stock for the fiscal
periods indicated. Share prices have been adjusted for a two-for-one stock
split, effective July 1993. The closing price for Adobe Common Stock on the
Nasdaq National Market on June 22, 1995, the last trading day prior to public
announcement of the Merger, was $65.50 and on August 24, 1995, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus,
was $61.63.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended November 26, 1993:
First Quarter................................................................................. 22.88 14.50
Second Quarter................................................................................ 35.75 18.50
Third Quarter................................................................................. 37.00 19.25
Fourth Quarter................................................................................ 24.63 16.25
Fiscal Year Ended November 25, 1994:
First Quarter................................................................................. 32.00 19.75
Second Quarter................................................................................ 34.50 21.50
Third Quarter................................................................................. 34.50 24.50
Fourth Quarter................................................................................ 38.50 29.75
Fiscal Year Ended December 1, 1995:
First Quarter................................................................................. 36.25 27.25
Second Quarter................................................................................ 58.75 34.25
Third Quarter (through August 24, 1995)....................................................... 66.50 52.75
</TABLE>
The following table sets forth the range of high and low sales prices
reported on the Nasdaq National Market for Frame Common Stock for the fiscal
periods indicated. The closing price for Frame Common Stock on the Nasdaq
National Market on June 22, 1995, the last trading day prior to public
announcement of the Merger, was $26.75 and on August 24, 1995, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus,
was $31.63. The equivalent market price per share of Frame Common Stock, based
upon the Exchange Ratio, would have been $34.06 and $32.04, respectively.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended December 31, 1993:
First Quarter................................................................................. 18.88 7.75
Second Quarter................................................................................ 8.00 5.25
Third Quarter................................................................................. 8.13 5.75
Fourth Quarter................................................................................ 10.75 7.25
Fiscal Year Ended December 31, 1994:
First Quarter................................................................................. 10.88 8.38
Second Quarter................................................................................ 12.50 8.75
Third Quarter................................................................................. 16.00 9.00
Fourth Quarter................................................................................ 17.75 14.00
Fiscal Year Ending December 31, 1995:
First Quarter................................................................................. 22.25 14.75
Second Quarter................................................................................ 31.75 18.00
Third Quarter (through August 24, 1995)....................................................... 33.00 27.63
</TABLE>
As of August 24, 1995, Adobe and Frame had approximately 1,856 and 288
holders of record, respectively. Adobe has paid cash dividends of $0.05 per
quarter on its common stock since the first quarter of 1993. Frame has not paid
any dividends on its common stock. Frame currently intends to retain earnings
for use in its businesses and does not anticipate paying cash dividends on its
common
8
<PAGE>
stock in the foreseeable future. The declaration of future dividends by Adobe is
within the discretion of the Adobe Board and will depend upon business
conditions, results of operations, the financial condition of Adobe and other
factors. In addition, the Merger Agreement prohibits, subject to certain
exceptions, the payment of any dividends (other than under certain circumstances
pursuant to the Mastersoft Agreement) by Frame, and the payment of any dividends
by Adobe, inconsistent with past practice.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of Adobe and Frame
has been derived from their respective historical consolidated financial
statements, and should be read in conjunction with such consolidated financial
statements and the notes thereto, which are incorporated by reference into this
Proxy Statement/Prospectus. The Adobe historical consolidated financial
statement data as of and for the six months ended May 27, 1994 and June 2, 1995
and the Frame historical consolidated financial statement data as of and for the
six months ended June 30, 1994 and June 30, 1995 have been prepared on the same
basis as the historical information derived from audited financial statements,
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring accruals, necessary for the fair presentation of the results of
operations for such periods.
On July 28, 1995, Frame acquired Mastersoft, a developer of file conversion,
viewing and document comparison software for original equipment manufacturers
and end users through a pooling of interests. Accordingly, Frame's supplemental
consolidated financial statements have been prepared to include the results of
operations, financial position and cash flows of Mastersoft for all periods
presented.
The following selected pro forma financial information of Adobe and Frame
has been derived from the pro forma combined condensed financial statements,
which give effect to the Merger as a pooling of interests, and should be read in
conjunction with such pro forma statements and the notes thereto, which are
included in this Proxy Statement/Prospectus. For pro forma purposes, Adobe's
consolidated statements of income for the three fiscal years ended November 27,
1992, November 26, 1993 and November 25, 1994, and for the six months ended May
27, 1994 and June 2, 1995 have been combined with the consolidated statements of
operations of Frame for the three fiscal years ended December 31, 1992, 1993 and
1994 and for the six months ended June 30, 1994 and June 30, 1995, giving effect
to the Merger as if it had occurred on November 30, 1991. For pro forma
purposes, Adobe's consolidated balance sheet as of June 2, 1995 has been
combined with the consolidated balance sheet of Frame as of June 30, 1995 giving
effect to the Merger as if it had occurred on June 2, 1995.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of future operating results
or financial position.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADOBE SYSTEMS INCORPORATED
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------------- SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 29, NOVEMBER 27, NOVEMBER 26, NOVEMBER 25, ----------------------------
1990 1991 1992 1993 1994 MAY 27, 1994 JUNE 2, 1995
------------ ------------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Statement of Income Data:
Revenue (1)................. $303,713 $397,183 $440,063 $520,237 $597,772 $ 285,685 $ 336,584
Merger transaction and
restructuring costs (2).... -- -- -- -- 72,183 -- --
Operating income (2)........ 92,413 107,742 74,466 92,231 30,985 53,526 96,058
Income before income
taxes...................... 101,556 118,279 79,448 105,060 39,997 57,394 108,332
Net income.................. 63,831 75,444 50,389 66,545 6,309 36,399 68,252
Net income per share........ $ 1.09 $ 1.23 $ 0.82 $ 1.11 $ 0.10 $ 0.59 $ 1.04
Shares used in computing net
income per share........... 58,403 61,371 61,193 60,144 61,621 61,529 65,343
Dividends declared per share
(3)........................ $ 0.12 $ 0.16 $ 0.16 $ 0.20 $ 0.20 $ 0.10 $ 0.10
<CAPTION>
NOVEMBER 30, NOVEMBER 29, NOVEMBER 27, NOVEMBER 26, NOVEMBER 25,
1990 1991 1992 1993 1994 JUNE 2, 1995
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Balance Sheet Data:
Cash and short-term
investments................ $145,832 $222,551 $230,980 $308,985 $400,360 $ 443,364
Working capital............. 163,676 251,721 247,878 318,215 363,631 431,792
Total assets................ 286,882 399,764 437,623 529,840 625,503 710,372
Shareholders' equity........ 223,590 338,079 351,743 414,102 456,771 569,472
Book value per share........ 3.99 5.73 6.09 7.06 7.47 8.99
<CAPTION>
FRAME TECHNOLOGY CORPORATION
YEARS ENDED
-------------------------------------------------------------------- SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------------
1990 1991 1992 1993 1994 JUNE 30, 1994 JUNE 30, 1995
------------ ------------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Statement of Operations Data:
Revenue..................... $ 37,781 $ 54,961 $ 79,968 $ 59,866 $ 77,845 $ 35,671 $ 46,575
Restructuring and other
charges.................... -- -- -- 25,800 -- -- --
Operating income (loss)..... 511 4,769 9,402 (33,697) 11,529 4,439 8,672
Income (loss) before income
taxes...................... 355 5,071 10,533 (32,702) 12,949 5,005 9,707
Net income (loss)........... 120 3,281 7,275 (32,392) 11,870 4,602 8,848
Net income (loss) per
share...................... $ 0.01 $ 0.29 $ 0.51 $ (2.21) $ 0.70 $ 0.28 $ 0.50
Shares used in computing net
income (loss) per share.... 9,327 11,352 14,366 14,644 16,851 16,341 17,765
Dividends declared per share
(4)........................ -- -- -- -- -- -- --
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1990 1991 1992 1993 1994 JUNE 30, 1995
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Balance Sheet Data:
Cash and short-term
investments................ $ 5,382 $ 11,512 $ 44,542 $ 35,729 $ 44,408 $ 46,714
Working capital............. 4,388 11,861 52,302 25,677 35,825 43,957
Total assets................ 22,276 38,039 88,226 58,918 75,149 84,156
Long-term debt, excluding
current portion............ 1,492 1,710 807 138 6 --
Shareholders' equity........ 8,166 20,676 67,028 34,160 49,432 59,621
Book value per share........ 0.91 1.88 4.65 2.29 3.12 3.66
<FN>
----------------------------------
(1) In connection with the merger with Aldus, Adobe discontinued marketing two
products, FreeHand and PhotoStyler, which generated aggregate revenue and
gross margin of $53.2 million and $35.4 million, respectively, in 1994, and
aggregate revenue and gross margin of $30.4 million and $20.0 million,
respectively, during the six months ended May 27, 1994.
(2) Reflects incremental costs incurred during 1994 in connection with the
merger with Aldus and the write-off of acquired in-process research and
development, totaling $72.2 million and $15.5 million, respectively.
(3) Amounts prior to the merger with Aldus on August 31, 1994 have not been
restated to reflect the effects of the pooling of interests as the amounts
were not material.
(4) Frame has not declared or paid any dividends on its common stock. Prior to
acquisition by Frame, Mastersoft made cash distributions as a Subchapter S
corporation of $21, $423, $607, $1,807 and $1,245 for each of the five
years in the period ended December 31, 1994 and $463 and $1,290 for the six
months ended June 30, 1994 and 1995.
</TABLE>
10
<PAGE>
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR --------------------------
---------------------------------------- MAY 27, JUNE 2,
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data (1):
Revenue (2).......................................... $ 520,031 $ 580,103 $ 675,617 $ 321,356 $ 383,159
Operating income (3)................................. 83,868 58,534 42,514 57,965 104,730
Income before income taxes........................... 89,981 72,358 52,946 62,399 118,039
Net income........................................... 57,664 40,769 15,882 39,652 74,562
Net income per share................................. $ 0.84 $ 0.60 $ 0.23 $ 0.57 $ 1.00
Shares used in computing net income per share........ 68,663 68,252 70,383 70,027 74,581
<CAPTION>
JUNE 2,
1995
------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
Cash and short-term investments...................... $ 490,078
Receivables.......................................... 107,132
Accrued expenses..................................... 103,741
Accrued merger transaction and restructuring costs... 38,500
Working capital...................................... 447,423
Total assets......................................... 799,348
Shareholders' equity................................. 602,723
Book value per share................................. 8.39
<FN>
------------------------
(1) Adobe and Frame estimate they will incur direct transaction costs of
approximately $13.5 million associated with the Merger consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. These nonrecurring costs will be
charged to operations during the fiscal quarter in which the merger is
consummated.
In addition, it is expected that as a result of the Merger, the combined
entity will incur significant restructuring costs estimated to be between
$15.0 million and $25.0 million. The restructuring costs will include
severance and outplacement, and the elimination of duplicate facilities,
including cancellation of leases.
The pro forma combined book value per share data give effect to estimated
direct transaction costs and restructuring costs as if such costs and
expenses had been incurred as of June 2, 1995, but the effects of these
costs have not been reflected in the pro forma combined statement of income
data.
(2) In connection with the merger with Aldus, Adobe discontinued marketing two
products, FreeHand and PhotoStyler, which generated aggregate revenue and
gross margin of $53.2 million and $35.4 million, respectively, in 1994, and
aggregate revenue and gross margin of $30.4 million and $20.0 million,
respectively, during the six months ended May 27, 1994.
(3) Reflects incremental costs incurred during 1994 in connection with the
merger with Aldus and the write-off of acquired in-process research and
development, totaling $72.2 million and $15.5 million, respectively.
</TABLE>
SEE PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION AND THE ACCOMPANYING
NOTES THERETO.
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Adobe
and Frame and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis assuming that 0.52
shares of Adobe Common Stock is issued in exchange for each share of Frame
Common Stock in the Merger. This data should be read in conjunction with the
selected historical financial data, the pro forma combined condensed financial
statements and the separate historical financial statements of Adobe and the
notes thereto and the supplemental consolidated financial statements of Frame
and the notes thereto, incorporated in or included elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results or financial position that would
have been achieved had the Merger been consummated at the beginning of the
periods presented and should not be construed as representative of future
operations.
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------- SIX MONTHS ENDED JUNE
NOVEMBER 27, NOVEMBER 26, NOVEMBER 25, 2,
1992 1993 1994 1995
------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Historical -- Adobe:
Net income per share (1),(2)................................. $ 0.82 $ 1.11 $ 0.10 $ 1.04
Cash dividends declared per share............................ 0.16 0.20 0.20 0.10
Book value per share (3)..................................... 6.09 7.06 7.47 8.99
<CAPTION>
YEARS ENDED
------------------------------------------- SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1992 1993 1994 1995
------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Historical -- Frame:
Net income (loss) per share.................................. $ 0.51 $ (2.21) $ 0.70 $ 0.50
Cash dividends declared per share (4)........................ -- -- -- --
Book value per share (3)..................................... 4.65 2.29 3.12 3.66
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------- JUNE 2,
1992 1993 1994 1995
------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Pro forma combined net income per share (5),(6):
Pro forma net income per Adobe share......................... $ 0.84 $ 0.60 $ 0.23 $ 1.00
Equivalent pro forma net income per Frame share (7).......... 0.44 0.31 0.12 0.52
Pro forma combined cash dividends declared per share (5):
Pro forma cash dividends declared per Adobe share............ 0.16 0.20 0.20 0.10
Equivalent pro forma cash dividends declared per Frame share
(7)......................................................... 0.08 0.10 0.10 0.05
<CAPTION>
NOVEMBER 25, JUNE 2,
1994 1995
------------- ---------------------
<S> <C> <C> <C> <C>
Pro forma combined book value per share (5),(6):
Pro forma book value per Adobe share......................... $ 7.37 $ 8.39
Equivalent pro forma book value per Frame share (7).......... 3.83 4.36
<FN>
----------------------------------
(1) In connection with the merger with Aldus, Adobe discontinued marketing two
products, FreeHand and PhotoStyler, which generated aggregate revenue and
gross margin of $53.2 million and $35.4 million, respectively, in 1994, and
aggregate revenue and gross margin of $30.4 million and $20.0 million,
respectively, during the six months ended May 27, 1994.
(2) Reflects incremental costs incurred during 1994 in connection with the
merger with Aldus and the write-off of acquired in-process research and
development, totaling $72.2 million and $15.5 million, respectively.
(3) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(4) Does not include Subchapter S distributions made by Mastersoft prior to
acquisition by Frame.
(5) Pro forma combined net income and dividend per share data reflect Adobe's
per share data for its fiscal years ended November 27, 1992, November 26,
1993 and November 25, 1994 and for the six months ended June 2, 1995, and
Frame's per share data for its fiscal years ended December 31, 1992, 1993,
and 1994 and for the six months ended June 30, 1995. The pro forma combined
net income per share data is based on the combined weighted average number
of common and common equivalent shares of Adobe Common Stock and Frame
Common Stock for each period based on the exchange ratio of 0.52 shares of
Adobe Common Stock for each share of Frame Common Stock. The pro forma
combined dividends declared data is based on Adobe's historical dividends
declared per share. The declaration of future dividends is within the
discretion of the Adobe Board and will depend upon business conditions, the
results of operations and financial condition of Adobe and other factors.
The pro forma combined book value per share data reflect Adobe's per share
data as of November 25, 1994 and June 2, 1995, and Frame's per share data
as of December 31, 1994 and June 30, 1995.
(6) Adobe and Frame estimate they will incur direct transaction costs of
approximately $13.5 million associated with the Merger consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. These nonrecurring costs will be
charged to operations during the fiscal quarter in which the Merger is
consummated.
In addition, it is expected that as a result of the Merger, the combined
entity will incur significant restructuring costs estimated to be between
$15.0 million and $25.0 million. The restructuring costs will include
severance and outplacement, and the elimination of duplicate facilities,
including cancellation of leases.
The pro forma combined book value per share data give effect to estimated
direct transaction and restructuring costs as if such costs had been
incurred as of June 2, 1995, but the effects of these costs have not been
reflected in the pro forma combined net income per share data.
(7) The Frame equivalent pro forma per share amounts are calculated by
multiplying the Adobe combined pro forma per share amounts by the Exchange
Ratio of 0.52 shares of Adobe Common Stock for each share of Frame Common
Stock.
</TABLE>
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RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF FRAME COMMON
STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE MERGER AND
THEREBY BECOME HOLDERS OF ADOBE COMMON STOCK. THESE FACTORS SHOULD BE CONSIDERED
IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS. FOR PERIODS FOLLOWING THE MERGER, REFERENCES
TO ADOBE SHOULD BE CONSIDERED TO REFER TO ADOBE AND ITS SUBSIDIARIES, INCLUDING
FRAME, UNLESS THE CONTEXT OTHERWISE REQUIRES.
INTEGRATION OF OPERATIONS. The integration of Frame's operations following
the Merger will require the dedication of management resources which will
temporarily detract from attention to the day-to-day business of the combined
company. The difficulties of integration may be increased by the necessity of
integrating personnel with disparate business backgrounds and combining two
different corporate cultures. Following the Merger, Adobe intends to seek to
reduce expenses by the elimination of duplicative or unnecessary facilities,
employees, marketing programs and other expenses. There can be no assurance that
Adobe will be able to reduce expenses in this fashion, that there will not be
high costs associated with such activities, that such reductions will not result
in a decrease in revenue or that there will not be other material adverse
effects of such activities. Such effects could materially reduce the earnings of
the combined company. Subsequent to the Merger, Adobe expects to incur a charge
in the quarter ending December 1, 1995, currently estimated to be in the range
of $28.5 million to $38.5 million, to reflect the combination of the two
companies, including the elimination of duplicate facilities, including
cancellation of leases, severance and outplacement costs and merger transaction
costs. This amount is a preliminary estimate only and is therefore subject to
change. In addition, there can be no assurance that Adobe will not incur
additional charges in subsequent quarters to reflect costs associated with the
Merger.
FIXED EXCHANGE RATIO. As a result of the Merger, each outstanding share of
Frame Common Stock will be converted into the right to receive 0.52 shares of
Adobe Common Stock. The Merger Agreement does not provide for adjustment of the
Exchange Ratio based on fluctuations in the price of Adobe Common Stock.
Accordingly, the value of the consideration to be received by the shareholders
of Frame upon the Merger will depend on the market price of Adobe Common Stock
at the Effective Time. The closing price for Adobe Common Stock on the Nasdaq
National Market on June 22, 1995, the last trading day prior to public
announcement of the Merger, was $65.50 and on August 24, 1995, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus,
was $61.63. There can be no assurance that the market price of Adobe Common
Stock on and after the Effective Time will not be lower than such prices. See
"Market Price and Dividend Information" and "-- Volatility of Stock Prices."
MANAGEMENT OF GROWTH. Adobe has experienced periods of significant growth.
Adobe's ability to manage its growth effectively will require it to continue to
improve its operational, financial and information management systems and
controls, and to attract, retain, motivate and manage employees effectively. The
failure of Adobe to manage growth in multiple areas of its business effectively
would have a material adverse effect on its results of operations.
FLUCTUATIONS IN OPERATING RESULTS. A variety of factors may cause
period-to-period fluctuations in the operating results of Adobe. Such factors
include, but are not limited to, the integration of the operations of Adobe and
Frame noted above, product mix, competitive pricing pressures, materials costs,
revenue and expenses related to new products and new versions or upgrades of
existing products, as well as delays in customer purchases in anticipation of
the introduction of new products or new versions or upgrades of existing
products by Adobe or its competitors. Adobe's customers generally order on an
as-needed basis, and therefore backlog at the beginning of a fiscal period
represents only a small percentage of the product sales anticipated in that
period. This lack of backlog impairs Adobe's ability to plan production and
inventory levels. The majority of Adobe's revenues in each quarter results from
orders received in that quarter. As a result, Adobe establishes its production,
inventory and operating expenditure levels based on anticipated revenue levels.
Thus, if sales do not occur when expected, expenditure levels could be
disproportionately high, and operating results
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for that quarter and potentially future quarters would be adversely affected.
Adobe generally experiences lower overall revenues in its first fiscal quarter
and lower revenues from its European operations in its third quarter. These
seasonal fluctuations may affect the predictability of the operating results of
Adobe.
INTERNATIONAL OPERATIONS. Adobe derives a substantial portion of its
revenues from its subsidiaries located in Europe and the Pacific Rim. While most
of the revenue of these subsidiaries is denominated in U.S. dollars, the
majority of their expense transactions are denominated in foreign currencies. As
a result, Adobe's operating results are subject to fluctuations in foreign
currency exchange rates. To date, Adobe has not engaged in any significant
activities to hedge its exposure to foreign currency exchange rate fluctuations.
NEW PRODUCT INTRODUCTIONS. Adobe's future sales will depend substantially
on its ability to continue to design and market new products and upgrades of
current products for existing and new computer platforms and operating
environments and to meet emerging industry standards. Without the introduction
of such new products and upgrades, Adobe's products may become technologically
obsolete, in which case revenues would be materially and adversely affected.
There can be no assurance that such new products, if and when introduced, will
receive market acceptance. Further, there can be no assurance that the
announcement of the new products will not cause customers to defer purchases of
existing products, which would have an adverse effect on results of operations.
In addition, Adobe anticipates that its continuing research and development
activities will require significant expenditures of funds in order to maintain
the competitive position of the combined company after the Merger. There can be
no assurance that such funding will be available either from internal sources or
from external sources on acceptable terms.
DEPENDENCE ON DISTRIBUTION CHANNELS. The successful distribution of Adobe's
application products depends to a great extent on the marketing and other
resources of a relatively small number of distributors, OEMs and resellers
(including retail stores and mail-order houses) which sublicense Adobe's
software as stand-alone products or bundle it for sale with other products. For
distribution of its systems products, Adobe depends on OEMs of computers,
printers, imagesetters and film recorders who incorporate those products into
their own. These distribution channels have been characterized by rapid change,
including consolidations and financial difficulties of certain distributors and
resellers and the emergence of new retailers such as general mass merchandisers.
The bankruptcy or other business difficulties of a distributor or reseller could
render Adobe's accounts receivable from such entity uncollectible, which could
have an adverse effect on the operating results and financial conditions of
Adobe. In addition, there are increasing numbers of companies competing for
access to these channels. Adobe's arrangements with its distributors and
resellers may generally be terminated at any time by either party without cause
upon giving the requisite notice. Distributors and resellers often carry
competing products. Retailers of Adobe's products typically have a limited
amount of shelf space and promotional resources for which there is intense
competition. There can be no assurance that distributors and resellers will
continue to purchase Adobe's products or provide Adobe's products with adequate
levels of shelf space and promotional support.
CUSTOMERS. There is no assurance that the present and potential customers
of Adobe and Frame will continue their current buying patterns without regard to
the Merger, and any significant delay or reduction in orders could have an
adverse effect on the near-term business and results of operations of the
combined business.
INTENSELY COMPETITIVE ENVIRONMENT; RAPID TECHNOLOGICAL CHANGE. The markets
for Adobe's products are intensely competitive and are characterized by rapid
technological change, rapid rates of product obsolescence and the frequent
introduction of competitive products with improved price/performance. Adobe's
competitors in its applications product lines include Quark, Inc., Microsoft
Corporation, Corel Corporation, Novell/WordPerfect and Macromedia, Inc. Adobe's
competitors in its systems product lines include the Hewlett-Packard Company,
Microsoft Corporation and a variety of PostScript language "clone" vendors. Some
of these competitors have substantially greater technical, financial,
14
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management and marketing resources than Adobe and have the competitive
advantages afforded by a much larger base of application software and a larger
installed customer base. Adobe expects substantial additional direct and
indirect competition. There can be no assurance that Adobe will have the
financial resources, management or technical expertise and the marketing,
distribution, service and support capabilities to compete successfully in the
future. Several companies have announced new desktop and electronic publishing
products that compete with products offered by Adobe, and additional new product
announcements can be expected. Adobe believes that the principal competitive
factors in the computer software market include product features and functions,
ease of use, product reliability, price/performance characteristics, brand
recognition, and availability and quality of support and training. Price
competition has become a major factor to date, and Adobe believes that price
competition, with corresponding reduced profit margins, could become an
increasingly significant factor in the future. To respond to these changes,
Adobe will be required to continue to develop new products, periodically enhance
its existing products, and compete effectively on the basis of price/
performance and support. See "-- New Product Introductions."
LIMITATIONS REGARDING INTELLECTUAL PROPERTY. Adobe's ability to compete may
be affected by its ability to protect proprietary information and to obtain
necessary licenses on commercially reasonable terms. The extent to which U.S.
and international copyright, patent and trade secret laws protect Adobe's
products, and the enforceability of end-user license agreements, have not been
fully determined, and the computer industry has seen a substantial increase in
litigation with respect to intellectual property matters. Such litigation or
changes in the interpretation of copyright, patent or trade secret laws could
expand or reduce the extent to which Adobe or its competitors are able to
protect their intellectual property or require changes in the design of products
which could have an adverse impact on Adobe. There can be no assurance that
Adobe will not be made a party to litigation regarding intellectual property
matters in the future. As is typical in the computer industry, Adobe has from
time to time been notified that it may be infringing certain patents and other
intellectual property rights of others. It may be necessary or desirable in the
future to obtain licenses relating to one or more products or relating to
current or future technologies, and there can be no assurance that Adobe will be
able to obtain these licenses or other rights on commercially reasonable terms.
VOLATILITY OF STOCK PRICES. As is frequently the case with stock of high
technology companies, the market price of Adobe's stock has been and may
continue to be quite volatile. Factors such as quarterly fluctuations in results
of operations, announcements of technological innovations or the introduction of
new products by Adobe or its competitors, and macroeconomic conditions in the
computer hardware and software industries generally, may have a significant
impact on the market price of the stock of Adobe. In addition, if revenue or
earnings in any quarter fail to meet expectations of the investment community,
there could be an immediate impact on Adobe's stock price. Furthermore, the
stock market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for many high
technology companies and which, on occasion, have been unrelated to the
operating performance of those companies. These broad market fluctuations may
adversely affect the market price of the stock of Adobe. See "Summary -- Market
Price Data."
DEPENDENCE ON KEY PERSONNEL. Adobe's success depends on a number of key
management and technical employees. Competition for highly skilled people with
extensive experience in systems and applications software and advanced
electronics is intense. Unavailability of certain of these people, or Adobe's
inability to attract additional qualified staff, could severely impair Adobe's
ability to carry on its business. This impairment could be particularly
significant if Adobe continues to grow and needs to hire, train and assimilate
large numbers of new employees.
15
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Frame
Common Stock in connection with the solicitation of proxies by the Frame Board
for use at the Special Meeting to be held at Frame's executive offices, 333 West
San Carlos Street, San Jose, California at 11:00 A.M., local time, on September
28, 1995, or at any adjournments or postponements thereof, for the purposes set
forth herein and in the accompanying Notice of Special Meeting of Shareholders
of Frame.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, shareholders of record of Frame as of the close of
business on August 11, 1995, will be asked to consider and vote upon proposals
(i) to approve and adopt the Merger Agreement and to approve the Merger and (ii)
to transact such other business as may properly come before the Special Meeting
or any postponements or adjournments thereof.
THE FRAME BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE AND IN THE BEST
INTERESTS OF FRAME AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE BY THE SHAREHOLDERS OF FRAME FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
RECORD DATE; VOTING AT THE SPECIAL MEETING; VOTE REQUIRED
The Frame Board has fixed August 11, 1995 as the record date for the
determination of the shareholders of Frame entitled to notice of and to vote at
the Special Meeting. Only holders of record of Frame Common Stock on the record
date will be entitled to notice of and to vote at the Special Meeting. As of
August 11, 1995, there were 16,300,661 shares of Frame Common Stock outstanding
and entitled to vote, which were held by approximately 301 holders of record.
Each record holder of Frame Common Stock on the record date is entitled to cast
one vote per share, exercisable in person or by properly executed proxy, on each
matter properly submitted for the vote of the shareholders of Frame at the
Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Frame Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. The
approval of the Merger Agreement and the Merger will require the affirmative
vote of the holders of at least a majority of the outstanding shares of Frame
Common Stock entitled to vote thereon. Abstentions and broker non-votes will not
be counted, but will have the practical effect of a vote against the Merger
Agreement and the Merger since they represent one less vote for approval.
As of August 15, 1995, directors, executive officers and affiliates of Frame
may be deemed to be the beneficial owners of approximately 13% of the
outstanding shares of Frame Common Stock. Each of the directors and executive
officers of Frame plans to vote or direct the vote of all shares of Frame Common
Stock over which he or she has voting control in favor of the Merger Agreement
and the Merger.
Mr. Charles N. Corfield has agreed with Adobe and Frame to vote his
2,143,333 shares of Frame Common Stock (approximately 13% of the currently
outstanding shares of Frame Common Stock) in favor of the Merger Agreement and
the Merger. Mr. Corfield has also given Adobe an irrevocable proxy to vote these
shares in favor of the Merger Agreement and the Merger. See "The Merger
Agreement and Related Agreements -- Shareholder Voting Agreement."
PROXIES
This Proxy Statement/Prospectus is being furnished to holders of Frame
Common Stock in connection with the solicitation of proxies by and on behalf of
the Frame Board for use at the Special Meeting.
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All shares of Frame Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting and not duly and timely revoked, will be voted at
the Special Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted FOR
approval and adoption of the Merger Agreement and approval of the Merger.
If any other matters are properly presented for consideration at the Special
Meeting (or any adjournments or postponements thereof), including, among other
things, consideration of a motion to adjourn or postpone the Special Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Frame at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Frame before taking the vote at the Special
Meeting or (iii) attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Frame Technology Corporation, 333 West
San Carlos Street, San Jose, California 95110, Attention: Secretary, or
hand-delivered to the Secretary of Frame at or before taking the vote at the
Special Meeting.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Frame in person or by telephone, telegram
or other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Frame has retained Kissel-Blake
Inc. at an estimated cost of $6,000, plus reimbursement of expenses, to assist
in their solicitations of proxies from brokers, nominees, institutions and
individuals. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding proxy solicitation materials to beneficial owners of
shares held of record by such custodians, nominees and fiduciaries, and Frame
will reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
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THE MERGER
GENERAL
Under the Merger Agreement, Merger Sub will merge with and into Frame, which
will continue as the surviving corporation. At the Effective Time of the Merger,
(i) each outstanding share of Frame Common Stock (other than shares of Frame
Common Stock to be cancelled and Dissenting Shares (as defined below)) will be
converted into the right to receive 0.52 shares of Adobe Common Stock, (ii) each
share of Frame Common Stock owned by Merger Sub, Adobe or any wholly owned
subsidiary of Adobe or Frame will be cancelled and (iii) each outstanding share
of common stock of Merger Sub will be converted into one share of Frame Common
Stock. No fractional shares of Adobe Common Stock will be issued in the Merger.
Frame will become a wholly owned subsidiary of Adobe, and the shareholders of
Frame will become shareholders of Adobe. See "The Merger Agreement and Related
Agreements -- Conversion of Shares."
Upon consummation of the Merger, each then-outstanding Frame Option will be
assumed by Adobe and will automatically be converted into an option to purchase,
subject to vesting, that number of shares of Adobe Common Stock that the holder
of such Frame Option would have been entitled to receive pursuant to the Merger
had such holder exercised such Frame Option in full immediately prior to the
Effective Time. The per share exercise price for the Adobe Common Stock issuable
upon exercise of such assumed Frame Option will be equal to the quotient of the
per share exercise price of such Frame Option at the Effective Time divided by
the Exchange Ratio. Adobe will file a Registration Statement on Form S-8 with
the Commission with respect to the issuance of Adobe Common Stock to be issued
upon exercise of the assumed Frame Options. See "The Merger Agreement and
Related Agreements -- Treatment of Frame Common Stock Options and Employee Stock
Purchase Plan."
Subject to the consummation of the Merger, on the Final Purchase Date, Frame
will apply the funds then credited to each Purchase Plan participant's payroll
withholding account to the purchase of whole shares of Frame Common Stock. See
"The Merger Agreement and Related Agreements -- Treatment of Frame Common Stock
Options and Employee Stock Purchase Plan."
BACKGROUND OF THE MERGER
From prior to 1992 to the present, Adobe and Frame have engaged in various
arm's-length business arrangements with each other in the ordinary course of
business. These arrangements have included software license and distribution
agreements pursuant to which Adobe software has been licensed, packaged and
marketed by Frame bundled with its FrameMaker product. In addition, Adobe has
licensed FrameMaker for its internal use.
In July 1993, representatives of Adobe and Frame entered into discussions
and meetings to explore the possibility of combining the companies, and the two
companies exchanged, subject to a mutual non-disclosure agreement, certain
nonpublic information concerning their respective businesses for the purpose of
considering such a business combination. In August 1993, these discussions
terminated as a result of the inability of the parties to agree on the
fundamental terms of a proposed business combination. Upon such termination,
each party returned the nonpublic information provided by the other party.
On May 5, 1995, L. George Klaus, Chairman of the Board, President and Chief
Executive Officer of Frame, and Thomas F. Kelly, Executive Vice President and
Chief Financial Officer of Frame, met with John Warnock, Chairman of the Board
and Chief Executive Officer of Adobe, at Adobe's offices to discuss their
respective business and strategic directions and potential business
opportunities for the two companies. Mr. Klaus and Dr. Warnock discussed the
possibility of a business combination between Adobe and Frame. Dr. Warnock
indicated that he would like to involve additional Adobe staff to evaluate the
financial aspects of a possible combination between Adobe and Frame.
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On a June 5, 1995 telephone call, Dr. Warnock and Mr. Klaus agreed to have
discussions to assess the merits of a strategic relationship or combination of
the companies. On June 7, 1995, Mr. Kelly and representatives of Hambrecht &
Quist met with representatives of Morgan Stanley to discuss the potential
benefits of a business combination between Adobe and Frame.
On June 10, 1995, Messrs. Klaus and Kelly met at Adobe's offices with Dr.
Warnock and Charles M. Geschke, President of Adobe, and M. Bruce Nakao, Senior
Vice President, Finance and Administration, Chief Financial Officer and
Treasurer of Adobe, to discuss business and product strategies. The senior
executives discussed their respective organization's technical strengths,
personnel and products.
On June 13, 1995, a telephonic meeting of the Frame Board, with its legal
advisors in attendance, was held to apprise them of the discussions between the
companies and the developments and course of the discussions to date. The
potential benefits of a strategic combination relative to proceeding as an
independent company were discussed. The Frame Board and Frame management also
discussed certain contacts made by Frame management and representatives of
Hambrecht & Quist with certain other companies with interests in the electronic
document authoring and management markets, which contacts had not resulted in an
alternative transaction to that under discussion with Adobe. After the meeting,
Frame management and Hambrecht & Quist continued their discussions with Adobe.
On June 14, 1995, after executing a mutual non-disclosure agreement allowing
for the exchange of nonpublic information and restricting Adobe from, among
other things, making or participating in unsolicited acquisition proposals
regarding Frame for a period of one year from June 1995, senior executives of
both companies met to discuss broad business and product strategies, including
technology developments, distribution channels, organizations and customers.
Later that same day, representatives of Adobe and Frame, together with their
financial advisors met to begin financial due diligence. During the remainder of
the week of June 12, representatives of Adobe and Frame, with the assistance and
input of their financial and legal advisors, continued their respective due
diligence investigations. On June 15, 1995, Adobe's legal advisors provided a
draft merger agreement to Frame and its legal and financial advisors.
On June 16, 1995, a telephonic meeting of the Board of Directors of Frame
was held at which Frame's financial and legal advisors were also in attendance.
Frame's management reported on the status of the discussions with Adobe and on
the potential benefits of a strategic business combination with Adobe.
Representatives of Hambrecht & Quist presented their analysis of Frame's
strategic alternatives, the future prospects for Adobe and the potential
benefits of a business combination between Frame and Adobe. Representatives of
Hambrecht & Quist also reviewed with the Frame Board the prior contacts with
certain other companies with interests in the electronic document authoring and
management markets. The Frame Board authorized management to continue
discussions with Adobe.
On June 16, 1995, at a special meeting of the Adobe Board (which Adobe
director William R.
Hambrecht did not attend, on the advice of counsel, due to the fact that
Hambrecht & Quist is the financial advisor to Frame), the possible merger with
Frame was discussed. The Adobe Board met with and heard presentations from
Adobe's management and financial and legal advisors concerning the results of
their evaluation of Frame and the status of the discussions. The financial and
legal advisors discussed the terms of the proposed merger. It was generally
agreed that if acceptable terms could be negotiated, such a merger would be
strategically in Adobe's interest and the Adobe Board instructed management to
continue negotiations with Frame.
On June 17, 1995, the parties' financial advisors met to discuss the
possible financial terms of a merger such as the appropriate exchange ratio and
other material terms to be included in a revised draft merger agreement. No
agreement was reached.
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Negotiations regarding the terms of the draft merger agreement commenced on
June 17, 1995 at a meeting of Adobe, Frame and their respective legal advisors.
The parties and their respective financial and legal advisors met again on June
19, at which time the parties reached preliminary agreement on the exchange
ratio of 0.52 shares of Adobe Common Stock for each share of Frame Common Stock,
subject to negotiation of the other terms of the Merger Agreement and approval
by their respective Boards of Directors. Negotiation of the terms of the Merger
Agreement continued from June 20 through June 22.
On June 21, 1995, a meeting of the Frame Board was held with Frame
management and its financial and legal advisors in attendance. The status of the
negotiations with Adobe and the terms of the proposed merger agreement were
discussed. Hambrecht & Quist presented to the Frame Board its analysis of the
fairness of the transaction and indicated that it was prepared to deliver its
opinion to the effect that the proposed merger was fair from a financial point
of view to Frame and its shareholders. Following such discussions, the Frame
Board unanimously approved the Merger, subject to final agreement on remaining
terms of the proposed merger agreement, and authorized management, subject to
such final agreement, to enter into the Merger Agreement.
At a meeting on June 21, 1995 (which Mr. Hambrecht also did not attend), the
Adobe Board met with Adobe's management and financial and legal advisors and
reviewed the history of the negotiations and the terms of the proposed merger
agreement. After these presentations and discussion, the Adobe Board unanimously
approved the Merger, subject to final agreement on certain remaining terms of
the proposed merger agreement and completion of the due diligence investigation.
On June 22, 1995, the parties reached final agreement on the terms of the
Merger Agreement, and each company executed and delivered the Merger Agreement
and related documents. The Merger Agreement was announced immediately thereafter
by the issuance of a joint press release.
FRAME'S REASONS FOR THE MERGER; RECOMMENDATION OF THE FRAME BOARD
The Frame Board believes that the Merger will be beneficial to Frame given
the complementary nature of the two companies' product lines and the opportunity
for the potential realization of Frame's strategic objective of becoming an
integrated document technology company as a result of the Merger. The Frame
Board believes that for the following additional reasons the Merger will be
beneficial to Frame: (i) combination with Adobe will create a combined company
with significantly greater resources, a more diversified product line and
greater financial and marketing capabilities than those of Frame alone and may
enable the combined company to compete more effectively with competitors having
greater resources and broader product offerings than Frame; (ii) the combination
with Adobe will provide an opportunity for expanded distribution of Frame's
products as Frame has traditionally been stronger in sales for the UNIX platform
while Adobe has been stronger in sales for the Macintosh and Windows platforms;
(iii) Adobe's larger and more established international operations may enhance
and accelerate Frame's ability to distribute its products internationally; and
(iv) the Frame shareholders will have the opportunity to receive, on a tax-free
basis, Adobe Common Stock that will enable them to participate in opportunities
for growth in the combined company after the Merger.
The Frame Board also considered a variety of potentially negative factors in
its deliberations concerning the Merger, including, but not limited to: (i) the
risk that the potential benefits of the Merger might not be fully realized; (ii)
the possible restructuring of Frame and a reduction in the number of employees
and consolidation of facilities; (iii) the possibility that the Merger might not
be consummated and the effect of public announcement of the Merger on (a)
Frame's sales and operating results, (b) Frame's ability to attract and retain
key management, marketing and technical personnel and (c) progress of certain
development projects; and (iv) the other risks described under "Risk Factors."
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The Frame Board also considered, among other matters: (i) information
concerning Adobe's and Frame's respective businesses, prospects, financial
performance and condition, operations, technology, management and competitive
position; (ii) the financial condition, results of operations and businesses of
Adobe and Frame before and after giving effect to the Merger; (iii) current
financial market conditions and historical market prices, volatility and trading
information with respect to Adobe Common Stock and Frame Common Stock; (iv) the
consideration to be received by Frame shareholders in the Merger and the
relationship between the market value of Adobe Common Stock to be issued in
exchange for Frame Common Stock and Frame's per share reported earnings,
earnings before interest and taxes and certain other measures; (v) the belief
that the terms of the Merger Agreement, including the parties' representations,
warranties and covenants, and the conditions to their respective obligations are
reasonable; (vi) Frame's prospects as an independent company; (vii) the
potential for other third parties to enter into strategic relationships with or
to acquire Frame; (viii) the ability of Frame, after receiving the advice of
counsel that its fiduciary duties require it to do so, to consider and negotiate
other unsolicited, bona fide, superior acquisition proposals and, in such event,
to terminate the Merger Agreement, subject to the payment of a fee to Adobe;
(ix) the financial presentations by Hambrecht & Quist, including Hambrecht &
Quist's opinion (which concluded that the consideration to be received by the
Frame shareholders pursuant to the Merger was fair from a financial point of
view to Frame and its shareholders); (x) the impact of the Merger on Frame's
customers and employees; and (xi) reports from management, financial advisors
and legal advisors as to the results of their due diligence investigation of
Adobe.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Frame Board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
ADOBE'S REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger Agreement, the Adobe Board
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Adobe for, among other things, the following
reasons: (i) Adobe should be able to benefit from Frame's strong UNIX
distribution channel; (ii) Frame products should benefit from Adobe's strong
Macintosh and Windows distribution channels and international presence; (iii)
the complementary nature of Adobe's and Frame's products; (iv) the enhancement
of Adobe's ability to compete in the Internet and other emerging document
communication markets; and (v) the financial presentations by Morgan Stanley,
including its opinion that the Exchange Ratio is fair from a financial point of
view to Adobe.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, Adobe plans promptly to integrate the operations,
facilities and personnel of the two companies. The result will be a single
sales, marketing and administration organization with a reduced headcount and
overhead structure. Adobe plans to continue to offer substantially all of the
existing products of the two companies.
FAIRNESS OPINIONS
FRAME. Frame engaged Hambrecht & Quist to act as its financial advisor in
connection with the Merger and to render an opinion to the Frame Board as to the
fairness, from a financial point of view, to Frame and its shareholders of the
consideration to be received by such shareholders in the Merger. Such opinion
was requested by the Frame Board in connection with the Frame Board's
obligations to Frame's shareholders under applicable fiduciary principles.
Hambrecht & Quist rendered its written opinion, dated June 22, 1995, that, as of
such date, the consideration to be received by the holders of Frame Common Stock
in the Merger is fair to Frame and such shareholders from a financial point of
view. Hambrecht & Quist expressed no opinion as to the adequacy of any
consideration received in the Merger by Adobe or any of its affiliates, any
holder of unvested options to acquire shares of Frame Common Stock or any holder
of Frame Common Stock that perfects its appraisal rights, if any, under
applicable laws. A copy of Hambrecht & Quist's opinion dated June 22, 1995,
which sets forth the assumptions made, matters considered, the scope and
limitations of the review undertaken and the
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procedures followed by Hambrecht & Quist, is attached as Annex B to this Joint
Proxy Statement/ Prospectus. No limitations were placed on Hambrecht & Quist by
the Frame Board with respect to the investigation made or the procedures
followed in preparing and rendering its opinion. Hambrecht & Quist's opinion
addressed only the fairness from a financial point of view to Frame and its
shareholders of the consideration to be received by such shareholders in the
Merger and is not a recommendation to any shareholder of Frame as to how to vote
at the Frame Special Meeting.
In arriving at its written opinion, among other things, Hambrecht & Quist:
(i) reviewed the publicly available consolidated financial statements of Frame
for recent years and interim periods to date and certain other relevant
financial and operating data of Frame made available to Hambrecht & Quist from
published sources and from the internal records of Frame; (ii) discussed with
certain members of the management of Frame the business, financial condition and
prospects of Frame; (iii) reviewed certain financial and operating information,
including certain projections, relating to Frame and discussed such information
with certain members of the management of Frame; (iv) reviewed the publicly
available consolidated financial statements of Adobe for recent years and
interim periods to date and certain other relevant financial and operating data
of Adobe made available to Hambrecht & Quist from published sources; (v)
discussed with certain members of the management of Adobe the business,
financial condition and prospects of Adobe; (vi) reviewed certain financial and
operating information relating to Adobe and discussed such information with
certain members of the management of Adobe; (vii) reviewed the recent reported
prices and trading activity for the common stock of Frame and Adobe and compared
such information and certain financial information of Frame and Adobe with
similar information for certain other companies engaged in businesses Hambrecht
& Quist considers comparable to those of Frame and Adobe; (viii) reviewed the
financial terms, to the extent publicly available, of certain transactions
Hambrecht & Quist deemed comparable to the Merger; (ix) discussed with parties
other than Adobe the possibility of a transaction or series of transactions
involving a business combination with Frame; (x) participated in discussions and
negotiations among Frame, Adobe and their respective representatives; (xi)
reviewed the Merger Agreement; and (xii) performed such other analyses and
examinations and considered such other information, financial studies, analyses
and investigations and financial, economic and market data as Hambrecht & Quist
deemed relevant.
Hambrecht & Quist has not assumed any responsibility for independent
verification of the information concerning Frame or Adobe considered in
connection with its review of the Merger and, for purposes of its fairness
opinion, Hambrecht & Quist has assumed and relied upon the accuracy and
completeness of all such information. Hambrecht & Quist has not prepared or
obtained any independent valuation or appraisal of the assets or liabilities of
Frame or Adobe, nor has Hambrecht & Quist conducted a physical inspection of the
properties or facilities of Frame or Adobe. Hambrecht & Quist performed its
analyses using projections it prepared based on public estimates of Frame's
financial projections through fiscal year 1996, adjusted to take into account
the financial effects of the Mastersoft Acquisition (estimates of which were
provided by Frame), and on projections based upon assumed growth rates and
margin estimates thereafter. No revenue or cost synergies were assumed and no
adjustment was made to conform Frame's calendar year with Adobe's November
fiscal year end; instead the fiscal year of each company was assumed to end in
November (as a result, Frame's projected January to December results were
combined with Adobe's projected December to November results). With respect to
the financial forecasts and projections relating to Frame and the Mastersoft
Acquisition made available to Hambrecht & Quist and used in its analysis,
Hambrecht & Quist assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of the
combined company. For purposes of its opinion, Hambrecht & Quist assumed that
neither Frame nor Adobe is a party to any pending transactions, including
external financings, recapitalizations or merger discussions, other than the
Merger, the Mastersoft Acquisition and those in the ordinary course of
conducting their respective businesses. Hambrecht & Quist has also assumed that
the Merger will qualify as a tax-free reorganization under the Code and will be
accounted for as a pooling of interests. Hambrecht & Quist's opinion is
necessarily based on market,
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economic, financial and other conditions as they existed and could be evaluated
on the date of its opinion, and any change in such conditions would require a
reevaluation of its opinion. Hambrecht & Quist expresses no opinion as to the
price at which Adobe Common Stock will trade.
In connection with its opinion, Hambrecht & Quist performed a variety of
financial analyses. The following is a summary of financial analyses performed
by Hambrecht & Quist and reviewed with the Frame Board at or before the meeting
of the Frame Board on June 21, 1995. Hambrecht & Quist indicated to the Frame
Board its ability to deliver its written opinion at the June 21, 1995 meeting of
the Frame Board and delivered its written opinion on June 22, 1995.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to particular
circumstances, and, therefore, such an opinion is not readily susceptible to
summary description. The summary of the Hambrecht & Quist analyses set forth
below does not purport to be a complete description of the presentation by
Hambrecht & Quist to the Frame Board. In arriving at its opinion, Hambrecht &
Quist did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Hambrecht & Quist
believes that its analyses and the summary set forth below must be considered as
a whole and that selecting portions of its analyses, without considering all
analyses, or portions of the following summary, without considering all factors
and analyses, could create an incomplete view of the processes underlying the
analyses set forth in the Hambrecht & Quist presentation to the Frame Board and
its opinion. In performing its analyses, Hambrecht & Quist made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Frame and
Adobe. The analyses performed by Hambrecht & Quist are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Additionally, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
CONTRIBUTION ANALYSIS. Hambrecht & Quist analyzed the contribution of each
of Frame and Adobe to certain income statement and balance sheet categories of
the pro forma consolidated organization, including revenues, gross profit,
operating income, net income, book value and total assets. This contribution
analysis was then compared to the pro forma ownership percentage of Frame's and
Adobe's shareholders on a fully diluted basis in the pro forma consolidated
organization.
Hambrecht & Quist observed that Frame shareholders are expected to own
approximately 12.9% of the consolidated organization's equity on a fully diluted
basis immediately after the Effective Time, and that Adobe shareholders are
expected to own approximately 87.1% of the consolidated organization's equity
immediately after the Effective Time. For their respective fiscal years ended in
1994, it was estimated that Frame and Adobe contributed approximately 10.8% and
89.2%, respectively, of combined revenues; approximately 11.25% and 88.75%,
respectively, of combined gross profit; approximately 7.33% and 92.67%,
respectively, of combined operating income (excluding restructuring charges);
approximately 13.62% and 86.38%, respectively, of combined net income (excluding
restructuring charges); approximately 9.38% and 90.62%, respectively, of
combined book value; and approximately 10.33% and 89.67%, respectively, of
combined total assets. For the year deemed ended November 30, 1995, it was
estimated that Frame and Adobe will contribute approximately 12.61% and 87.39%,
respectively, of combined revenues; approximately 13.27% and 86.73%,
respectively, of combined gross profit; approximately 9.63% and 90.37%,
respectively, of combined operating income; approximately 13.29% and 86.71%,
respectively, of combined net income; approximately 10.10% and 89.90%,
respectively, of combined book value; and approximately 11.13% and 88.87%,
respectively, of combined total assets. For the year deemed ended November 30,
1996, it was estimated that Frame and Adobe will contribute approximately 13.13%
and 86.87%, respectively, of
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combined revenues; approximately 13.85% and 86.15%, respectively, of combined
gross profit; approximately 10.67% and 89.33%, respectively, of combined
operating income; approximately 12.59% and 87.41%, respectively, of combined net
income; approximately 10.63% and 89.37%, respectively, of combined book value;
and approximately 11.6% and 88.4%, respectively, of combined total assets.
The contribution analysis revealed that for the time periods listed above
the percentage of the consolidated organization's equity on a fully diluted
basis to be received by Frame shareholders (12.9%) exceeded the percentage
contributed by Frame for each of the income statement and balance sheet
categories except for net income for the fiscal year ended in 1994 and the
fiscal year deemed ended November 30, 1995, revenue for the fiscal year deemed
ended November 30, 1996 and gross profit for the fiscal years deemed ended
November 30, 1995 and November 30, 1996. Hambrecht & Quist observed that the
effective tax rates of Frame and Adobe in fiscal 1994 were 10% and 84.2% (this
high rate was due primarily to one-time non-deductible merger transaction and
restructuring costs), respectively and that the effective tax rates of Frame and
Adobe in fiscal 1995 were projected to be 9% and 37%. Frame's tax rate is below
the statutory rate primarily because of its utilization of net operating loss
carryforwards. If Frame were to be taxed at the statutory rate, its
shareholder's ownership percentage would exceed its share of net income in all
years.
PRO FORMA ANALYSIS. Hambrecht & Quist analyzed the pro forma impact of the
Merger on Frame's earnings per share both on a fully taxed basis and assuming
utilization of Frame's net operating loss carryforwards. In conducting this
analysis, Hambrecht & Quist did not assume that the Merger would result in any
cost reductions or in any increased revenue for the combined company and
excluded transaction costs and other Merger-related expenses. The analysis
indicated that the earnings per share of the pro forma consolidated company
would be lower in 1995 than those of Frame on a stand-alone basis under both tax
assumptions but that after 1995, in the case in which Frame's net operating
losses are assumed to be utilized, and after 1996, in the case in which full
taxation is assumed, the earnings per share of the combined company would be
higher after the Merger and the Merger would therefore be accretive to Frame's
shareholders. A similar analysis comparing the earnings per share of the pro
forma consolidated company to those of Adobe indicated that the Merger would be
dilutive to Adobe (assuming no expense savings or revenue benefits).
DISCOUNTED CASH FLOW ANALYSIS. Hambrecht & Quist analyzed the theoretical
valuation of Frame based on the unlevered discounted cash flow of the projected
financial performance of Frame. Unlevered free cash flow is derived by taking
tax-affected earnings before interest and taxes ("EBIT"), adding non-cash
charges for the relevant period, and subtracting other anticipated cash needs
for the relevant periods. To estimate the total present value of Frame, before
giving effect to its capital structure, Hambrecht & Quist discounted to present
value (i) the projected stream of after-tax cash flows and (ii) the terminal
value (the hypothetical value derived by selling the enterprise in its entirety
at some future date) of Frame's business, using discount rates varying from
13.0% to 17.0%. The terminal value of Frame was based on multiples of 12, 14 and
16 times the projected EBIT for the year 2000. At a 13.0% discount rate, the
foregoing analysis yielded implied equity value for Frame of $616.0 million to
$769.2; at a 14.0% discount rate, $588.3 million to $733.4 million; at a 15.0%
discount rate, $561.9 million to $699.5 million; at a 16.0% discount rate,
$536.9 million to $667.2 million; and at a 17.0% discount rate, $513.1 million
to $636.7 million. The consideration to be received by Frame either exceeded or
lay within the implied equity value ranges yielded by the discounted cash flow
analysis except at the 13.0% discount rate, where it was just below the range.
ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES. Hambrecht & Quist
compared various multiples and ratios of income statement categories and
historical balance sheet figures for other publicly traded companies that
Hambrecht & Quist deemed to be comparable to Frame. Such data and ratios
included the implied enterprise valuation and the implied equity valuation
(enterprise valuation plus cash less debt), based upon the latest 12-month
("LTM") net income, LTM revenues, LTM EBIT, LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA") and book value.
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Companies used as comparable to Frame included applications and database
software companies such as Borland International, Intuit, Lotus Development,
Microsoft Corp., Novell Inc., Symantec, Informix Corp., Oracle Systems Corp. and
Sybase Inc. The analysis of comparable companies yielded a mean multiple of 4.2
times LTM revenue, 24.8 times LTM EBIT, 17.0 times LTM EBITDA, 38.7 times LTM
net income and 8.5 times book value. These multiples yielded implied enterprise
valuations and implied equity valuations as follows: multiple of revenue, $324
million and $368 million, respectively; multiple of EBIT, $285 million and $329
million, respectively; multiple of EBITDA, $273 million and $317 million,
respectively; multiple of net income, $413 million and $456 million; and
multiple of book value, $395 million and $439 million, respectively. As of the
date of Hambrecht & Quist's opinion, the consideration to be received by Frame
exceeded the implied values yielded by the average multiples for each of the
income statement and balance sheet categories.
ANALYSIS OF SELECTED MERGER AND ACQUISITION TRANSACTIONS. Hambrecht & Quist
also reviewed publicly available information on certain mergers and acquisitions
of all or part of applications and database software companies. In examining
these transactions, Hambrecht & Quist analyzed certain income statement and
balance sheet parameters of the acquired company relative to the consideration
offered. Multiples analyzed included consideration offered based upon LTM
revenues, LTM EBIT, LTM EBITDA, net operating assets, LTM net income, LTM cash
flow from operations and book value.
The transactions analyzed included the following completed and pending
transactions: IBM/ Lotus Development Corp. (pending), McAfee Associates/Saber
Software (pending), Computer Associates/Legent Corp. (pending), PLATINUM
Technology/Trinzic Corp. (pending), VMARK Software/ Easel Corp.,
Sybase/Powersoft, Macromedia Inc./Altsys Corp., Avid Technology/Digidesign,
Oracle Corp./Digital Equipment Corp. -- Database Division, Computer
Associates/ASK Group, Pearson PLC/ Software Toolworks, Adobe/Aldus, Microsoft
Corp./SoftImage, Rational/Verdix Corp., Intuit/Chipsoft, Jostens Inc./Wicat
Systems and Legent Corp./Goal Systems International. The consideration offered
in the foregoing transactions was an average multiple of 3.5 times revenue, 23.8
times EBITDA, 31.2 times EBIT, 10.3 times net operating assets, 41.0 times
reported net income, 5.9 times book value and 25.4 times cash flow from
operations. These multiples yielded implied enterprise valuations and implied
equity valuations, as follows: multiple of revenue, $272 million and $316
million, respectively; multiple of EBIT, $359 million and $402 million,
respectively; multiple of EBITDA, $382 million and $426 million, respectively;
multiple of net income, $439 million and $483 million, respectively; multiple of
cash flow from operations, $233 million and $277 million, respectively; multiple
of book value, $264 million and $308 million, respectively; and multiple of net
operating assets, $81 million and $125 million, respectively. As of the date of
Hambrecht & Quist's opinion, the consideration to be received by Frame exceeded
the implied values yielded by the average multiples for each of the income
statement and balance sheet categories.
Hambrecht & Quist also reviewed the average premium to market paid in the
completed and pending transactions based upon market prices one day and 28 days
in advance of announcement of the transaction. The average premium to market at
one day and 28 days prior to public announcement was 39.3% and 42.7%,
respectively, with high and low premiums of 96.9% and 1.1% at one day and 101.2%
and 11.2% at 28 days. As of the date of Hambrecht & Quist's opinion, the premium
to be paid by Adobe (30.3% at one day and 45.8% at 28 days) exceeded the average
at 28 days and was below the average at one day.
No company or transaction used in the above analysis is identical to Frame,
Adobe or the Merger. Accordingly, an analysis of the results of the foregoing is
not mathematical; rather, it involves complex considerations and judgments
concerning the differences in financial and operating characteristics of the
company and other factors that could affect the public trading values of the
companies or company to which they are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion, which is attached as
Annex B to this Proxy Statement/Prospectus.
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In the past, Hambrecht & Quist has provided investment banking and other
financial advisory services to Frame and to Adobe and has received customary
fees for rendering these services. Hambrecht & Quist has provided research
coverage with respect to the securities of Frame and Adobe and from time to time
recommended the purchase of Frame securities and Adobe securities. In the
ordinary course of business, Hambrecht & Quist acts as a market maker and broker
in the publicly traded securities of each of Frame and Adobe and receives
customary compensation in connection therewith. In the ordinary course of
business, Hambrecht & Quist actively trades in the publicly traded securities of
each of Frame and Adobe for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, William R. Hambrecht, Chairman of Hambrecht &
Quist Group, which owns a majority of the equity of, and controls, Hambrecht &
Quist, is a member of the Adobe Board.
Hambrecht & Quist is an internationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate restructurings, strategic
alliances, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. The Frame Board selected Hambrecht & Quist to act as its financial
advisor in connection with the Merger on the basis of such experience and its
knowledge of Frame through prior engagements.
Pursuant to the terms of Hambrecht & Quist's engagement letter with Frame,
Frame has agreed to pay to Hambrecht & Quist upon consummation of the Merger an
advisory fee of 0.92% of the aggregate consideration received by the Frame
shareholders in connection with the Merger. In the event that Frame becomes a
party to a transaction that does not constitute a sale of Frame arising out of,
or in connection with, Hambrecht & Quist's role as financial advisor, Frame has
agreed to pay Hambrecht & Quist a fee consistent with market practice. Frame
also has agreed to reimburse Hambrecht & Quist for its reasonable out-of-pocket
expenses, including fees and expenses of counsel, and to indemnify Hambrecht &
Quist against certain liabilities, including liabilities under the federal
securities laws or relating to or arising out of Hambrecht & Quist's engagement
as financial advisor.
ADOBE. Adobe retained Morgan Stanley to act as its financial advisor in
connection with the Merger. Morgan Stanley was selected by the Adobe Board to
act as Adobe's financial advisor based on Morgan Stanley's qualifications,
expertise and reputation, as well as Morgan Stanley's investment banking
relationship and familiarity with Adobe.
Morgan Stanley rendered to the Adobe Board following the meeting on June 21,
1995 its written opinion dated as of June 22, 1995 (the "Morgan Stanley
Opinion") that, as of such date, based upon and subject to the various
considerations set forth in the opinion, the Exchange Ratio pursuant to the
Merger Agreement was fair from a financial point of view to Adobe.
THE FULL TEXT OF THE MORGAN STANLEY OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS. MORGAN STANLEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS
OF THE EXCHANGE RATIO TO ADOBE FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF FRAME COMMON STOCK AS TO HOW TO
VOTE AT THE FRAME SPECIAL MEETING. THE SUMMARY OF THE MORGAN STANLEY OPINION SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
In rendering its opinion, Morgan Stanley, among other things: (i) analyzed
certain publicly available financial statements and other information of Frame
and Adobe, respectively; (ii) analyzed certain internal financial statements and
other financial and operating data concerning Frame prepared by the management
of Frame; (iii) analyzed certain financial projections prepared by the
management of Frame; (iv) discussed the past and current operations and
financial condition and the prospects of Frame with senior executives of Frame;
(v) discussed the past and current operations and financial condition and the
prospects of Adobe with senior executives of Adobe, and analyzed the pro forma
impact of the Merger on Adobe's earnings per share and consolidated
capitalization; (vi) reviewed the reported prices and trading activity for the
Frame Common Stock; (vii) compared the
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financial performance of Frame and the prices and trading activity of the Frame
Common Stock with that of certain other comparable publicly-traded companies and
their securities; (viii) reviewed the reported prices and trading activity for
the Adobe Common Stock; (ix) compared the financial performance of Adobe and the
prices and trading activity of the Adobe Common Stock with that of certain other
comparable publicly-traded companies and their securities; (x) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (xi) reviewed and discussed with the senior management
of Adobe the strategic rationale for the Merger and the benefits of the Merger
to Adobe; (xii) participated in discussions and negotiations among
representatives of Frame and Adobe and their financial and legal advisors;
(xiii) reviewed the Merger Agreement; and (xiv) performed such other analyses as
Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for purposes of
rendering its opinion. With respect to the financial projections, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Frame. Morgan Stanley also relied upon, without independent verification, the
estimate of Adobe's management of the cost savings and other synergies that may
be achieved if the Merger is consummated. Morgan Stanley also relied upon,
without independent verification, Adobe management's assessment of the validity
of, and the risks associated with, Frame's products and technology. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of Adobe or Frame, nor was it furnished with any such appraisals.
Morgan Stanley assumed that the Merger will be accounted for as a
"pooling-of-interests" business combination in accordance with U.S. Generally
Accepted Accounting Principles and will be consummated in accordance with the
terms set forth in the Merger Agreement. Morgan Stanley's opinion stated that it
is necessarily based on economic, market and other conditions as in effect on,
and the information made available to Morgan Stanley as of, the date of such
opinion.
The following is a brief summary of certain financial analyses performed by
Morgan Stanley and reviewed with the Adobe Board in connection with the Morgan
Stanley Opinion:
COMPARATIVE STOCK PRICE PERFORMANCE. As part of its analysis, Morgan
Stanley reviewed the recent stock market performance of Frame Common Stock and
Adobe Common Stock and compared such performance to that of three groups of
software companies: Microsoft Corporation, Novell, Inc., and Symantec
Corporation (the "Business Productivity Software Comparables"); Autodesk, Inc.,
Corel, Inc., Frame and Adobe (the "Computer Design Software Comparables"); and
Davidson & Associates, Inc., Electronic Arts, Inc., Broderbund, Inc., The
Learning Company, Inc. and American Online, Inc. (the "New Media Software
Comparables"). Morgan Stanley observed that over the period January 1, 1994 to
June 20, 1995, Frame outperformed the New Media Software Comparables index, the
Computer Design Software Comparables index (excluding Frame) and the Business
Productivity Software Comparables index by 83%, 98% and 139%, respectively, and
Adobe outperformed the New Media Software Comparables index, the Computer Design
Software Comparables index (excluding Adobe) and the Business Productivity
Software Comparables index by 74%, 82% and 130%, respectively. In addition,
Morgan Stanley observed that over the period July 30, 1993 to June 20, 1995
Frame outperformed Adobe by 88%.
EXCHANGE RATIO ANALYSIS. Morgan Stanley reviewed the ratios of the prices
of Frame Common Stock to Adobe Common Stock over various periods ending June 20,
1995 (the trading date preceding Morgan Stanley's presentation at the June 21,
1995 meeting of the Adobe Board) and computed the premium represented by the
Exchange Ratio over these ratios. The average of the ratios of closing stock
prices of Frame Common Stock and Adobe Common Stock for the various periods
ending June 20, 1995 were 0.545 since February 12, 1992; 0.410 for the previous
two years; 0.445 for the previous year; 0.467 for the previous 180 days; 0.430
for the previous 90 days; 0.404 for the previous 60 days; 0.429 for the previous
30 days; 0.435 for the previous 10 days; and 0.399 for June 20, 1995.
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Morgan Stanley observed that the Exchange Ratio represented a discount of 4.5%
and a premium of 26.8%, 17.0%, 11.3%, 21.1%, 28.6%, 21.3%, 19.6% and 30.3%,
respectively, over the aforementioned ratios of the prices of Frame Common Stock
and Adobe Common Stock.
PEER GROUP COMPARISON. Morgan Stanley compared certain financial
information of Frame with the Business Productivity Software Comparables, the
Computer Design Software Comparables and the New Media Software Comparables.
Such financial information included, among other things, market valuation,
market value as a multiple of earnings and adjusted market capitalization as a
multiple of revenue. In particular, such analysis showed that as of June 20,
1995, based on representative research analyst projections of Frame's earnings
per share and a compilation of earnings projections by securities research
analysts for Adobe, Frame and Adobe traded at 20.6 and 25.6 times forecasted
earnings for the fiscal year 1996, respectively, and 4.4 and 5.7 times latest
twelve months revenue, respectively, compared to a median of 22.8 times calendar
year 1996 earnings and 4.5 times latest twelve months revenue for the Business
Productivity Software Comparables, and 27.2 times calendar year 1996 earnings
and 5.8 times latest twelve months revenue for the New Media Software
Comparables. In addition, Morgan Stanley observed that when the earnings
estimate for Frame was adjusted for a 37% marginal tax rate, Frame traded at
26.1 times forecasted earnings for the calendar year 1996.
CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma contribution
of each of Frame and Adobe to the combined company if the Merger were to be
consummated. Such analysis was based on financial data for Frame provided by the
management of Frame and for Adobe based on research estimates. Such analysis
showed that, on average for the years 1995 and 1996 (fiscal years ending
November for Adobe and December for Frame), Frame would contribute approximately
13.2%, 13.9%, 10.9% and 12.8% of the revenues, gross profit, operating profit
and net income of the combined company, respectively, including the revenue and
profit contribution of Mastersoft. Morgan Stanley observed that the
aforementioned contribution percentages implied exchange ratios of 0.571, 0.605,
0.460 and 0.550, respectively, as compared to the Exchange Ratio of 0.520.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley examined
selected precedent merger and acquisition transactions involving software
companies. Such analysis resulted in a median of 29.1 times projected net
income, 3.4 times last twelve months revenues, a 47.1% premium over the stock
price one month prior to announcement of the transaction, and a 36.3% premium
over the stock price one day prior to announcement of the transaction.
PRO FORMA ANALYSIS OF THE MERGER. Morgan Stanley analyzed certain pro forma
effects of the Merger on the earnings and capitalization of the combined
company. These analyses were based on certain forecasts provided by Frame
management and research estimates for Adobe regarding the financial performance
of Frame and Adobe, respectively. Based on such analyses, Morgan Stanley
observed that, based on the Exchange Ratio and assuming that the Merger was
treated as a pooling of interests for accounting purposes, the Merger would
result in an increase in Adobe's earnings per share in fiscal year 1995 and a
modest decrease in Adobe's earnings per share in fiscal year 1996. In addition,
Morgan Stanley observed that under various assumptions regarding potential
synergies, the Merger would also result in an increase in Adobe's earnings per
share in fiscal year 1996.
In connection with the review of the Merger by the Adobe Board, Morgan
Stanley performed a variety of financial and comparative analyses for purposes
of its opinion given in connection therewith. The summary set forth above does
not purport to be a complete description of the presentation by Morgan Stanley
to the Adobe Board or the analyses performed by Morgan Stanley in arriving at
its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, would create a misleading view of the
processes underlying its opinion. In addition, Morgan Stanley may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so
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that the range of valuations resulting from any particular analysis described
above should not be taken to be Morgan Stanley's view of the actual value of
Adobe or Frame. In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Adobe or
Frame. Any estimates contained therein are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
those suggested by such estimates. In addition, estimates relating to the value
of businesses or assets do not purport to be appraisals or to necessarily
reflect the prices at which businesses or assets may actually be sold. The
analyses performed were prepared solely as part of Morgan Stanley's analysis of
the fairness of the Exchange Ratio, from a financial point of view, to Adobe and
were provided to the Adobe Board in connection with the delivery of Morgan
Stanley's opinion.
Adobe retained Morgan Stanley based upon its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Morgan Stanley makes a market
in Adobe Common Stock and may continue to provide investment banking services to
Adobe in the future. In the course of its market-making and other trading
activities, Morgan Stanley may, from time to time, have a long or short position
in, and buy and sell, securities of Adobe and Frame. Morgan Stanley and its
affiliates have provided financial advisory and financing services to Adobe
since 1989 and have received customary fees in connection with these services.
Adobe has agreed to pay Morgan Stanley a fee for its financial advisory
service in connection with the transaction. Adobe has agreed to pay Morgan
Stanley an advisory fee estimated to be between $100,000 and $200,000 if the
Merger is not consummated, and, if the Merger is successfully consummated, a
transaction fee of 0.80% of the equity value of the transaction. Adobe has also
agreed to reimburse Morgan Stanley for its out-of-pocket expenses and to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley, or any of its affiliates against certain liabilities, including
liabilities under federal securities laws, and expenses related to Morgan
Stanley's engagement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to Frame and holders of Frame Common Stock and
reflects the opinions of tax counsel included in the Registration Statement of
which this Proxy Statement/Prospectus is a part. Such tax opinions are based on
certain assumptions noted in such opinions. The discussion is based on current
law. The discussion does not address aspects of federal taxation other than
income taxation, nor does it address all aspects of federal income taxation
including, without limitation, aspects of federal income taxation that may be
applicable to particular shareholders, such as shareholders who are dealers in
securities, foreign persons or persons who acquired their Frame Common Stock in
a compensation transaction. In addition, it does not address the state, local or
foreign tax consequences of the Merger, if any.
HOLDERS OF FRAME COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.
The principal federal income tax consequences of the Merger to Frame and
holders of Frame Common Stock will be as follows:
(a) the Merger will qualify as a reorganization within the meaning of
Section 368 of the Code;
(b) no gain or loss will be recognized by Frame, Merger Sub or Adobe
solely as a result of the Merger;
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(c) no gain or loss will be recognized by holders of Frame Common Stock
upon their receipt of Adobe Common Stock in exchange for their Frame Common
Stock, except that holders of Frame Common Stock who receive cash proceeds
in lieu of fractional shares of Adobe Common Stock will recognize gain or
loss equal to the difference, if any, between such proceeds and the tax
basis of Frame Common Stock allocated to their fractional share interests
(see, however, discussion of the treatment of dissenters in (h) below);
(d) such gain or loss, if any, will constitute capital gain or loss if
the fractional share interests exchanged are held as capital assets at the
time of the Merger;
(e) such capital gain or loss will be long-term capital gain or loss if
the holding period for the fractional share interests (including the holding
period of Frame Common Stock attributed thereto) exceeds one year at the
Effective Time;
(f) the tax basis of Adobe Common Stock received by holders of Frame
Common Stock will be the same as the tax basis of the Frame Common Stock
exchanged therefor less the tax basis, if any, allocated to fractional share
interests;
(g) the holding period of Adobe Common Stock in the hands of holders of
Frame will include the holding period of their Frame Common Stock exchanged
therefor, provided that such Frame Common Stock is held as a capital asset
at the time of the Merger;
(h) in general, a dissenting holder of Frame Common Stock receiving
solely cash in exchange therefor will recognize gain or loss equal to the
difference, if any, between the cash received and the dissenting holder's
tax basis of the Frame Common Stock;
(i) such gain or loss, if any, will generally constitute capital gain or
loss if the Frame Common Stock for which the dissenting shareholder receives
cash is held as a capital asset at the time of the Merger; and
(j) such capital gain or loss will be long-term capital gain or loss if
the dissenting holder has held the Frame Common Stock for more than one year
at the Effective Time.
It is a condition to Adobe's and Frame's obligation to effect the Merger
that Adobe and Frame receive opinions (the "Tax Opinions") from Shearman &
Sterling and Wilson, Sonsini, Goodrich & Rosati, respectively, to the effect
that, on the basis of certain facts, including facts derived from officers'
certificates delivered by Adobe and Frame, and certain assumptions stated in the
Tax Opinions, the Merger will be treated as a reorganization within the meaning
of Section 368 of the Code.
No ruling has been or will be obtained from the Internal Revenue Service
(the "Service") with respect to the Merger. The Tax Opinions are not binding on
the Service or the courts, and no assurance can be given that the Tax Opinions
would be followed if challenged by the Service.
ACCOUNTING TREATMENT
The Merger is expected to be treated as a "pooling of interests" for
accounting purposes. This accounting method permits the recorded assets and
liabilities of both Adobe and Frame to be carried forward to the surviving
corporation at their recorded historical amounts and no recognition of goodwill
in the combination is required of either company in the Merger.
It is a condition to Adobe's and Frame's obligation to effect the Merger
that Adobe and Frame receive letters from KPMG Peat Marwick LLP and Ernst &
Young LLP, the independent auditors of Adobe and Frame, respectively, based upon
certain material facts and certain representations and warranties described in
such letters, to the effect that pooling of interests accounting treatment under
Accounting Principles Board Opinion No. 16 for the Merger is appropriate if the
Merger is consummated in accordance with the Merger Agreement. In the event that
a substantial number of the shareholders of Frame properly exercise their
dissenters' rights, the Merger may not qualify for treatment as a pooling of
interests under applicable accounting rules and Adobe's or Frame's independent
auditors may not be able to render an opinion regarding such qualification.
Under the Merger Agreement, Adobe's and Frame's obligation to consummate the
Merger is conditioned on the delivery
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of such opinions; therefore, the inability of Adobe's or Frame's independent
auditors to deliver such opinion would entitle Adobe or Frame to abandon the
Merger. Neither Adobe nor Frame intends to waive this condition.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Frame Board with respect to the
Merger, shareholders of Frame should be aware that certain officers and
directors of Frame had interests in the Merger, including those referred to
below, that may present them with potential conflicts of interests. The Frame
Board was aware of these potential conflicts and considered them along with the
other matters described in "-- Frame's Reasons for the Merger; Recommendation of
the Frame Board."
Pursuant to the terms of the Merger Agreement, Adobe has agreed to enter
into consulting or employment arrangements with each of the Frame's executive
officers and with Mr. Corfield, such arrangements being hereinafter referred to
as the "Continuation Arrangements." Pursuant to such Continuation Arrangements,
such persons will provide transition and/or ongoing services to Adobe or the
surviving corporation, on a full-time or part-time basis as applicable, through
March 31, 1997 (or, in the case of Messrs. Klaus and Kelly, until June 30 and
September 30, 1997, respectively), subject to earlier termination in certain
circumstances. Such Continuation Arrangements shall contain non-compete
provisions applicable for the term of the consulting/employment arrangement. If
a person subject to such Continuation Arrangements is terminated from full-time
employment with Adobe or the surviving corporation following the Merger within
the twelve month period following the Effective Time (or at any time in the case
of Messrs. Klaus or Kelly or Robert F. Donohue, Vice President, General Counsel
and Secretary of Frame) other than: (A) as a result of such employee's voluntary
termination (except for Messrs. Klaus, Kelly or Donohue) which is not in
connection with (i) a reduction of such employee's salary, (ii) a significant
diminution in such employee's status, responsibilities or duties, or (iii) such
employee's constructive termination, or (B) as a result of death or disability
of such employee, then such employee shall become a consultant to or part-time
employee of Adobe or the surviving corporation and be entitled to receive
payments equal to twelve months' base salary and one year's targeted bonus, net
of all applicable withholding and similar taxes. Certain of the executive
officers of Frame hold options to purchase Frame Common Stock that are subject
to accelerated vesting of their exercisability upon the attainment of certain
financial performance criteria. Such options, along with the other options
outstanding under the Frame's employee stock plans will be assumed by Adobe in
connection with the Merger and pursuant to the Merger Agreement.
As of August 24, 1995, Frame executive officers and directors and their
affiliates owned an aggregate of 2,146,331 shares of Common Stock of Frame and
vested and unvested options to purchase an additional 1,826,700 shares of Common
Stock of Frame. Based upon the closing price of Adobe Common Stock on August 24,
1995 of $61.63, and assuming the exercise of outstanding options to purchase
Frame Common Stock, the aggregate dollar value of the Adobe Common Stock to be
received by Frame officers and directors and their affiliates is approximately
$127.3 million.
Pursuant to the terms of the employment agreements entered into by Messrs.
Klaus and Kelly upon their acceptance of employment with Frame, which agreements
will be assumed by the surviving corporation or Adobe pursuant to the terms and
conditions of the Merger Agreement, except for severance benefits provided for
therein which are to be superseded by the severance provided for pursuant to the
Continuation Arrangements, an aggregate of approximately 225,000 and 137,500
shares of Frame Common Stock currently subject to outstanding stock options held
by Mr. Klaus and Mr. Kelly, respectively, will accelerate to full vesting upon
the change of control of Frame which will occur at the Effective Time of the
Merger.
In addition, pursuant to the terms of Frame's 1994 Directors Stock Option
Plan, each outstanding option issued thereunder will be subject to accelerated
vesting of their exercisability upon the change of control of Frame which will
occur at the Effective Time of the Merger. There are currently an aggregate of
125,000 shares subject to outstanding options under the 1994 Director Plan,
32,839 of which are vested as of August 24, 1995. Based upon the closing price
of Adobe Common Stock on August 24, 1995 of $61.63, and assuming the exercise of
outstanding options to purchase Frame
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Common Stock issued pursuant to the 1994 Director Plan, the aggregate dollar
value of the Adobe Common Stock to be received by directors of Frame and their
affiliates is approximately $4,005,950, including $2,953,539 associated with
shares which accelerate to full vesting at the Effective Time of the Merger.
The Merger Agreement provides that Frame will, and after the Effective Time,
the surviving corporation and Adobe will, to the fullest extent permitted under
applicable law or under the relevant Articles of Incorporation or Bylaws,
indemnify and hold harmless each present and former director, officer, employee,
fiduciary and agent of Frame or any of its subsidiaries against any costs or
expenses, judgments, fines, losses, claims, damages, liability and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission in their
capacity as director, officer, employee, fiduciary, or agent of Frame occurring
at or prior to the Effective Time for a period of six years after the date of
the Merger Agreement. Adobe has agreed that for three years after the Effective
Time it will cause the surviving corporation to use best efforts to maintain in
effect directors' and officers' liability insurance covering those persons who
are currently covered by Frame's directors' and officers' liability policy on
terms comparable to those applicable to the then current directors and officers
of Adobe or to the directors and officers of Frame, whichever is more favorable
to such directors and officers of Frame. However, in no event shall Adobe or the
surviving corporation be required to pay in excess of 150% of the annual premium
currently paid by Frame for such coverage.
In addition, the Articles of Incorporation of the surviving corporation will
contain the indemnification provisions currently set forth in the Articles of
Incorporation of Frame, which shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the Effective
Time were directors, officers, employees or agents of Frame, unless such
modification is required by law.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, certain
acquisition transactions may not be consummated unless notice has been given and
certain information has been furnished to the Antitrust Division and the FTC and
specified waiting period requirements have been satisfied. Adobe and Frame each
filed with the Antitrust Division and the FTC a Notification and Report Form (an
"HSR Notice") with respect to the Merger on July 5, 1995. The required waiting
period under the HSR Act expired on August 4, 1995. At any time before or after
the Effective Time, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
Frame by Adobe, in whole or in part, or the divestiture or compulsory licensing
of substantial assets of Adobe, Frame, or their respective subsidiaries. State
attorneys general and private parties may also bring legal actions under the
federal or state antitrust laws under certain circumstances.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, holders of Frame Common Stock who have
properly exercised dissenters' rights in connection with the Merger under
Sections 1300-1312 ("Chapter 13") of the California Corporations Code (the
"CCC") will have the right to receive such consideration as may be determined to
be due with respect to Dissenting Shares (as defined below) pursuant to the laws
of the State of California, so long as demands for such consideration are
properly filed at or before the Special Meeting with respect to 5% or more of
the outstanding shares of Frame Common Stock.
The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions, and Frame shareholders are urged to
read the full text of Chapter 13, a copy of which is attached to this Proxy
Statement/Prospectus as Annex D.
If the Merger is approved by the required vote of the holders of Frame
Common Stock and is not abandoned or terminated, each holder of shares of Frame
Common Stock who votes against the
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Merger and who follows the procedures set forth in Chapter 13 will be entitled
to have his or her shares of Frame Common Stock purchased by Frame for cash at
their fair market value, so long as demands for such consideration are properly
filed at or before the Special Meeting with respect to 5% or more of the
outstanding shares of Frame Common Stock. The fair market value of shares of
Frame Common Stock will be determined as of the day before the first
announcement of the terms of the Merger, excluding any appreciation or
depreciation resulting as a consequence of the Merger, but adjusted for any
stock split, reverse stock split or share dividend that becomes effective
thereafter. The shares of Frame Common Stock with respect to which holders have
perfected their purchase demand in accordance with Chapter 13 and have not
effectively withdrawn or lost such rights are referred to as the "Dissenting
Shares."
Within 10 days after approval of the Merger by Frame's shareholders, Frame
must, if demands for appraisal have been properly filed by the holders of 5% or
more of the outstanding shares of Frame Common Stock, mail a notice of such
approval (the "Approval Notice") to all shareholders who have voted against the
approval of the Merger and followed the procedures set forth in Chapter 13,
together with a statement of the price determined by Frame to represent the fair
market value of the applicable Dissenting Shares (determined in accordance with
the immediately preceding paragraph), a brief description of the procedures to
be followed in order for the shareholder to pursue his or her dissenters'
rights, and a copy of Sections 1300-1304 of the CCC. The statement of price by
Frame constitutes an offer by Frame to purchase all Dissenting Shares at the
stated amount.
A shareholder of Frame electing to exercise dissenters' rights must, within
the time period provided in Section 1301(b) of the CCC, demand in writing from
Frame the purchase of his or her shares of Frame Common Stock and payment to the
shareholder at their fair market value. A holder who elects to exercise
dissenters' rights should mail or deliver his or her written demand to Frame at
333 West San Carlos Street, San Jose, California 95110, Attention: Secretary.
The demand should specify the holder's name and mailing address and the number
of shares of Frame Common Stock held of record by such shareholder and state
that such holder is demanding purchase of his or her shares and payment of their
fair market value, and must also contain a statement as to what the shareholder
claims to be the fair market value of such shares as of the day before the first
announcement of the terms of the proposed Merger. Such statement of the fair
market value of the shares of Frame Common Stock constitutes an offer by the
shareholder to sell the Dissenting Shares held by such shareholder at that
price.
Within the time period provided in Section 1302 of the CCC, the shareholder
must also submit the certificates representing the Dissenting Shares to Frame
for endorsement as Dissenting Shares.
If Frame and the Frame shareholder agree that the shares are Dissenting
Shares and agree upon the purchase price of the shares, the dissenting
shareholder is entitled to the agreed-upon price with interest thereon at the
legal rate on judgments from the date of such agreement. Payment for the
Dissenting Shares must be made within 30 days after the later of the date of
such agreement or the date on which all statutory and contractual conditions to
the Merger are satisfied, and is subject to surrender to Frame of the
certificates representing the Dissenting Shares.
If Frame denies that the shares are Dissenting Shares or if Frame and the
shareholder fail to agree upon the fair market value of the shares of Frame
Common Stock, then within the time period provided in Section 1304(a) of the
CCC, any shareholder who has made a valid written purchase demand and who has
not voted in favor of approval and adoption of the Merger Agreement may file a
complaint in the superior court of the proper county requesting a determination
as to whether the shares are Dissenting Shares or as to the fair market value of
such holder's shares of Frame Common Stock or both, or may intervene in any
pending action brought by any other Frame shareholder. If the fair market value
of the Dissenting Shares is at issue, the court may appoint one or more
impartial appraisers to determine the fair market value of such Dissenting
Shares.
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Except as expressly limited by Chapter 13, holders of Dissenting Shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A holder of
Dissenting Shares may not withdraw a demand for payment unless Frame consents
thereto.
Dissenting Shares lose their status as Dissenting Shares, and dissenting
shareholders cease to be entitled to require Frame to purchase their Shares if:
(a) the Merger is abandoned; (b) the shares are transferred prior to their
submission to Frame for the required endorsement; (c) the dissenting shareholder
and Frame do not agree upon the status of the shares as Dissenting Shares or do
not agree on the purchase price, but neither Frame nor the shareholder files a
complaint or intervenes in a pending action within six months after mailing of
the Approval Notice; or (d) with Frame's consent, the holder delivers to Frame a
written withdrawal of such holder's demand for purchase of his or her shares.
FRAME SHAREHOLDERS WILL HAVE NO APPRAISAL RIGHTS UNLESS DEMANDS FOR
APPRAISAL AND PAYMENT ARE RECEIVED AT OR PRIOR TO THE DATE OF THE FRAME SPECIAL
MEETING FROM HOLDERS OF 5% OR MORE OF THE OUTSTANDING SHARES OF FRAME COMMON
STOCK.
All officers and directors of Frame have agreed not to exercise dissenters'
rights with respect to the Merger.
THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize, among other things, the material terms
of the Merger Agreement, which is attached hereto as Annex A and incorporated by
reference herein. Shareholders of Frame are urged to read the Merger Agreement
in its entirety for a more complete description of the Merger.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file a
certified agreement of merger with the Secretary of State of the State of
California. The Merger will become effective upon such filing.
CONVERSION OF SHARES
At the Effective Time, each outstanding share of Frame Common Stock (other
than Dissenting Shares and shares owned by Merger Sub, Adobe, Frame or any
subsidiary of Adobe or Merger Sub) will be converted into the right to receive
0.52 shares of Adobe Common Stock. Merger Sub will merge with and into Frame,
which will be the surviving corporation and a wholly owned subsidiary of Adobe.
Each share of Merger Sub common stock issued and outstanding immediately prior
to the Effective Time will be converted into one share of common stock of the
surviving corporation. For information regarding rights of dissenting
shareholders, see "The Merger -- Rights of Dissenting Shareholders."
As promptly as practicable after the Effective Time, Adobe will cause to be
sent to each shareholder of record of Frame as of the Effective Time transmittal
materials for use in exchanging certificates of Frame Common Stock for
certificates of Adobe Common Stock. The transmittal materials will contain
information and instructions with respect to the surrender of Frame Common Stock
certificates in exchange for new certificates representing Adobe Common Stock
and cash in payment for any fractional shares resulting from the exchange.
CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS
RECEIVED. Pending delivery to Adobe of Frame Common Stock certificates, any
dividends on the Adobe Common Stock to be issued as a result of the Merger that
are payable prior to the delivery of such certificates will be held by Adobe.
Such dividends will be paid, without interest, to the persons entitled thereto
upon delivery of such Frame Common Stock certificates to Adobe.
Fractional shares of Adobe Common Stock will not be issued in the Merger.
Instead, each shareholder of Frame who would otherwise be entitled to a
fractional share will receive cash in lieu
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thereof, calculated on the basis of the last reported sales price of Adobe
Common Stock for the 30 most recent trading days prior to the Effective Time, as
quoted in THE WALL STREET JOURNAL or other reliable financial newspaper or
publication.
TREATMENT OF FRAME COMMON STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
STOCK OPTION PLANS. At the Effective Time, each outstanding Frame Option
under its Dual Stock Option Plan and 1994 Directors' Stock Option Plan (the
"Stock Option Plans"), whether vested or unvested, will be assumed by Adobe.
Each Frame Option assumed by Adobe under the Merger Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the
applicable Stock Option Plan immediately prior to the Effective Time, except for
the number of shares of Adobe Common Stock to be purchased under such Frame
Option and the exercise price thereof. Each Frame Option will be exercisable for
that number of shares of Adobe Common Stock rounded down to the nearest whole
number of shares of Adobe Common Stock that the holder of such Frame Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such Frame Option in full immediately prior to the Effective Time. The
per share exercise price for the shares of Adobe Common Stock issuable upon
exercise of such assumed Frame Option will be equal to the quotient of the per
share exercise price of Frame Common Stock at which such option was exercisable
immediately prior to the Effective Time divided by the Exchange Ratio, and
rounding the resulting exercise price up to the nearest whole cent.
It is the intention of Adobe and Frame that the Frame Options assumed by
Adobe qualify following the Effective Time as incentive stock options as defined
in Section 422 of the Code to the extent (and only to the extent) such Frame
Options qualified as incentive stock options prior to the Effective Time.
FRAME EMPLOYEE STOCK PURCHASE PLAN. Subject to the consummation of the
Merger, on the Final Purchase Date, Frame will apply the funds then credited to
each Purchase Plan participant's payroll withholding account to the purchase of
whole shares of Frame Common Stock. The cost to each participant in the Purchase
Plan for the shares of Frame Common Stock purchased shall be the lower of 85% of
the closing sale price of Frame Common Stock on the Nasdaq National Market on
(i) the first day of the then current offering period or (ii) the last trading
day on or prior to the Final Purchase Date. Shares of Frame Common Stock
purchased on the Final Purchase Date will be converted to Adobe Common Stock in
the same manner as described above under "-- Conversion of Shares." Employees of
Frame as of the Effective Time will be permitted to participate in Adobe's
Employee Stock Purchase Plan commencing on the first enrollment date following
the Effective Time, subject to compliance with the eligibility requirements of
Adobe's Employee Stock Purchase Plan (with Frame employees receiving credit, for
purposes of such eligibility, for service with Frame).
BUSINESS OF FRAME PENDING THE MERGER
Pending consummation of the Merger, and except as otherwise consented to or
approved in advance by Adobe in writing, and except for the transactions
contemplated by the Mastersoft Agreement, Frame has agreed that Frame and its
subsidiaries will, among other things, operate their businesses in accordance
with their ordinary course of business and in a manner consistent with past
practices, and use reasonable commercial efforts to preserve substantially
intact their respective business organizations, to keep available the services
of their present officers, employees and consultants and to preserve their
present relationships with customers and suppliers and other persons with whom
they have significant business relations.
In particular, Frame and its subsidiaries have agreed not to take any of the
following actions without the prior written consent of Adobe: (i) amend or
otherwise change Frame's Articles of Incorporation (the "Frame Articles") or
By-laws; (ii) issue, sell, pledge, dispose of or encumber any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest of Frame, any of its subsidiaries or affiliates (except for
(a) the issuance of shares of the Frame Common Stock issuable pursuant to
employee stock options under the Stock Option Plans or pursuant to rights to
purchase
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such shares under the Purchase Plan, which options or rights, as the case may
be, were outstanding on the date of the Merger Agreement), (b) the issuance of
options granted consistent with past practice with notice to Adobe, to
employees, other than officers, hired after the date of the Merger Agreement, up
to a limit of 100,000 shares of Frame Common Stock in the aggregate and (c) the
issuance of not more than 1,200,000 shares of Frame Common Stock and options to
acquire Frame Common Stock pursuant to the Mastersoft Agreement); (iii) except
for certain non-performance, nonqualified options previously granted to L.
George Klaus and Thomas F. Kelly under the Dual Stock Option Plan and options
previously granted to W. Douglas Hajjar, D. James Guzy and Robert H. Smith under
the 1994 Directors' Stock Option Plan, which several options accelerate by their
terms, accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee plans (including the Stock Option
Plans) or authorize cash payments in exchange for any options granted under any
of such plans; (iv) sell, pledge, dispose of or encumber any assets of Frame or
any of its subsidiaries (except for (a) sales of assets in the ordinary course
of business and in a manner consistent with past practice and (b) dispositions
of obsolete or worthless assets); (v) declare or pay any dividend or other
distribution with respect to any of its capital stock, except for certain
intracompany distributions and the payment of dividends under certain
circumstances pursuant to the Mastersoft Agreement; (vi) sell, transfer,
license, sublicense or otherwise dispose of any Frame intellectual property, or
amend or modify any existing agreements with respect to any Frame intellectual
property or third party intellectual property rights, other than nonexclusive
object and source code licenses in the ordinary course of business consistent
with past practice; (vii) (a) acquire any business organization (other than
Mastersoft); (b) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or otherwise become responsible for, the
obligations of any person, or make any loans or advances, except in the ordinary
course of business consistent with past practice; (c) enter into or amend any
contract or agreement other than in the ordinary course of business; (d)
authorize any capital expenditures or purchase of fixed assets which are, in the
aggregate, in excess of $3,000,000 for Frame and its subsidiaries, taken as a
whole; or (e) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this item (vii); (viii)
increase the compensation payable to its officers or employees (including,
without limitation, by way of promotion or addition of title), except for
scheduled increases in salary or wages of employees of Frame or its subsidiaries
who are not officers of Frame in accordance with past practices, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee (except for officers who
are terminated on an involuntary basis pursuant to Frame's severance policy in
effect on the date of the Merger Agreement or pursuant to certain employee
benefit plans and employment agreements in effect on the date of the Merger
Agreement) of Frame or any of its subsidiaries, or establish, adopt, enter into
or amend any Frame employee plan; (ix) take any action, other than in the
ordinary course of business and in a manner consistent with past practice, to
change accounting policies or procedures; (x) make any material tax election
inconsistent with past practices or settle or compromise any material tax
liability, enter into any transaction that would cause Frame or any of its
affiliates to include income in (a) any amount in respect of any adjustment
under Section 481 of the Code, (b) any deferred intercompany transaction or (c)
any installment sale gain, or enter into any transaction that would create or
increase any excess loss; (xi) commence a law suit other than (a) for the
routine collections of bills, (b) where failure to commence suit would result in
the material impairment of a valuable aspect of Frame's business, provided that
Frame consults with Adobe prior to filing such suit, or (c) for a breach of the
Merger Agreement or the Mastersoft Agreement; (xii) pay, discharge or satisfy
any claims, liabilities or obligations, other than liabilities reflected or
reserved against in the financial statements of Frame or incurred in the
ordinary course of business and consistent with past practice; (xiii) enter into
any contract, agreement, arrangement or understanding having a term longer than
six months unless such agreement either (a) may be cancelled by it without
penalty on not more than thirty days' notice or (b) does not require the
expenditure by Frame of more than $100,000 for any single agreement and $500,000
for all such agreements; (xiv) except as may be required by law, take any action
to terminate or amend any of its employee plans; (xv) modify, amend or terminate
the Mastersoft Agreement (other than amending the Mastersoft Agreement to
provide for shareholders of Mastersoft to receive shares
36
<PAGE>
of Adobe Common Stock instead of Frame Common Stock in the event that the Merger
is consummated prior to the Mastersoft Acquisition) or any other contracts,
waive, release, relinquish or assign any contract or other rights or claims or
cancel or forgive any indebtedness owed to it, other than in the ordinary course
of business consistent with past practice with respect to contracts which are
not material to Frame and its subsidiaries taken as a whole; or (xvi) take, or
agree in writing or otherwise to take, any of the actions described in items (i)
through (xv) above, or any action which would make any of the representations or
warranties of Frame contained in the Merger Agreement untrue or incorrect or
prevent Frame from performing or cause Frame not to perform its covenants
thereunder.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Merger Agreement provides that Frame shall not, directly or indirectly,
solicit or encourage the initiation of inquiries or proposals regarding any
merger, sale of substantial assets or stock, or similar transaction involving
Frame. The Merger Agreement does not prevent the Frame Board, after receiving
the advice of counsel that its fiduciary duties require it to do so, from
considering, negotiating, approving and recommending to Frame shareholders an
unsolicited bona fide merger or acquisition proposal that the Frame Board
determines in good faith, after consultation with its financial advisors, would
result in a transaction more favorable to the Frame shareholders than the Merger
(any such acquisition proposal being referred to herein as a "Superior
Proposal"). Frame must inform Adobe of any proposal for a merger, sale of
substantial assets, sale of shares or similar transaction involving Frame or any
of its subsidiaries or request for nonpublic information, and Frame may provide
access to nonpublic information (subject to the execution of a confidentiality
and standstill agreement) only after Frame has determined that the competing
proposal is superior to the Merger and receiving the advice of outside counsel
to the effect that the Frame Board has a fiduciary obligation to provide such
information.
BUSINESS OF ADOBE PENDING THE MERGER
Pending the consummation of the Merger, and except as otherwise consented to
or approved in advance by Frame in writing, Adobe has agreed that Adobe and its
subsidiaries will, among other things, operate their businesses in the ordinary
course of business, other than actions taken by Adobe and its subsidiaries in
contemplation of the Merger. In particular Adobe has agreed not to take any of
the following actions without the prior written consent of Frame: (i) amend or
otherwise change Adobe's Articles of Incorporation (the "Adobe Articles"); (ii)
acquire or agree to acquire any business organization or assets of any other
person, or agree to dispose of a material portion of its assets, if doing so
would materially delay or prevent the consummation of the Merger; (iii) declare,
set aside, make or pay any dividend or other distribution in respect of any of
its capital stock, except that a wholly owned subsidiary of Adobe may declare
and pay a dividend to its parent and except that Adobe may declare and pay cash
dividends of $0.05 per quarter consistent with past practice; (iv) take any
action other than in the ordinary course of business and in a manner consistent
with past practice with respect to accounting policies or procedures; or (v)
take or agree to take any action which would make any of Adobe's representations
or warranties contained in the Merger Agreement untrue or incorrect or prevent
Adobe from performing or cause Adobe not to perform its covenants under the
Merger Agreement.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into Frame, which
will be the surviving corporation and will thereby become a wholly owned
subsidiary of Adobe. Each share of Merger Sub common stock issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the surviving corporation.
Unless otherwise determined by Adobe prior to the Effective Time, at the
Effective Time the Articles of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, will be the Articles of Incorporation
of the surviving corporation, until thereafter amended. The Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, will be the Bylaws of
the surviving corporation, until thereafter amended.
37
<PAGE>
As soon as reasonably practicable after the Effective Time, Adobe intends to
cause the surviving corporation to be merged into Adobe.
CERTAIN COVENANTS
The Merger Agreement provides that the Articles of Incorporation of the
surviving corporation will contain the provisions with respect to
indemnification set forth in the Frame Articles, and that such provisions will
not be modified for six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective Time
were directors, officers, employees or agents of Frame, unless such modification
is required by law.
Frame has agreed that, regardless of whether the Merger becomes effective
and for six years after the date of the Merger Agreement, it will indemnify each
present and former director, officer, employee, fiduciary and agent of Frame or
any of its subsidiaries (collectively, the "Indemnified Parties"), to the
fullest extent permitted under applicable law or under its Articles of
Incorporation or Bylaws, against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement ("Liabilities") in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as a director, officer, employee, fiduciary or agent of Frame occurring
at or prior to the Effective Time.
Adobe has agreed that after the Effective Time, it will (i) for six years
after the date of the Merger Agreement, indemnify the Indemnified Parties to the
fullest extent permitted under applicable law or under its or the surviving
corporation's Articles of Incorporation or Bylaws, against any Liabilities in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action or omission in their capacity as a director, officer, employee,
fiduciary or agent of Frame occurring at or prior to the Effective Time, (ii)
honor and fulfill in all respects the obligations of Frame pursuant to
indemnification agreements with Frame's directors and officers which agreements
were disclosed to Adobe prior to the date of the Merger Agreement and existing
at or before the Effective Time, and (iii) for a period of three years after the
Effective Time, cause the surviving corporation to use its best efforts to
maintain in effect, if available, directors' and officers' liability insurance
covering those persons covered by Frame's directors' and officers' liability
insurance policy on the date of the Merger Agreement on terms comparable to
those applicable to the then current directors and officers of Adobe or to the
directors and officers of Frame, whichever is more favorable to such directors
and officers of Frame; PROVIDED, HOWEVER, that in no event will Adobe or the
surviving corporation be required to expend in excess of 150% of the annual
premium, as in effect on the date of the Merger Agreement, paid by Frame for
such coverage.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including (i) the approval and adoption of the Merger Agreement and
the Merger by the requisite vote of the shareholders of Frame; (ii) the
declaration of effectiveness by the Commission under the Securities Act of the
Registration Statement, and absence of any stop order issued by the Commission
suspending the effectiveness of the Registration Statement and any proceedings
for that purpose, and the absence of the initiation or threat by the Commission
of any similar proceeding in respect of the Proxy Statement; (iii) the absence
of any temporary restraining order, preliminary or permanent injunction or other
legal restraint or prohibition preventing the consummation of the Merger, and of
any pending proceeding seeking any of the foregoing, and the absence of any
statute, rule, regulation or order making consummation of the Merger illegal;
(iv) receipt by Frame and Adobe of letters from both of their respective
independent accountants to the effect that the transactions contemplated by the
Merger Agreement qualify for pooling of interests accounting treatment under
Accounting Principles Board Opinion No. 16 if consummated in accordance with the
Merger Agreement; (v) receipt by Adobe and Frame of written opinions of their
respective outside counsel to the effect that the transactions contemplated by
the Merger Agreement will constitute a reorganization within the meaning of
Section 368 of the Code; (vi) the obtaining of all material consents, waivers,
approvals, authorizations or orders required to be obtained, and the making of
all filings required to be made, by each of Adobe
38
<PAGE>
and Frame for the authorization, execution and delivery of the Merger Agreement
and the consummation of the transactions contemplated thereby; (vii) the receipt
by Adobe of the Affiliate Agreements (as defined below), and the effectiveness
of such Affiliate Agreements; and (viii) in the event that Frame has not
acquired Mastersoft prior to the Effective Time, the execution and delivery to
Adobe an amendment to the Mastersoft Agreement providing for each holder of
shares or options of Mastersoft to receive that number of shares of Adobe Common
Stock or options to receive that number of shares of Adobe Common Stock,
respectively, equal to the product of (A) the Exchange Ratio and (B) that number
of Shares or options to purchase that number of Shares, as the case may be, that
such holder would have received pursuant to the Mastersoft Agreement (without
any proportional adjustment based on the share price of Frame Common Stock).
TERMINATION; AMENDMENT
The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the shareholders of Frame,
under the circumstances specified therein, including (i) by mutual written
agreement of Adobe and Frame; (ii) by either Adobe or Frame if the Merger is not
consummated by October 31, 1995 and if the failure by the terminating party to
fulfill any of its obligations under the Merger Agreement has not caused or
resulted in the failure of the Merger to occur on or before such date; (iii) by
either Adobe or Frame if a court or governmental agency issues an order, decree
or ruling or taken any other action permanently prohibiting the Merger; (iv) by
either Adobe or Frame if the shareholders of Frame fail to approve the Merger
Agreement and the Merger, and, in the case of termination by Frame, if Frame
pays to Adobe all amounts relating to termination owing by Frame to Adobe under
the Merger Agreement, if any; (v) by either Adobe or Frame if the Frame Board
resolves to accept, accepts or recommends to the shareholders of Frame, a
Superior Proposal, and, in the case of termination by Frame, if Frame pays to
Adobe all amounts relating to termination owing by Frame to Adobe under the
Merger Agreement; (vi) by Adobe, if (A) the Frame Board withdraws, modifies or
changes in a manner adverse to Adobe its recommendation of the Merger or
resolves to do so, (B) the Frame Board takes a "neutral position" with respect
to an alternative transaction involving (1) a transaction pursuant to which any
person other than Adobe or its affiliates (a "Third Party") acquires more than
40% of the outstanding Frame Common Stock, whether from Frame or pursuant to a
tender or exchange offer or otherwise, (2) a merger or other business
combination involving Frame pursuant to which any Third Party acquires more than
40% of the outstanding equity securities of Frame or the entity surviving such
merger or business combination or (3) any other transaction pursuant to which
any Third Party acquires control of assets of Frame or any of its subsidiaries
having a fair market value equal to more than 40% of Frame and its subsidiaries,
taken as a whole, immediately prior to such transaction (any of the above
described transactions shall constitute an "Alternative Transaction"), or (C) a
tender offer or exchange offer for 40% or more of the outstanding shares of
Frame Common Stock is commenced (other than by Adobe or an affiliate of Adobe),
and within 10 business days of such commencement the Frame Board does not
recommend that the shareholders of Frame not tender their shares in such tender
or exchange offer; (vii) by Adobe or Frame, as the case may be, upon a breach of
any representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, or in the event any representation or
warranty of the other party becomes untrue, in either case such that the
conditions set forth in the Merger Agreement would not be satisfied (provided
that if such breach is curable by the breaching party through the exercise of
its reasonable best efforts and for so long as such party continues to exercise
such reasonable best efforts, the non-breaching party may not terminate the
Merger Agreement on the basis of such breach).
The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; PROVIDED, HOWEVER,
that, after approval of the Merger by the shareholders of Frame, no amendment
may be made which by law requires further approval of such shareholders, without
such further approval.
FEES AND EXPENSES
Except as described herein, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses,
39
<PAGE>
whether or not the Merger is consummated; PROVIDED, HOWEVER, that Adobe and
Frame shall share equally all fees and expenses, other than attorneys' fees,
incurred in relation to the printing and filing of the Proxy Statement and the
Registration Statement and any amendments or supplements thereto.
Frame has agreed to pay Adobe a fee of $18,000,000 if (i) Adobe terminates
the Merger Agreement because (A) the Frame Board has withdrawn, modified or
changed in a manner adverse to Adobe its recommendation of the Merger or
resolved to do so, (B) the Frame Board has taken a "neutral" position with
respect to an Alternative Transaction, (C) a tender offer or exchange offer for
40% or more of the outstanding shares of Frame Common Stock has been commenced
(other than by Adobe or an affiliate of Adobe), and within 10 business days of
such commencement the Frame Board has not recommended that the shareholders of
Frame not tender their shares in such tender or exchange offer, or (D) Frame has
breached Section 4.02 ("No Solicitation") of the Merger Agreement; (ii) Adobe or
Frame terminates the Merger Agreement because (A) the shareholders of Frame
failed to approve the Merger Agreement and the Merger, and at the time of such
termination, an Alternative Transaction, or a proxy statement and/or consent
solicitation recommending an Alternative Transaction, has been published, or
sent or given to Frame shareholders and not publicly withdrawn, or (B) the Frame
Board has resolved to accept, accepted or recommended to the shareholders of
Frame, a Superior Proposal; or (iii) at any time on or before April 30, 1996, an
Alternative Transaction is consummated or Frame enters into an agreement
contemplating an Alternative Transaction, in either case with a per share
consideration having a greater nominal value than the per share consideration
(determined as of the date hereof) to be received by Frame shareholders pursuant
to the Merger.
CONTINUATION ARRANGEMENTS
Pursuant to the terms of the Merger Agreement, Adobe has agreed to enter
into Continuation Arrangements with each of the Frame's executive officers and
with Mr. Corfield. Pursuant to such Continuation Arrangements, such persons will
provide transition and/or ongoing services to Adobe or the surviving
corporation, on a full-time or part-time basis as applicable, through March 31,
1997 (or, in the case of Messrs. Klaus and Kelly, until June 30 and September
30, 1997, respectively), subject to earlier termination in certain
circumstances. Such Continuation Arrangements shall contain non-compete
provisions applicable for the term of the consulting/employment arrangement. If
a person subject to such Continuation Arrangements is terminated from full-time
employment with Adobe or the surviving corporation following the Merger within
the twelve month period following the Effective Time (or at any time in the case
of Messrs. Klaus, Kelly or Donohue) other than: (A) as a result of such
employee's voluntary termination (except for Messrs. Klaus, Kelly or Donohue)
which is not in connection with (i) a reduction of such employee's salary, (ii)
a significant diminution in such employee's status, responsibilities or duties,
or (iii) such employee's constructive termination, or (B) as a result of death
or disability of such employee, then such employee shall become a consultant to
or part-time employee of Adobe or the surviving corporation and be entitled to
receive payments equal to twelve months' base salary and one year's targeted
bonus, net of all applicable withholding and similar taxes. Certain of the
executive officers of Frame hold options to purchase Frame Common Stock that are
subject to accelerated vesting of their exercisability upon the attainment of
certain financial performance criteria. Such options, along with the other
options outstanding under the Frame's employee stock plans will be assumed by
Adobe in connection with the Merger and pursuant to the Merger Agreement. See
"The Merger -- Interests of Certain Persons in the Merger."
CONFIDENTIALITY AGREEMENT
Adobe and Frame each has agreed to keep confidential, pursuant to the
confidentiality agreement dated June 7, 1995, (the "Confidentiality Agreement"),
information provided to the other party with respect to the business, financial
condition, operations, assets and liabilities of the party furnishing such
information. The Confidentiality Agreement contains terms restricting the
disclosure and use of confidential information exchanged between the two parties
in evaluating the Merger and otherwise.
In addition, the Confidentiality Agreement provides that for a period of 12
months after the date of a notice of termination of the Confidentiality
Agreement, Adobe and its affiliates will not (and Adobe and its affiliates will
not assist or encourage others to), directly or indirectly, unless specifically
requested to do so in writing by the Frame Board (i) acquire or agree, offer,
seek or propose to acquire or cause to be acquired,
40
<PAGE>
ownership of any of Frame's assets (other than in the ordinary course) or
businesses or any voting securities issued by Frame, or any rights or options to
acquire such ownership, including from a third party; (ii) make, or in any way
participate in, any solicitation of proxies or consents with respect to any
securities of Frame which are, or may be, entitled to vote in the election of
Frame's directors ("Voting Securities"), become a "participant" in any "election
contest" (as such terms are defined in the Exchange Act) with respect to Frame;
or seek to advise, encourage or influence any person or entity with respect to
the voting of any Voting Securities; or demand a copy of Frame's stock ledger,
list of stockholders or other books and records; or call or attempt to call any
meeting of the stockholders of Frame; or (iii) enter into any discussions,
negotiations, arrangements or understandings with any third party with respect
to any of the matters described in (i) or (ii) above; PROVIDED, HOWEVER, that
the foregoing restrictions will not apply if (A) another person or entity
(including Frame) shall have commenced a tender or exchange offer for more than
40% of Frame's securities or (B) another person or entity or Frame has made
public disclosure of a transaction to acquire more than 40% of the securities of
Frame.
AGREEMENTS OF FRAME AFFILIATES
Rule 145 promulgated under the Securities Act regulates the disposition of
securities of "affiliates" of Frame in connection with the Merger. Frame has
delivered to Adobe a letter (the "Affiliate Letter") identifying all persons who
are or may be deemed to be, at the time of the Frame Shareholders' Meeting,
"affiliates" of Frame for purposes of Rule 145 under the Securities Act. Such
Affiliate Letter may be further updated prior to the Effective Time. Frame has
also agreed to use its best efforts to cause each person who is identified as an
"affiliate" in the Affiliate Letter (each such person an "Affiliate") to deliver
to Adobe, prior to the Effective Time, a written agreement (an "Affiliate
Agreement"). Under such Affiliate Agreements, every Affiliate will represent
that he or she has been advised that the Affiliate may not sell, transfer or
otherwise dispose of Adobe Common Stock issued to the Affiliate in the Merger
unless such sale, transfer or other disposition (i) has been registered under
the Securities Act, (ii) is made in compliance with the requirements of Rule 145
under the Securities Act, or (iii) in the opinion of counsel reasonably
acceptable to Adobe, is otherwise exempt from registration under the Securities
Act.
In addition, all executive officers and directors of Frame have confirmed
that they intend to vote their respective shares of Frame Common Stock in favor
of the Merger. They have also agreed to restrict sales of such shares prior to
and following the Merger to comply with the requirements of pooling-of-interests
accounting treatment.
THE SHAREHOLDER VOTING AGREEMENT
On June 22, 1995 in connection with the execution and delivery of the Merger
Agreement, Adobe and Frame entered into a Voting Agreement (the "Voting
Agreement") with Mr. Corfield. Pursuant to the Voting Agreement, Mr. Corfield
has agreed to vote, and has granted to the members of the Adobe Board, and
Adobe, and each of them, an irrevocable proxy to vote, all Frame Common Stock
held or to be acquired by him (the "Proxy Shares") in favor of approval of the
Merger Agreement and the Merger, against any proposal made in opposition to or
in competition with consummation of the Merger, not in favor of any merger,
consolidation, sale of assets, reorganization or recapitalization of Frame with
any party other than Adobe or its affiliates and against any liquidation or
winding up of Frame. Mr. Corfield has also agreed not to solicit or encourage
any offer from any party concerning the possible disposition of all or a
substantial portion of Frame's business, assets or capital stock. Further, Mr.
Corfield is prohibited from disposing of or encumbering the Proxy Shares except
to the extent the Proxy Shares (i) are encumbered by virtue of being held in a
margin account with Alex. Brown & Sons Incorporated and (ii) are disposed of
through foreclosure thereunder.
The Voting Agreement also provides that Mr. Corfield will not in his
capacity as a shareholder, directly or indirectly, encourage, initiate or engage
in discussions or negotiations with, or provide information to, any entity or
group, other than Adobe or its affiliates, concerning the sale of the Proxy
Shares, or the issuance and sale of Frame Common Stock by Frame or, with respect
to any merger or other business combination, any disposition or grant of an
interest in a substantial asset or any similar transaction involving Frame. The
Voting Agreement terminates upon notice by Adobe, the consummation of the Merger
or 60 days after the Merger Agreement is terminated pursuant to its terms.
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<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma combined condensed financial statements
assume a business combination between Adobe and Frame accounted for on a pooling
of interests basis. The pro forma combined condensed financial statements are
based on the historical financial statements and the notes thereto of Adobe,
which are incorporated by reference in this Proxy Statement/Prospectus, and the
supplemental consolidated financial statements and the notes thereto of Frame,
which are included elsewhere in this Proxy Statement/Prospectus. The Adobe
historical financial statement data as of June 2, 1995 and for the six months
ended May 27, 1994 and June 2, 1995 and the Frame historical financial statement
data as of June 30, 1995 and for the six months ended June 30, 1994 and 1995
have been prepared on the same basis as the historical information derived from
audited financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring accruals, necessary for the
fair presentation of the results of operations for such periods. The pro forma
combined condensed consolidated balance sheet combines Adobe's June 2, 1995
condensed consolidated balance sheet with Frame's June 30, 1995 condensed
supplemental consolidated balance sheet, giving effect to the Merger as if it
had occurred on June 2, 1995. The pro forma combined condensed statements of
income combine Adobe's historical condensed consolidated statements of income
for the three fiscal years ended November 27, 1992, November 26, 1993 and
November 25, 1994, respectively, and the unaudited six months ended May 27, 1994
and June 2, 1995 with the corresponding Frame condensed supplemental
consolidated statements of operations for each of the three fiscal years ended
December 31, 1992, 1993 and 1994 and the unaudited six months ended June 30,
1994 and 1995, respectively giving effect to the Merger as if it had occurred on
November 30, 1991.
On July 28, 1995, Frame acquired Mastersoft, a developer of file conversion,
viewing and document comparison software for original equipment manufacturers
and end users through a pooling of interests. Accordingly, Frame's supplemental
consolidated financial statements have been prepared to include the results of
operations, financial position and cash flows of Mastersoft for all periods
presented.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
periods presented, nor is it necessarily indicative of future operating results
or financial position. The unaudited pro forma combined condensed financial
statements do not incorporate any benefits from cost savings or synergies of
operations of the combined company.
Adobe and Frame estimate that they will incur direct transaction costs of
approximately $13.5 million associated with the Merger which will be charged to
operations during the quarter ending December 1, 1995. In addition, it is
expected that following the Merger, Adobe will incur a restructuring charge to
operations, currently estimated to be between $15.0 million and $25.0 million in
the quarter ending December 1, 1995 to reflect costs associated with combining
the two companies. This amount is a preliminary estimate only and is therefore
subject to change. There can be no assurance that Adobe will not incur
additional charges in subsequent quarters to reflect costs associated with the
Merger or that management will be successful in their efforts to integrate the
operations of the two companies. The costs in connection with the Mastersoft
Acquisition are not anticipated to be significant.
These pro forma combined condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of Adobe and the supplemental consolidated financial
statements and the notes thereto of Frame included or incorporated by reference
herein.
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<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADOBE
SYSTEMS FRAME TECHNOLOGY ADOBE/ PRO FORMA
INCORPORATED CORPORATION JUNE FRAME COMBINED
JUNE 2, 30, PRO FORMA JUNE 2,
1995 1995 ADJUSTMENTS 1995
------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $129,339 $ 9,001 -- $138,340
Short-term investments...... 314,025 37,713 -- 351,738
Receivables................. 91,523 15,609 -- 107,132
Inventories................. 6,339 1,247 -- 7,586
Other current assets........ 9,547 4,906 -- 14,453
Deferred income taxes....... 18,472 -- $ 2,880(5) 21,352
------------ -------- ------------ ------------
Total current assets.......... 569,245 68,476 2,880 640,601
Property and equipment........ 44,119 8,780 -- 52,899
Other assets.................. 86,782 6,900 -- 93,682
Deferred income taxes......... 10,226 -- 1,940(3) 12,166
------------ -------- ------------ ------------
$710,372 $84,156 $ 4,820 $799,348
------------ -------- ------------ ------------
------------ -------- ------------ ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Trade and other payables.... $ 21,721 $ 4,578 -- $ 26,299
Accrued expenses............ 94,383 9,358 -- 103,741
Accrued merger transaction
and restructuring costs.... -- -- $ 38,500(3) 38,500
Income taxes payable........ 13,611 2,588 (7,310)(3) 8,889
Deferred revenue............ 7,738 8,011 15,749
------------ -------- ------------ ------------
Total current liabilities..... 137,453 24,535 31,190 193,178
------------ -------- ------------ ------------
Put warrants.................. 3,447 -- -- 3,447
Shareholders' equity:
Preferred stock............. -- -- -- --
Common stock................ 189,650 61,102 1,100(5) 251,852
Retained earnings
(accumulated deficit)...... 381,620 (1,547) 1,780(5) 352,603
(29,250)(3)
Unrealized gains on
investments................ 1,480 66 1,546
Cumulative foreign currency
translation adjustments.... (3,278) -- (3,278)
------------ -------- ------------ ------------
Total shareholders' equity.... 569,472 59,621 (26,370) 602,723
------------ -------- ------------ ------------
$710,372 84,156 $ 4,820 799,348
------------ -------- ------------ ------------
------------ -------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
43
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADOBE FRAME
SYSTEMS TECHNOLOGY PRO FORMA
INCORPORATED CORPORATION COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER DECEMBER NOVEMBER
27, 31, PRO FORMA 27,
1992 1992 ADJUSTMENTS 1992
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing................... $152,701 -- -- $152,701
Application products........ 287,362 $79,968 -- 367,330
----------- ---------- ----- -----------
Total revenue........... 440,063 79,968 -- 520,031
Direct costs.................. 87,871 11,854 -- 99,725
----------- ---------- ----- -----------
Gross margin.................. 352,192 68,114 -- 420,306
----------- ---------- ----- -----------
Operating expenses:
Software development costs:
Research and
development.............. 65,181 14,862 -- 80,043
Amortization of
capitalized software
development costs 10,128 829 -- 10,957
Sales, marketing and
customer support........... 145,748 34,529 -- 180,277
General and
administrative............. 50,344 8,492 -- 58,836
Write-off of acquired in
process research and
development................ 6,325 -- -- 6,325
----------- ---------- ----- -----------
Total operating
expenses................ 277,726 58,712 -- 336,438
----------- ---------- ----- -----------
Operating income.............. 74,466 9,402 -- 83,868
Nonoperating income (expense):
Interest, investment and
other income............... 10,982 1,131 -- 12,113
Loss on real estate
partnership................ (6,000) -- -- (6,000)
----------- ---------- ----- -----------
Income before income taxes.... 79,448 10,533 -- 89,981
Income tax provision.......... 29,059 3,258 -- 32,317
----------- ---------- ----- -----------
Net income.................... $ 50,389 $ 7,275 -- $ 57,664
----------- ---------- ----- -----------
----------- ---------- ----- -----------
Net income per share.......... $ 0.82 $ 0.51 $ 0.84
----------- ---------- -----------
----------- ---------- -----------
Shares used in computing net
income per share............. 61,193 14,366 68,663
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
44
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADOBE
SYSTEMS FRAME PRO FORMA
INCORPORATED TECHNOLOGY COMBINED
YEAR ENDED CORPORATION YEAR ENDED
NOVEMBER YEAR ENDED NOVEMBER
26, DECEMBER PRO FORMA 26,
1993 31, 1993 ADJUSTMENTS 1993
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing................... $146,176 -- -- $146,176
Application products........ 374,061 $ 59,866 -- 433,927
----------- ----------- ------------- -----------
Total revenue........... 520,237 59,866 -- 580,103
Direct costs.................. 96,638 11,154 -- 107,792
----------- ----------- ------------- -----------
Gross margin.................. 423,599 48,712 -- 472,311
----------- ----------- ------------- -----------
Operating expenses:
Software development costs:
Research and
development.............. 86,727 13,473 -- 100,200
Amortization of
capitalized software
development costs........ 10,208 290 -- 10,498
Sales, marketing and
customer support........... 170,945 36,001 -- 206,946
General and
administrative............. 59,203 6,845 -- 66,048
Write-off of acquired in
process research and
development................ 4,285 -- -- 4,285
Restructuring and other
charges.................... -- 25,800 -- 25,800
----------- ----------- ------------- -----------
Total operating
expenses................ 331,368 82,409 -- 413,777
----------- ----------- ------------- -----------
Operating income (loss)....... 92,231 (33,697) -- 58,534
Interest, investment and other
income....................... 12,829 995 -- 13,824
----------- ----------- ------------- -----------
Income (loss) before income
taxes........................ 105,060 (32,702) -- 72,358
Income tax provision
(benefit).................... 38,515 (310) $ (6,616)(5) 31,589
----------- ----------- ------------- -----------
Net income (loss)............. $ 66,545 $(32,392) $ 6,616 $ 40,769
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Net income (loss) per share... $ 1.11 $ (2.21) $ 0.60
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing net
income (loss) per share...... 60,144 14,644 68,252
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
45
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADOBE FRAME
SYSTEMS TECHNOLOGY PRO FORMA
INCORPORATED CORPORATION COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER DECEMBER NOVEMBER
25, 31, PRO FORMA 25,
1994 1994 ADJUSTMENTS 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing................... $156,652 -- -- $156,652
Application products........ 441,120 $ 77,845 -- 518,965
----------- ----------- ----------- -----------
Total revenue (a)....... 597,772 77,845 -- 675,617
Direct costs.................. 111,810 10,213 -- 122,023
----------- ----------- ----------- -----------
Gross margin (a).............. 485,962 67,632 -- 553,594
----------- ----------- ----------- -----------
Operating expenses:
Software development costs:
Research and
development.............. 98,995 14,802 -- 113,797
Amortization of
capitalized software
development costs........ 13,316 1,013 -- 14,329
Sales, marketing and
customer support........... 200,993 33,778 -- 234,771
General and
administrative............. 54,021 6,510 -- 60,531
Write-off of acquired in
process research and
development................ 15,469 -- -- 15,469
Merger transaction and
restructuring costs (b).... 72,183 -- -- 72,183
----------- ----------- ----------- -----------
Total operating
expenses................ 454,977 56,103 -- 511,080
----------- ----------- ----------- -----------
Operating income.............. 30,985 11,529 -- 42,514
Interest, investment and other
income....................... 9,012 1,420 -- 10,432
----------- ----------- ----------- -----------
Income before income taxes.... 39,997 12,949 -- 52,946
Income tax provision.......... 33,688 1,079 $ 2,297(5) 37,064
----------- ----------- ----------- -----------
Net income.................... $ 6,309 $ 11,870 $ (2,297) $ 15,882
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share.......... $ 0.10 $ 0.70 $ 0.23
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing net
income per share............. 61,620 16,851 70,383
----------- ----------- -----------
----------- ----------- -----------
<FN>
------------------------------
(a) In connection with the merger with Aldus, Adobe discontinued marketing two
products, FreeHand and PhotoStyler, which generated aggregate revenue and
gross margin of $53.2 million and $35.4 million, respectively, in 1994.
(b) Reflects incremental costs incurred in connection with the merger with
Aldus.
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
46
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADOBE FRAME
SYSTEMS TECHNOLOGY PRO FORMA
INCORPORATED CORPORATION COMBINED
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
MAY 27, JUNE 30, PRO FORMA MAY 27,
1994 1994 ADJUSTMENTS 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing................... $ 76,583 -- -- $ 76,583
Application products........ 209,102 $ 35,671 -- 244,773
----------- ----------- ----------- -----------
Total revenue (a)....... 285,685 35,671 -- 321,356
Direct costs.................. 53,899 5,022 -- 58,921
----------- ----------- ----------- -----------
Gross margin (a).............. 231,786 30,649 -- 262,435
----------- ----------- ----------- -----------
Operating expenses:
Software development costs:
Research and
development.............. 45,184 6,709 -- 51,893
Amortization of
capitalized software
development costs........ 6,773 344 -- 7,117
Sales, marketing and
customer support........... 97,118 16,338 -- 113,456
General and
administrative............. 26,140 2,819 -- 28,959
Write-off of acquired in
process research and
development................ 3,045 -- -- 3,045
----------- ----------- ----------- -----------
Total operating
expenses................ 178,260 26,210 -- 204,470
----------- ----------- ----------- -----------
Operating income.............. 53,526 4,439 -- 57,965
Interest, investment and other
income....................... 3,868 566 -- 4,434
----------- ----------- ----------- -----------
Income before income taxes.... 57,394 5,005 -- 62,399
Income tax provision.......... 20,995 403 $ 1,349(5) 22,747
----------- ----------- ----------- -----------
Net income.................... $ 36,399 $ 4,602 $ (1,349) $ 39,652
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share.......... $ 0.59 $ 0.28 $ 0.57
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing net
income per share............. 61,529 16,341 70,026
----------- ----------- -----------
----------- ----------- -----------
<FN>
------------------------------
(a) In connection with the merger with Aldus, Adobe discontinued marketing two
products, FreeHand and PhotoStyler, which generated aggregate revenue and
gross margin of $30.4 million and $20.0 million, respectively, during the
six months ended May 27, 1994.
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
47
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADOBE FRAME
SYSTEMS TECHNOLOGY PRO FORMA
INCORPORATED CORPORATION COMBINED
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 2, JUNE 30, PRO FORMA JUNE 2,
1995 1995 ADJUSTMENTS 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Licensing................... $ 91,395 -- -- $ 91,395
Application products........ 245,189 $ 46,575 -- 291,764
----------- ----------- ----------- -----------
Total revenue........... 336,584 46,575 -- 383,159
Direct costs.................. 63,555 6,088 -- 69,643
----------- ----------- ----------- -----------
Gross margin.................. 273,029 40,487 -- 313,516
----------- ----------- ----------- -----------
Operating expenses:
Software development costs:
Research and
development.............. 52,862 8,840 -- 61,702
Amortization of
capitalized software
development costs........ 5,155 780 -- 5,935
Sales, marketing and
customer support........... 95,288 18,868 -- 114,156
General and
administrative............. 23,666 3,327 -- 26,993
----------- ----------- ----------- -----------
Total operating
expenses................ 176,971 31,815 -- 208,786
----------- ----------- ----------- -----------
Operating income.............. 96,058 8,672 -- 104,730
Interest, investment and other
income....................... 12,274 1,035 -- 13,309
----------- ----------- ----------- -----------
Income before income taxes.... 108,332 9,707 -- 118,039
Income tax provision.......... 40,080 859 $ 2,538(5) 43,477
----------- ----------- ----------- -----------
Net income.................... $ 68,252 $ 8,848 $ (2,538) $ 74,562
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share.......... $ 1.04 $ 0.50 $ 1.00
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing net
income per share............. 65,343 17,765 74,581
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
48
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. PERIODS COMBINED
The Adobe statements of income for each of the years in the three-year
period ended November 25, 1994 and the six months ended May 27, 1994 and June 2,
1995 have been combined with the Frame statements of operations for each of the
years in the three-year period ended December 31, 1994 and the six months ended
June 30, 1994 and June 30, 1995.
The Adobe balance sheet as of June 2, 1995 has been combined with the Frame
balance sheet as of June 30, 1995.
On July 28, 1995, Frame acquired Mastersoft, a developer of file conversion,
viewing and document comparison software for original equipment manufacturers
and end users through a pooling of interests. Accordingly, Frame's supplemental
consolidated financial statements have been prepared to include the results of
operations, financial position and cash flows of Mastersoft.
NOTE 2. PRO FORMA EARNINGS PER SHARE
The pro forma combined condensed statements of income for Adobe and Frame
have been prepared as if the Merger was completed at the beginning of the
periods presented. The pro forma combined net income per share is based on the
combined weighted average number of common and common equivalent shares of Adobe
Common Stock and Frame Common Stock for each period, based on the exchange ratio
of 0.52 shares of Adobe Common Stock for each share of Frame Common Stock.
NOTE 3. BASIS OF PRESENTATION
PRO FORMA BASIS OF PRESENTATION
The pro forma combined condensed financial statements reflect the issuance
of 8,459,868 shares of Adobe Common Stock in exchange for an aggregate of
16,268,977 shares of Frame Common Stock (outstanding as of June 30, 1995) in
connection with the Merger based on the exchange ratio of 0.52 shares of Adobe
Common Stock for every share of Frame Common Stock.
The following table provides the pro forma share issuances in connection
with the merger:
<TABLE>
<S> <C>
Frame Common Stock outstanding at June 30, 1995................ 16,268,977
Exchange Ratio................................................. 0.52:1.00
----------
Number of shares of Adobe Common Stock exchanged............... 8,459,868
Number of shares of Adobe Common Stock outstanding at June 2,
1995.......................................................... 63,344,298
----------
Number of shares of Adobe Common Stock outstanding after
completion of the Merger...................................... 71,804,166
----------
----------
</TABLE>
The actual number of shares of Adobe Common Stock to be issued will be
determined at the Effective Time based on the number of shares of Frame Common
Stock outstanding at such time.
MERGER TRANSACTION AND RESTRUCTURING COSTS
Adobe and Frame estimate they will incur direct transaction costs of
approximately $13.5 million associated with the Merger, consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. These nonrecurring costs will be charged to
operations in the fiscal quarter in which the Merger is consummated.
In addition, it is expected that as a result of the Merger, the combined
company will incur restructuring costs currently estimated to be between $15.0
million and $25.0 million. The restructuring costs will include severance and
outplacement, and elimination of duplicate facilities, including cancellation of
leases.
49
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. BASIS OF PRESENTATION (CONTINUED)
The pro forma combined condensed balance sheet gives effect to such expenses
as if they had been incurred as of June 2, 1995, but the effects of these costs
have not been reflected in the pro forma combined condensed statements of
income.
The income tax effect of the merger transaction and restructuring costs has
also been reflected as a pro forma adjustment.
NOTE 4. CONFORMING ADJUSTMENTS
There have been no adjustments required to conform the accounting policies
of the combined company. Certain amounts for Frame have been reclassified to
conform with Adobe's financial statement presentation. There have been no
significant intercompany transactions.
NOTE 5. PROVISION FOR INCOME TAXES
Since Adobe plans to file consolidated tax returns which will include
Frame's operations subsequent to the Effective Time, pro forma adjustments were
made to reduce the valuation allowances previously provided by Frame in
connection with Frame's loss carryforward generated in 1993. Adobe has
determined that estimated combined future taxable income is sufficient to
conclude that it is more likely than not that the tax benefit of the loss
carryforwards will be realized.
Mastersoft was subject to Subchapter S of the Internal Revenue Code and,
accordingly, was not subject to income tax. Any additional pro forma income tax
provisions assuming that Mastersoft was not subject to Subchapter S would be
insignificant to the pro forma combined condensed statements of income.
50
<PAGE>
FRAME MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEARS ENDED 1992, 1993 AND 1994
The following table sets forth certain items from Frame's supplemental
consolidated statements of operations as a percentage of net revenues for the
periods indicated. The supplemental consolidated financial statements of Frame
have been prepared to include the results of operations, financial position and
cash flows of Mastersoft for all periods presented as a result of Frame's
acquisition of Mastersoft in a pooling of interests transaction effective July
28, 1995.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Product............................................................. 72.6% 59.9% 70.9%
Maintenance......................................................... 14.5 23.5 19.4
Services/other...................................................... 12.9 16.6 9.7
----- ----- -----
Total net revenues................................................ 100.0 100.0 100.0
Costs and expenses:
Cost of product revenues............................................ 8.5 7.5 7.0
Cost of maintenance revenues........................................ 0.8 1.4 1.2
Cost of services/other revenues..................................... 6.5 10.2 6.2
Research and development............................................ 18.6 22.5 19.0
Sales and marketing................................................. 43.2 60.1 43.4
Administrative and general.......................................... 10.6 11.5 8.4
Restructuring and other charges..................................... -- 43.1 --
----- ----- -----
Total costs and expenses.......................................... 88.2 156.3 85.2
----- ----- -----
Operating income (loss)............................................... 11.8 (56.3) 14.8
Interest income (expense), net........................................ 1.4 1.7 1.8
----- ----- -----
Income (loss) before income taxes..................................... 13.2 (54.6) 16.6
Provision (benefit) for income taxes.................................. 4.1 (0.5) 1.4
----- ----- -----
Net income (loss)..................................................... 9.1% (54.1) % 15.2%
----- ----- -----
----- ----- -----
</TABLE>
NET REVENUES. Total net revenues increased $17,979,000 or 30% in 1994 from
1993. Product revenues increased $19,317,000 or 54% in 1994 from 1993. These
increases were primarily a result of increased acceptance of Frame's flagship
product, FrameMaker-Registered Trademark-. In 1993, total net revenues decreased
by $20,102,000 or 25% from 1992. Product revenues decreased $22,174,000 or 38%
in 1993 from 1992. These decreases were primarily attributable to lower than
expected worldwide product sales. Maintenance revenues increased by $1,046,000
or 7% and by $2,456,000 or 21% in 1994 and 1993, respectively, reflecting the
growth in the customer installed base of products for which contract maintenance
services are provided. Services/other revenues decreased $2,384,000 or 24% in
1994 from 1993. Beginning in the third quarter of 1993, the cost of the hardware
revenue portion of services/ other revenues was classified as a reduction of
services/other revenues. The cost of the hardware revenue portion of
services/other revenues was $1,366,000 in the first six months of 1993. Had
these hardware costs been classified as a reduction of services/other revenues
during the first six months of 1993, services/other revenues would have
decreased $1,018,000 or 12% in 1994 from 1993. These decreases were primarily
due to lower product customization services revenue in 1994. Services/other
revenues increased in 1993 by $3,316,000 or 50%, when excluding the $3,700,000
of nonrecurring OEM revenue from Digital Equipment Corporation ("Digital")
recognized in the first quarter of 1992. This increase was primarily due to
higher product customization services revenue in 1993.
COST OF PRODUCT REVENUES. Frame's cost of product revenues includes product
packaging, documentation, media, royalties paid to third parties, and the
amortization of capitalized software development costs. Cost of product revenues
increased $943,000 or 21% in 1994 from 1993 primarily due to
51
<PAGE>
the increase in product revenues which was partially offset by lower direct
material and product packaging costs. In 1993, cost of product revenues
decreased by $2,384,000 or 35% from 1992 which was primarily attributable to
lower product revenues. In 1994, cost of product revenues decreased as a
percentage of product revenues to 10% from 12% in both 1993 and 1992,
respectively, primarily due to lower direct material and product packaging costs
of the Company's FrameMaker product, release 4, which began shipping in
September 1993.
COST OF MAINTENANCE REVENUES. Frame's cost of maintenance revenues includes
labor associated with custom maintenance revenue and an allocable portion of
manufacturing overhead. Cost of maintenance revenues increased $122,000 or 14%
in 1994 over 1993 and $220,000 or 35% in 1993 over 1992, which increases were
primarily attributable to the allocable costs to support the increase in
maintenance revenues.
COST OF SERVICES/OTHER REVENUES. Frame's cost of services/other revenues
includes allocable labor-related expenses associated with product customization,
training, and other services revenue. Cost of services/other revenues decreased
$1,283,000 or 21% in 1994 from 1993 and increased $925,000 or 18% in 1993 over
1992. Beginning in the third quarter of 1993, the cost of the hardware revenue
portion of services/other revenues was classified as a reduction of
services/other revenues. The cost of the hardware revenue portion of
services/other revenues was $1,366,000 in the first six months of 1993. Had
these hardware costs been classified as a reduction of services/other revenues
during 1993, cost of services/other revenues would have increased $83,000 or 2%
in 1994 when compared to the corresponding period in 1993 primarily due to the
allocable costs associated with product customization services. In 1993, the
increase in such costs despite the lower level of services/other revenues in
1993 reflects Frame's recognition in 1992 of non-recurring revenues of
approximately $3,700,000 in connection with the sale of a license and certain
limited rights to Digital, for which there were no associated costs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$1,329,000 or 10% in 1994 from 1993 and decreased as a percentage of net
revenues to 19% in 1994 from 23% in 1993. The dollar increase in 1994 is
primarily due to an increased number of research and development personnel. In
1993, research and development expenses decreased $1,389,000 or 9% from 1992 and
increased as a percentage of net revenues to 23% from 19% in 1992. This dollar
decrease in 1993 was primarily due to reduced research and development personnel
as a result of Frame's restructuring.
Since 1990, Frame has capitalized certain software development costs in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86. This
statement requires Frame to capitalize software development costs once
technological feasibility has been established. Capitalized development costs
for a product are amortized on the basis of the greater of (i) each product's
anticipated revenues or (ii) straight line over the remaining estimated economic
life of the product and are charged to cost of product revenues commencing with
the first customer shipment of the product. Frame capitalized approximately
$1,820,000, $2,131,000, and $1,972,000 of internal software development expenses
in 1994, 1993, and 1992, respectively, related to ongoing projects. Internal
software development costs of $1,995,000 (see "-- Restructuring and Other
Charges") were written off in 1993 due to write-downs to net realizable value.
The amount of product development expenditures required to be capitalized
under SFAS No. 86 in future periods is dependent both upon the level of
expenditures incurred on projects that meet the feasibility tests specified in
SFAS No. 86 and upon the timing of release of the completed products to Frame's
customers. Accordingly, amounts required to be capitalized may vary
significantly from period to period and could increase or decrease as a
percentage of total research and development expenditures.
SALES AND MARKETING. Sales and marketing expenses decreased $2,223,000 or
6% in 1994 from 1993 which reflects the reduction in sales and marketing
programs in the first half of 1994 and reductions in sales and marketing
personnel as a result of the Company re-evaluating and re-directing its
marketing and distribution strategy as a part of the 1993 restructuring. In
1993, sales and marketing expenses increased by $1,472,000 or 4% over 1992 which
reflected the increased sales and
52
<PAGE>
marketing programs primarily in the first two quarters of 1993 partially offset
by reductions in sales and marketing personnel during the last two quarters of
1993. Sales and marketing expenses as a percentage of net revenues were 43% in
1994 and were 60% and 43% in 1993 and 1992, respectively. This higher percentage
in 1993 reflects the relatively fixed nature of such costs within a given
quarter. Should revenues fall short of expectations, as occurred in the first
three quarters of 1993, such costs cannot be adjusted substantially within the
periods and operating results are adversely affected as such costs are compared
to lower revenue levels.
ADMINISTRATIVE AND GENERAL. Administrative and general expenses decreased
$335,000 or 5% in 1994 from 1993 and $1,647,000 or 19% in 1993 from 1992 and
decreased as a percentage of net revenues to 8% in 1994 from 11% in both 1993
and 1992 primarily due to decreased administrative personnel as a result of the
restructuring in 1993. In addition, administrative and general expenses in 1992
reflected costs of approximately $600,000 associated with the acquisition of
Datalogics, Inc. in August 1992.
RESTRUCTURING AND OTHER CHARGES. Due to lower than anticipated revenues
experienced in the first three quarters of 1993, Frame undertook certain
restructuring measures primarily related to reducing the size and scope of its
operations and re-evaluating and re-directing its product and distribution
strategies, resulting in restructuring and other charges totalling $25,800,000.
In connection with reducing the size and scope of its operations, Frame incurred
charges of $4,300,000 for severance and other costs associated with terminated
employees, for retention costs for remaining employees and for anticipated
future rental payments on vacated facilities. In addition, Frame incurred
charges of $11,700,000 related primarily to the write-off of investments in
companies with which Frame is no longer pursuing cooperative product development
efforts, and the write-off of purchased software related to products or features
which Frame no longer plans to utilize at this time. Also included in the
restructuring charges are the charges Frame incurred in connection with
reshaping its foreign distribution strategy primarily in Japan. In addition to
the restructuring charges, Frame incurred other charges related to the
restructuring totalling approximately $9,800,000 which consist primarily of
$3,100,000 related to the write-off of capitalized software and $4,600,000
related to the write-off of obsolete inventory and equipment and the settlement
of certain contingencies. Of the $25,800,000 total restructuring and other
charges, $12,800,000 resulted from the write-off of assets and $13,000,000
involve cash outflows of which $8,300,000 were future cash outflows as of
December 31, 1993.
During the second quarter of 1994, the results of the settlement of certain
contingencies and the reshaping of its foreign distribution in Japan were more
favorable than expected by approximately $2,200,000. However, these amounts were
offset by increased estimates of costs related to facilities previously vacated
and Frame's decision in the second quarter to significantly curtail its Irish
operations resulting in a charge for termination costs, vacated facilities and
fixed asset write-offs. Of the $8,300,000 accrued at December 31, 1993, Frame
paid during 1994 approximately $1,600,000 of salary costs, $885,000 for the
settlement of certain contingencies and $2,600,000 related to reshaping its
foreign distribution in Japan, the curtailment of the Irish operations, lease
payments for vacated facilities and other charges.
INTEREST INCOME (EXPENSE), NET. In 1994, interest income, net increased by
$425,000 over 1993 to $1,420,000. The increase in interest income was primarily
due to higher average invested cash balances and higher interest rates when
compared to 1993. Interest expense decreased in 1994 from 1993 primarily due to
a decrease in the capital lease obligations outstanding. In 1993, interest
income, net decreased by $136,000 from 1992 to $995,000. This decrease was
primarily the result of lower average invested cash balances and lower interest
rates when compared to 1992. Frame completed an initial public offering in
February 1992 and a second public offering in June 1992, which collectively
raised approximately $37.4 million, net of issuance costs.
PROVISION (BENEFIT) FOR INCOME TAXES. Frame's provision for income taxes
was $1,079,000 for 1994 compared to a benefit of $310,000 for 1993 and a
provision of $3,258,000 in 1992. The benefit for
53
<PAGE>
income taxes in 1993 was limited to $310,000 due to uncertainty regarding
realization of operating loss carryforwards, tax credit carryforwards, and
temporary differences between the tax bases of assets and liabilities and their
reported amounts. Frame's effective income tax rate was 8% in 1994 and 31% in
1992. The decrease in rates is primarily due to the tax benefits from the
realization of operating loss carryforwards and tax credit carryforwards.
Frame adopted Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes," effective January 1, 1993 retroactive to
1989. Prior year financial statements were not restated since the effect of
restating such financial statements would not be material.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments increased to $44,408,000
at December 31, 1994 from $35,729,000 at December 31, 1993. This increase was a
result of $14,194,000 provided by operating activities and $818,000 provided by
financing activities which were offset by cash used in investing activities of
$11,716,000 which includes the purchase of equipment, furniture and leasehold
improvements of $4,204,000 and the increase of capitalized software of
$1,820,000. Cash, cash equivalents and short-term investments decreased to
$35,729,000 at December 31, 1993 from $44,542,000 at December 31, 1992. This
decrease primarily reflected the reduced cash of $2,493,000 provided by
operating activities as a result of the large net operating loss which more than
offset significant reductions in accounts receivable balances, and cash used in
investing activities of $14,419,000 which included the purchase of equipment and
furniture of $2,524,000, the increase in capitalized software of $2,556,000, and
investments of $4,750,000 in other companies.
Frame has entered into several lease arrangements for the acquisition of
capital assets. The terms of the leases typically range from two to five years.
Most leases allow Frame to elect to either return or purchase the asset at the
end of the lease period for its then fair market value. Currently, interest
rates on the leases vary from approximately 4% to 18%, depending on the asset
financed. Principal payments on capital lease obligations were $668,000 in 1994,
$1,149,000 in 1993, and $1,295,000 in 1992. Capital expenditures were
approximately $4,204,000, $2,524,000, and $3,370,000 in 1994, 1993, and 1992,
respectively.
With respect to the approximately $3,700,000 in revenues which Frame
recognized in the first quarter of 1992 in connection with the sale of a license
and certain limited rights to Digital, Digital paid to Frame $1,333,000 in the
third quarter of 1992. The balance of this receivable was realized by Frame
during 1993 when the receivables were sold to a financing company.
At December 31, 1994, Frame's principal sources of liquidity included cash,
cash equivalents, and short-term investments of $44,408,000 and working capital
of $35,825,000. Frame also has a $10,000,000 line of credit with a bank that
expires in August 1996. Frame believes that its existing sources of liquidity
and anticipated funds from operations will satisfy Frame's projected working
capital and capital expenditure requirements through at least the next twelve
months.
54
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995
The following table sets forth certain items from Frame's supplemental
consolidated statements of income as a percentage of net revenues for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net revenues:
Product......................................................................... 68.2% 74.1%
Maintenance..................................................................... 21.0 17.3
Services/other.................................................................. 10.8 8.6
----- -----
Total net revenues............................................................ 100.0 100.0
Costs and expenses:
Cost of product revenues........................................................ 7.0 7.2
Cost of maintenance revenues.................................................... 1.3 1.7
Cost of services/other revenues................................................. 6.8 5.9
Research and development........................................................ 18.8 19.0
Sales and marketing............................................................. 45.8 40.5
Administrative and general...................................................... 7.9 7.1
----- -----
Total costs and expenses...................................................... 87.6 81.4
----- -----
Operating income.................................................................. 12.4 18.6
Interest income (expense), net.................................................... 1.6 2.2
----- -----
Income before income taxes........................................................ 14.0 20.8
Provision for income taxes........................................................ 1.1 1.8
----- -----
Net income........................................................................ 12.9% 19.0%
----- -----
----- -----
</TABLE>
NET REVENUES. Total net revenues increased by $10,904,000 or 31% in the
first six months of 1995 from the same period of 1994. Product revenues
increased $10,178,000 or 42% in the first six months of 1995 compared to the
corresponding period in 1994. These increases in product revenues were primarily
due to continued acceptance of Frame's flagship product, FrameMaker, of which
FrameMaker-Registered Trademark-, release 5, began shipping in June 1995.
Maintenance revenue increased $558,000 or 7% in the first six months of 1995
when compared to the same period in 1994 reflecting the increasing customer
installed base of products for which maintenance contracts are provided as well
as maintaining a consistent level of support renewals. Services/other revenues
increased $168,000 or 4% in the first six months of 1995 primarily due to higher
product customization services revenue in the first half of 1995 compared to
1994.
COST OF PRODUCT REVENUES. Frame's cost of product revenues includes product
packaging, documentation, media, royalties paid to third parties and the
amortization of capitalized software development costs. Cost of product revenues
increased by $831,000 or 33% in the first six months of 1995 when compared to
the same period in 1994 primarily due to the increase in product revenues. Cost
of product revenues remained relatively flat as a percentage of product revenues
at 10% in the first six months of 1995 when compared to the corresponding period
in 1994.
COST OF MAINTENANCE REVENUES. Frame's cost of maintenance revenues includes
labor associated with custom maintenance revenue and an allocable portion of
manufacturing overhead. Cost of maintenance revenues increased $343,000 or 78%
in the first six months of 1995 when compared to the corresponding periods in
1994. Cost of maintenance revenues increased as a percentage of maintenance
revenues to 10% from 6% in the first six months of 1995 when compared to the
corresponding period in 1994. These increases in costs are primarily due to a
change in the mix of maintenance revenues toward a greater proportion of systems
maintenance contracts, which have higher allocable costs than FrameMaker support
contracts.
55
<PAGE>
COST OF SERVICES/OTHER REVENUES. Frame's cost of services/other revenues
includes allocable labor-related expenses associated with product customization,
training, and other services revenue. Cost of services/other revenues increased
$328,000 or 14% in the first six months of 1995 when compared to the
corresponding period in 1994. Cost of services/other revenues increased as a
percentage of services/other revenues to 68% from 63% in the first six months of
1995 when compared to the corresponding period in 1994. These increases in costs
are primarily due to increased allocable costs associated with product
customization services.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$2,131,000 or 32% in the first six months of 1995 when compared to the same
period in 1994 and remained flat as a percentage of net revenues at 19% for the
first six months of 1995 when compared to the same period in the prior year.
This dollar increase in the first six months of 1995 is primarily due to an
increased number of research and development personnel including those located
in Bellevue, Washington which resulted from the acquisition of Curo Technology
International, Inc. in August 1994 and increased research and development
expenses related to new products.
SALES AND MARKETING. Sales and marketing expenses increased $2,530,000 or
15% in the first six months of 1995 from the same period of 1994. Sales and
marketing expenses as a percentage of net revenues decreased to 41% from 46% in
the first six months of 1995 from the same period in 1994.The dollar increase in
the second quarter and first six months in 1995 is primarily due to an increase
in sales and marketing programs including those related to the launch of
FrameMaker, release 5, which began shipping in June 1995. Although expenses
increased in dollars, the decrease as a percentage of net revenue is primarily
due to the expenses being compared to a lower revenue level in prior periods.
ADMINISTRATIVE AND GENERAL. Administrative and general expenses increased
by $508,000 or 18% in the first six months of 1995 when compared to the same
period in 1994 and decreased as a percentage of net revenues to 7% from 8% in
the first six months of 1995 when compared to the same period in the prior year.
These dollar increases are primarily due to increased administrative personnel
to support the growing business. Although expenses increased in dollars, the
decrease as a percentage of net revenue is primarily due to the expenses being
compared to a lower revenue level in prior periods.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net increased by
$469,000 or 83% in the first six months of 1995 as compared to the same period
of 1994. These increases were primarily the result of higher average invested
cash balances and higher interest rates on investments when compared to the same
periods of the prior year.
PROVISION FOR INCOME TAXES. Frame's effective income tax rates were 9% and
8% in the first two quarters of 1995 and 1994, respectively. These differ from
the U.S. federal statutory rate of 35% primarily due to the operating loss and
tax credit carryforwards utilized and the tax benefit from Frame's Ireland
operations which are taxed at a rate below the federal statutory rate.
QUARTERLY FLUCTUATIONS. Frame has experienced significant quarterly
fluctuations in operating results and anticipates that these fluctuations may
continue. These fluctuations have been caused by a number of factors including
the timing of OEM revenues, the introduction of new versions of Frame's products
and associated costs, the timing of sales and marketing and research and
development expenditures, and restructuring and other charges. When new releases
of its FrameMaker products are introduced, there can be no assurance that such
new versions will achieve market acceptance or that their introductions will not
adversely affect sales of Frame's current products. Frame began shipping its
FrameMaker, release 5, in June 1995. Future operating results may fluctuate as a
result of these and other factors, including Frame's ability to continue to
develop innovative products, the introduction of new products by Frame's
competitors, Frame's product and customer mix, the level of competition and the
pendency of the proposed Merger with Adobe which is currently expected to close
in September 1995, subject to Frame's shareholder approval and certain other
conditions. In addition, Frame's operating results may be influenced by
seasonality and overall trends in the economy. Further, Frame historically has
operated with little backlog and, as a result, net revenues in any quarter are
dependent on orders booked and shipped in that quarter. A significant portion of
Frame's
56
<PAGE>
operating expenses are relatively fixed and planned expenditures are based
primarily on sales forecasts. If revenues do not meet Frame's expectations in
any given period, the adverse impact on net income may be magnified by Frame's
inability to adjust spending quickly enough to compensate for a revenue
shortfall.
Due to the factors noted above and elsewhere in Frame Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Frame's future earnings and stock price may be subject to significant
volatility. Past financial performance should not be considered a reliable
indicator of performance for any future period and investors should not use
historical trends to anticipate future results or trends. Any shortfall in
revenues or earnings from the levels anticipated by securities analysts could
have an immediate and significant effect on the trading price of Frame's common
stock in any given period. Additionally, Frame may not learn of such shortfalls
until late in a fiscal quarter, which could result in an even more immediate and
adverse effect on the trading price of Frame's common stock. Further, Frame
participates in a highly dynamic industry which often results in volatility of
Frame's common stock price. Finally, during the pendency of the proposed Merger
with Adobe, Frame's stock price can be expected to fluctuate with Adobe's stock
price and based on the market's expectations regarding the timing of the Merger
and the several conditions to its consummation.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments increased to $46,714,000
at June 30, 1995 from $44,408,000 at December 31, 1994. This increase was
primarily due to $5,748,000 provided by operating activities and $979,000
provided by financing activities which were offset by cash used in investing
activities of $12,123,000 which includes the purchase of furniture and equipment
of $2,998,000 and the increase in capitalized software of $1,375,000.
While Frame has no material commitments, Frame anticipates that capital
purchases and the expansion of Frame's facilities will require additional
expenditures of approximately $2,500,000 through the end of 1995.
As of June 30, 1995, Frame's principal sources of liquidity included cash,
cash equivalents and short-term investments of $46,714,000 and working capital
of $43,957,000. Frame also has a $10,000,000 line of credit with a bank. There
were no borrowings outstanding against this line at June 30, 1995. Frame
believes that its existing sources of liquidity and anticipated funds from
operations will satisfy Frame's projected working capital and capital
expenditure requirements through at least the next twelve months.
COMPARISON OF SHAREHOLDERS' RIGHTS
In the event that the Merger is consummated, former holders of shares of
Frame Common Stock will, at the Effective Time, own shares of Adobe Common
Stock.
Since Adobe and Frame are both organized under the laws of the State of
California, the rights and privileges of the stockholders of Adobe and Frame,
respectively, are identical, except (i) to the extent that the Articles of
Incorporation and By-laws of Adobe and Frame differ and (ii) for the rights and
privileges of the holders of Adobe Common Stock arising under the Adobe Rights
Plan. The following is a summary of the material differences between the rights
of holders of Adobe Common Stock and the rights of holders of Frame Common Stock
at the date hereof.
COMPARISON OF ARTICLES OF INCORPORATION AND BY-LAWS
CUMULATIVE VOTING. The Adobe Articles are silent as to cumulative voting at
elections of directors, but the Adobe Bylaws provide that shareholders of Adobe
are not permitted to cumulate votes at any such election.
The Frame Articles are also silent as to cumulative voting at elections of
directors, but the Frame Bylaws provide that each shareholder of Frame entitled
to vote at any such election may cumulate
57
<PAGE>
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such shareholder's shares are normally entitled, or distribute such
shareholder's votes on the same principle among as many candidates as such
shareholder thinks fit.
CLASSIFICATION OF BOARD OF DIRECTORS. The Adobe Articles are silent as to
classification of the Adobe Board, but the Adobe Bylaws provide for
classification of the Adobe Board. The Adobe Board consists of two classes, with
directors in each class serving staggered two-year terms.
Neither the Frame Articles nor the Frame Bylaws provides for classification
of the Frame Board.
SHAREHOLDER ACTION BY WRITTEN CONSENT. The Adobe Bylaws provide that any
action which may be taken at any meeting of shareholders of Adobe may be taken
without a meeting and without prior notice if a consent in writing, setting
forth the actions to be so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes which would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. The Adobe Bylaws provide further that, except to
fill a vacancy occurring as a result of removal of a director, directors may not
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
The Frame Articles provide that no action may be taken by the shareholders
of Frame by written consent.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. The Adobe Bylaws provide
that for business to be properly brought before a meeting of Adobe shareholders
by one or more such shareholders, such shareholder or shareholders must give
timely notice thereof in writing to the Secretary of Adobe. To be timely, a
shareholder proposal (including director nominations) to be presented at an
annual meeting must be received at Adobe's principal executive offices not less
than 120 calendar days in advance of the date that Adobe's proxy statement was
released to shareholders of Adobe in connection with the previous year's annual
meeting of shareholders, except that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than 30
calendar days from the date contemplated at the time of the previous year's
proxy statement, or in the event of a special meeting, a shareholder proposal
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.
Neither the Frame Articles nor the Frame Bylaws contains a provision
regarding shareholder notice to Frame of shareholder proposals or director
nominations.
NUMBER OF DIRECTORS. The Adobe Bylaws provide for a minimum of five and a
maximum of eight directors, with the exact number fixed at eight, subject to
change within the specified range by a bylaw duly adopted by the shareholders or
by resolution of the Adobe Board. The minimum and maximum number of directors
may only be changed by a bylaw duly adopted by the affirmative vote of a
majority of the outstanding shares entitled to vote.
The Frame Bylaws provide for a minimum of four and a maximum of seven
directors, with the exact number fixed at five, subject to change within the
specified range by a bylaw amendment duly adopted by the Frame Board. The
minimum and maximum number of directors may only be changed by a bylaw amendment
duly adopted by the shareholders of Frame.
AMENDMENT OF THE BYLAWS. The Adobe Bylaws and the Frame Bylaws contain
identical provisions with respect to amendment thereof, except that (i) the
Adobe Bylaws also provide that the minimum and maximum number of Adobe directors
may only be changed by a bylaw duly adopted by the affirmative vote of a
majority of the outstanding shares of Adobe Common Stock entitled to vote, and
(ii) the Frame Bylaws also provide that a bylaw fixing the number of Frame
directors, or specifying the minimum number of Frame directors in the case of a
variable-number board, may not be amended to
58
<PAGE>
reduce such fixed number, or reduce such minimum fixed number to fewer than
five, if the vote cast against such amendment at a meeting of Frame shareholders
is equal to more than 16 2/3% of the outstanding shares entitled to vote.
CERTAIN CHARTER PROVISIONS
Shares of preferred stock may be issued in the future by the combined
company without further stockholder approval and upon such terms and conditions,
and having such rights, privileges and preferences, as the board of directors of
the combined company may determine. The rights of the holders of Adobe Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, a majority of
the outstanding voting stock of Adobe.
RIGHTS PLAN
On July 11, 1990, the Board of Directors of Adobe adopted a Rights Agreement
(the "Adobe Rights Agreement"), between Adobe and Manufacturers Harris Trust
Company of California, as Rights Agent, pursuant to which Adobe distributed as a
dividend to the holder of Adobe Common Stock one right for each share of Adobe
Common Stock outstanding. The rights will also be attached to all future
issuances of Adobe Common Stock prior to the Distribution Date (as defined
below). When exercisable, each right (an "Adobe Right") will initially entitle
the holder to purchase one share of Adobe Common Stock. The current exercise
price of the Adobe Rights, as adjusted, is $115 per share, which is the amount
that in the judgment of the Board of Directors represents the long-term value of
the Adobe Common Stock (the "Adobe Exercise Price").
Adobe Rights become exercisable on the earlier of: (i) the close of business
on the tenth day following a public announcement by Adobe or any person or group
(an "Acquiring Person") that such person or group has acquired, without the
approval of the Board of Directors, beneficial ownership of 20% or more of
outstanding Adobe Common Stock, or (ii) the tenth day (unless extended by the
Board prior to the time a person becomes an Acquiring Person) following the
commencement, or announcement of an intention to commence, by any person or
group, of a tender offer which would result in such person owning 20% or more of
the outstanding Adobe Common Stock (the earlier of such dates is referred to as
the "Distribution Date"). Adobe Rights may be traded separately from the Adobe
Common Stock once the Adobe Rights become exercisable.
Until the Distribution Date, Adobe may, except with respect to the
redemption price, amend the Adobe Rights in any manner (including an amendment
that provides that the Adobe Rights shall become exercisable for shares or
fractions of shares of preferred stock that are economically common stock
equivalents). After the Distribution Date, Adobe may amend the Adobe Rights in
any manner that does not adversely affect the interests of the holders of the
Adobe Rights.
The Adobe Exercise Price payable, and the number of shares of Adobe Common
Stock or other securities or property issuable, upon exercise of the Adobe
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Adobe Common Stock, (ii) upon the grant to holders of
the Adobe Common Stock or (iii) upon the distribution to holders of the Adobe
Common Stock of evidences of indebtedness or assets (excluding dividends payable
in Adobe Common Stock) or of subscription rights or warrants.
The Adobe Rights themselves do not entitle the holder thereof to any voting
rights. The Adobe Rights will expire ten years after the date of issuance, or
July 23, 2000, unless earlier redeemed by Adobe as described below. The Adobe
Rights are redeemable at a price of $0.01 per Adobe Right, by the vote of
Adobe's Board of Directors at any time until the close of business on the tenth
day following the date on which a person has become an Acquiring Person (the
"Stock Acquisition Date"). After the Stock Acquisition Date, the Adobe Rights
are also redeemable prior to any business combination in which all holders of
Adobe Common Stock are treated alike and not involving (except as a holder of
Adobe Common Stock treated like all other holders) an Acquiring Person.
59
<PAGE>
In the event that an Acquiring Person engages in certain self-dealing
transactions with Adobe (as described below), or a person becomes the beneficial
owner of 20% or more of the outstanding Adobe Common Stock other than pursuant
to a Permitted Offer (defined below), each holder of an Adobe Right thereafter
has the right to purchase, upon payment of the then current Adobe Exercise
Price, such number of shares of Adobe Common Stock having a market value at the
time of transaction equal to twice the Adobe Exercise Price. No fractional
shares of Adobe Common Stock will be issued upon exercise of the Adobe Rights
and, in lieu thereof, a payment in cash will be made to the holder of such Adobe
Rights equal to the same fraction of the current market value of a share of
Adobe Common Stock. If insufficient authorized but unissued shares of Adobe
Common Stock are available for issuance, Adobe must deliver all the available
shares of Adobe Common Stock and an amount of cash or other property of Adobe,
so that the aggregate value received is equal to twice the Adobe Exercise Price.
Adobe Rights held by the Acquiring Person will not be entitled to the benefit of
such an adjustment.
Self-dealing transactions are defined to include a merger of an Acquiring
Person into Adobe in which the Adobe Common Stock remains outstanding and
unchanged, the issuance of securities of Adobe to an Acquiring Person, the
transfer of assets to an Acquiring Person on other than an arm's length basis,
compensation to an Acquiring Person on a basis inconsistent with Adobe's past
practice, a loan or provision of other financial assistance (except
proportionately as a shareholder) to an Acquiring Person or the licensing, sale
or other transfer of proprietary technology or know-how from Adobe to the
Acquiring Person on terms not approved by the Board of Directors.
A tender or exchange offer for all outstanding shares of Adobe Common Stock
which is at a price and on terms determined by the Board of Directors to be both
adequate and otherwise in the best interests of Adobe and its shareholders other
than the Acquiring Person is a "Permitted Offer" under the Rights Plan.
If Adobe is acquired by any person in a merger or other business combination
transaction or 50% or more of its assets or earnings power are sold to any
person after the Distribution Date, each holder of an Adobe Right shall
thereafter have the right to purchase, upon payment of the then current Adobe
Exercise Price, such number of shares of common stock of the acquiring company
as has current market value equal to twice the Adobe Exercise Price. This
provision would not apply to such a transaction consummated with a person who
acquired shares pursuant to a Permitted Offer, if the price per share paid in
such a transaction is not less than that paid pursuant to the Permitted Offer
and the form of consideration being paid is the same as that paid in the
Permitted Offer.
In the event (i) any person or group becomes an Acquiring Person or (ii) any
of the types of transactions, acquisitions or other events described above as
self-dealing transactions occurs, the Adobe Board may require all or any portion
of the outstanding Adobe Rights to be exchanged for Adobe Common Stock on a pro
rata basis at the exchange ratio of one share of Adobe Common Stock per
outstanding Adobe Right. However, any rights held by an Acquiring Person would
not be entitled to participate in this exchange.
The Adobe Rights have certain anti-takeover effects. The Adobe Rights will
cause substantial dilution to a person or group that attempts to acquire Adobe
on terms or in a manner not approved by Adobe's Board of Directors, except
pursuant to an offer conditioned upon the negation, purchase or redemption of
the Adobe Rights. The Adobe Rights, however, should not affect any prospective
offeror willing to make an offer for all outstanding shares of Adobe Common
Stock at a fair price and otherwise in the best interests of Adobe and its
shareholders as determined by the Adobe Board, or affect any prospective offeror
willing to negotiate with the Adobe Board of Directors.
Frame does not have a rights plan.
60
<PAGE>
EXPERTS
The consolidated financial statements of Adobe at November 25, 1994 and
November 26, 1993, and for each of the years in the three-year period ended
November 25, 1994, which have been incorporated by reference in this Proxy
Statement/Prospectus, have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon incorporated by reference herein,
and are included in reliance upon the reports of KPMG Peat Marwick LLP and Ernst
& Young LLP, relating to the consolidated financial statements of Aldus
Corporation at December 31, 1993 and for each of the two years in the period
ended December 31, 1993, incorporated by reference herein, and given upon the
authority of said firms as experts in accounting and auditing.
The consolidated financial statements and supplemental consolidated
financial statements of Frame at December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, included or incorporated by
reference in this Proxy Statement/Prospectus have been audited by Ernst & Young
LLP as set forth in their reports thereon also included or incorporated by
reference in the Proxy Statement/Prospectus, which, as to the year 1992 for
Frame, are based in part on the reports of Deloitte & Touche LLP, independent
auditors. Such financial statements have been included or incorporated by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Mastersoft at December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994, incorporated
by reference into this Proxy Statement/ Prospectus, have been audited by Ernst &
Young LLP as set forth in their report thereon also incorporated by reference
herein. Such financial statements have been incorporated by reference in
reliance upon such report given upon the authority of such firm as an expert in
accounting and auditing.
LEGAL MATTERS
The validity of the Adobe Common Stock issuable pursuant to the Merger will
be passed upon for Adobe by Shearman & Sterling, San Francisco, California.
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, Palo Alto,
California is acting as counsel for Frame in connection with certain legal
matters relating to the Merger and the transactions contemplated thereby.
OTHER MATTERS
The Frame Board does not intend to bring any matters before the meeting
other than those specifically set forth in the notice of meeting and does not
know of any matters to be brought before the meeting by others. If any other
matters properly come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy in accordance with the
judgment of the Frame Board.
SHAREHOLDER PROPOSALS
The date by which shareholder proposals must be received by Frame for
inclusion in the proxy statement and the form of proxy for its 1996 Annual
Meeting of Shareholders, if the Merger has not been consummated prior to the
date the meeting is to be held, is December 5, 1995.
61
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FRAME TECHNOLOGY CORPORATION
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Supplemental Consolidated Balance Sheets, December 31, 1993 and 1994 and June 30, 1995
(unaudited).......................................................................... F-3
Supplemental Consolidated Statements of Operations, Each of the Three Years in the
Period Ended December 31, 1994 and Six Months Ended June 30, 1994 and 1995
(unaudited).......................................................................... F-4
Supplemental Consolidated Statements of Shareholders' Equity, Each of the Three Years
in the Period Ended December 31, 1994 and Six Months Ended June 30, 1995
(unaudited).......................................................................... F-5
Supplemental Consolidated Statements of Cash Flows, Each of the Three Years in the
Period Ended December 31, 1994 and Six Months Ended June 30, 1994 and 1995
(unaudited).......................................................................... F-6
Notes to Supplemental Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Frame Technology Corporation
We have audited the supplemental consolidated balance sheets of Frame
Technology Corporation (formed as a result of the consolidation of Frame
Technology Corporation and Mastersoft, Inc.) as of December 31, 1994 and 1993,
and the related supplemental consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. The supplemental consolidated financial statements give
retroactive effect to the merger of Frame Technology Corporation and Mastersoft,
Inc. on July 28, 1995, which has been accounted for using the pooling of
interests method as described in the notes to the supplemental consolidated
financial statements. These supplemental financial statements are the
responsibility of the management of Frame Technology Corporation. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits. We did not audit the 1992 statements of
operations, shareholders' equity or cash flows of Datalogics, Inc., a wholly
owned subsidiary until December 31, 1993 when it was merged into the Company,
which statement of operations reflects total revenues constituting 17% of the
related 1992 consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Datalogics, Inc., is based solely on the report of
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, and for the year 1992, the report of
other auditors, the supplemental financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Frame
Technology Corporation at December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, after giving retroactive affect to the merger of
Mastersoft, Inc., as described in the notes to the supplemental consolidated
financial statements, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Jose, California
May 31, 1995,
except for Note 13 as to which
the date is June 22, 1995
F-2
<PAGE>
FRAME TECHNOLOGY CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- ------------
1993 1994 1995
--------- --------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 11,101 $ 14,397 $ 9,001
Short-term investments.......................... 24,628 30,011 37,713
Accounts receivable, net of allowance for
doubtful accounts and distributor reserves of
$1,887 in 1993, $1,892 in 1994 and $1,731 at
June 30, 1995.................................. 12,440 13,065 15,609
Inventories..................................... 453 494 1,247
Prepaid expenses and other current assets....... 1,659 3,553 4,906
--------- --------- ------------
Total current assets.......................... 50,281 61,520 68,476
Furniture and equipment, at cost:
Machinery and equipment......................... 16,740 18,823 21,426
Furniture and fixtures.......................... 3,645 4,555 4,869
--------- --------- ------------
20,385 23,378 26,295
Less accumulated depreciation................... 13,920 15,884 17,515
--------- --------- ------------
6,465 7,494 8,780
Capitalized software, less accumulated
amortization of $2,504 in 1993, $3,517 in 1994
and $4,297 at June 30, 1995...................... 1,737 2,544 3,138
Other assets...................................... 435 3,591 3,762
--------- --------- ------------
$ 58,918 $ 75,149 $ 84,156
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 2,238 $ 3,290 $ 4,531
Accrued payroll and related expenses............ 3,501 5,709 4,642
Other accrued liabilities....................... 2,143 3,249 2,906
Accrued restructuring and other charges......... 8,304 3,231 1,810
Deferred revenue................................ 6,916 8,330 8,011
Income taxes payable............................ 834 1,754 2,588
Current obligations under capital leases........ 668 132 31
--------- --------- ------------
Total current liabilities..................... 24,604 25,695 24,519
Long-term obligations under capital leases........ 138 6 --
Deferred income taxes............................. 16 16 16
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, issuable in series;
2,000 shares authorized, no shares issued and
outstanding in 1993, 1994 or at June 30,
1995........................................... -- -- --
Common stock, no par value; authorized 20,000
shares, issued and outstanding 14,941 shares in
1993; 15,845 shares in 1994; 16,269 shares at
June 30, 1995.................................. 53,890 58,726 61,102
Unrealized gain(loss) on available-for-sale
securities, net of taxes....................... -- (189) 66
Retained earnings (accumulated deficit)......... (19,730) (9,105) (1,547)
--------- --------- ------------
Total shareholders' equity.................... 34,160 49,432 59,621
--------- --------- ------------
$ 58,918 $ 75,149 $ 84,156
--------- --------- ------------
--------- --------- ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
FRAME TECHNOLOGY CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1992 1993 1994 1994 1995
--------- ---------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product............................................. $ 58,035 $ 35,861 $ 55,178 $ 24,312 $ 34,490
Maintenance......................................... 11,593 14,049 15,095 7,501 8,059
Services/other...................................... 10,340 9,956 7,572 3,858 4,026
--------- ---------- --------- --------- ---------
Total net revenues.................................. 79,968 59,866 77,845 35,671 46,575
Costs and expenses:
Cost of product revenues............................ 6,858 4,474 5,417 2,504 3,335
Cost of maintenance revenues........................ 634 854 976 439 782
Cost of services/other revenues..................... 5,191 6,116 4,833 2,423 2,751
Research and development............................ 14,862 13,473 14,802 6,709 8,840
Sales and marketing................................. 34,529 36,001 33,778 16,338 18,868
Administrative and general.......................... 8,492 6,845 6,510 2,819 3,327
Restructuring and other charges..................... -- 25,800 -- -- --
--------- ---------- --------- --------- ---------
Total costs and expenses.......................... 70,566 93,563 66,316 31,232 37,903
--------- ---------- --------- --------- ---------
Operating income (loss)............................... 9,402 (33,697) 11,529 4,439 8,672
Interest expense...................................... (230) (225) (55) (36) (14)
Interest income....................................... 1,361 1,220 1,475 602 1,049
--------- ---------- --------- --------- ---------
Income (loss) before income taxes..................... 10,533 (32,702) 12,949 5,005 9,707
Provision (benefit) for income taxes.................. 3,258 (310) 1,079 403 859
--------- ---------- --------- --------- ---------
Net income (loss)..................................... $ 7,275 $ (32,392) $ 11,870 $ 4,602 $ 8,848
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Net income (loss) per share........................... $ 0.51 $ (2.21) $ 0.70 $ 0.28 $ 0.50
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Shares used in computing per share amounts............ 14,366 14,644 16,851 16,341 17,765
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
FRAME TECHNOLOGY CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS SUBSEQUENT TO DECEMBER 31, 1994 ARE UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------------------
UNREALIZED GAIN RETAINED
SERIES A SERIES B COMMON STOCK (LOSS) ON EARNINGS TOTAL
-------------- -------------- --------------- MARKETABLE (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SECURITIES DEFICIT) EQUITY
------ ------ ------ ------ ------ ------- ----------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991..... 2,650 $3,061 5,714 $9,582 8,161 $ 212 $ -- $ 7,798 $20,653
Issuance of common stock in
initial public offering, net
of issuance costs............. -- -- -- -- 1,769 22,200 -- -- 22,200
Conversion of preferred stock
and warrants to common
stock......................... (2,650) (3,061) (5,714) (9,582) 2,913 12,643 -- -- --
Issuance of common stock in
second public offering, net of
issuance costs................ -- -- -- -- 1,028 15,167 -- -- 15,167
Income tax benefits realized
from employee stock option
exercises..................... -- -- -- -- -- 1,477 -- -- 1,477
Shares issued under employee
stock purchase plan........... -- -- -- -- 36 433 -- -- 433
Exercise of stock options...... -- -- -- -- 507 427 -- -- 427
Subchapter S distributions of
acquired company prior to
acquisition................... -- -- -- -- -- (607) (607)
Other.......................... -- -- -- -- -- -- -- 3 3
Net income..................... -- -- -- -- -- -- -- 7,275 7,275
------ ------ ------ ------ ------ ------- --- ------------ -------------
Balance at December 31, 1992..... -- -- -- -- 14,414 52,559 -- 14,469 67,028
Shares issued under employee
stock purchase plan........... -- -- -- -- 92 761 -- -- 761
Exercise of stock options...... -- -- -- -- 435 570 -- -- 570
Subchapter S distributions of
acquired company prior to
acquisition................... -- -- -- -- -- (1,807) (1,807)
Net income (loss).............. -- -- -- -- -- -- -- (32,392) (32,392)
------ ------ ------ ------ ------ ------- --- ------------ -------------
Balance at December 31, 1993..... -- -- -- -- 14,941 53,890 -- (19,730) 34,160
Shares issued under employee
stock purchase plan........... -- -- -- -- 95 590 -- -- 590
Exercise of stock options...... -- -- -- -- 608 2,141 -- -- 2,141
Issuance of common stock
related to acquisition........ -- -- -- -- 201 2,105 -- -- 2,105
Subchapter S distributions of
acquired company prior to
acquisition................... -- -- -- -- -- (1,245) (1,245)
Unrealized gain(loss) on
available-for-sale
securities.................... -- -- -- -- -- -- (189) -- (189)
Net income..................... -- -- -- -- -- -- -- 11,870 11,870
------ ------ ------ ------ ------ ------- --- ------------ -------------
Balance at December 31, 1994..... -- -- -- -- 15,845 58,726 (189) (9,105) 49,432
Shares issued under employee
stock purchase plan........... -- -- -- -- 71 791 -- -- 791
Exercise of stock options...... -- -- -- -- 353 1,585 -- -- 1,585
Subchapter S distributions of
acquired company prior to
acquisition................... -- -- -- -- -- (1,290) (1,290)
Unrealized gain(loss) on
available-for-sale
securities.................... -- -- -- -- -- -- 255 -- 255
Net income..................... -- -- -- -- -- -- -- 8,848 8,848
------ ------ ------ ------ ------ ------- --- ------------ -------------
Balance at June 30,1995.......... -- $-- -- $-- 16,269 $61,102 $ 66 $ (1,547) $59,621
------ ------ ------ ------ ------ ------- --- ------------ -------------
------ ------ ------ ------ ------ ------- --- ------------ -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
FRAME TECHNOLOGY CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 7,275 $ (32,392) $ 11,870 $ 4,602 $ 8,848
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 4,090 4,275 4,587 2,089 2,625
Deferred income taxes................................... 74 (861) -- -- --
Non-cash portion of restructuring charges............... -- 10,936 -- -- --
Accounts receivable..................................... (13,951) 10,795 (438) 1,823 (2,544)
Inventories............................................. (248) 1,113 (42) 75 (753)
Prepaid expenses and other current assets............... 2,106 839 (2,031) (734) (1,353)
Long-term receivables................................... (523) 2,218 -- -- --
Accounts payable........................................ (259) (1,244) 841 703 1,241
Accrued payroll liabilities & related expenses.......... 2,478 (1,296) 2,208 1,300 (1,067)
Other accrued liabilities............................... 907 (724) 226 446 (343)
Accrued restructuring and other charges................. -- 8,304 (5,073) (3,096) (1,421)
Deferred revenue........................................ 2,167 120 1,234 (1,054) (319)
Income taxes payable.................................... 1,414 410 812 220 834
---------- ---------- ---------- ---------- ----------
Total adjustments..................................... (1,745) 34,885 2,324 1,772 (3,100)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities............. 5,530 2,493 14,194 6,374 5,748
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment...................... (3,370) (2,524) (4,204) (715) (2,998)
Purchases of available-for-sale investments............... (41,595) (56,433) (32,191) (11,877) (28,647)
Sales of available-for-sale investments................... 27,798 51,695 26,619 10,323 21,200
Increase in capitalized software.......................... (4,822) (2,556) (1,820) (820) (1,375)
Investments in other companies............................ -- (4,750) -- -- --
Decrease (increase) in other assets....................... (133) 149 (120) (304) (303)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities................. (22,122) (14,419) (11,716) (3,393) (12,123)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations........... (1,295) (1,149) (668) (379) (107)
Payment of note payable................................... (500) -- -- -- --
Proceeds from issuance of common stock.................... 38,227 1,331 2,731 968 2,376
Subchapter S distributions of acquired company prior to
acquisition.............................................. (607) (1,807) (1,245) (463) (1,290)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities... 35,825 (1,625) 818 126 979
---------- ---------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.......... 19,233 (13,551) 3,296 3,107 (5,396)
Cash and cash equivalents at beginning of period.......... 5,419 24,652 11,101 11,101 14,397
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period................ $ 24,652 $ 11,101 $ 14,397 $ 14,208 $ 9,001
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid............................................. $ 253 $ 175 $ 55 $ 36 $ 15
Income taxes paid......................................... $ 1,602 $ 363 $ 176 $ 183 $ 22
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH AND FINANCING INFORMATION
Capital lease obligations of $334 were incurred when the Company entered into
leases for furniture and equipment during 1992.
Income tax benefits of $1,477 were realized from employee stock option exercises
during 1992.
Preferred stock and warrants of $12,643 were converted to common stock during
1992.
In August 1994, 200,526 shares of common stock were exchanged for all the
outstanding shares of Curo's common stock.
The purchase price of approximately $3,200 includes the value of the Company's
common stock and other transaction costs.
See accompanying notes.
F-6
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(Information for the six months ended June 30, 1994 and 1995 is unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Frame Technology Corporation (the Company) develops, markets and supports
writing and publishing software for the creation and distribution of critical
business and technical documents.
BASIS OF PRESENTATION
The accompanying supplemental consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries and have been prepared
to include the accounts of Mastersoft, Inc. ("Mastersoft") for all periods
presented as a result of the Company's acquisition of Mastersoft in a pooling of
interests transaction effective July 28, 1995. All significant intercompany
accounts and transactions have been eliminated.
REVENUE RECOGNITION
Product revenues from distributors, resellers, and end-users are recognized
at the time of shipment, net of provisions for estimated future returns for
inventory rebalancing, stock rotation, and provision for excess quantities above
levels deemed appropriate in the distribution channel. Revenues from original
equipment manufacturers, including technology revenues and the portion of
royalty revenues not subject to future obligations, are recognized upon shipment
of the software. Royalty revenues that exceed guaranteed amounts are recognized
when earned.
Maintenance is deferred and recognized as revenue over the term of the
contract. Services revenues from software development projects are recognized by
the percentage-of-completion method. At the time a loss on a project is known,
the entire estimated loss is recorded. Other service revenues, primarily
consulting and training, are recognized at the time the service is performed.
The hardware revenue portion of services/other revenues, which is generated
primarily through the sale of computer equipment and third party software in
connection with computer installation projects, is recognized upon shipment.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Other
short-term investments consist of municipal bonds, commercial paper,
certificates of deposit and market auction preferred stock. These investments
are typically short-term in nature and, therefore, bear minimal risk. To date,
the Company has not experienced significant losses on these investments.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Under SFAS 115, management determines the
appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. At December 31,
1994 and June 30, 1995, all debt securities are designated as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
shareholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization, as well as any interest on the securities, is included in
interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income, net. The cost of securities sold is based on the specific identification
method.
F-7
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Due to insignificant differences between the cost and fair value of the
Company's investments, the adoption of SFAS 115 had no material effect on the
Company's financial statements at January 1, 1994. In accordance with SFAS 115,
prior period financial statements have not been restated. The following is a
summary of the Company's investments by major security type at fair value:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1994
Money market and auction instruments.................... $ 5,115 $ -- $ 7 $ 5,108
U.S. Treasury notes..................................... 8,998 -- 69 8,929
Municipal bonds......................................... 5,001 -- 31 4,970
Corporate debt securities............................... 6,285 -- 28 6,257
Commercial paper........................................ 9,298 -- 8 9,290
Other securities........................................ 5,504 -- 46 5,458
--------- --- ----- ---------
$ 40,201 $ -- $ 189 $ 40,012
--------- --- ----- ---------
--------- --- ----- ---------
Included in cash and cash equivalents................... $ 10,003 $ -- $ 2 $ 10,001
Included in short-term investments...................... 30,198 -- 187 30,011
--------- --- ----- ---------
$ 40,201 $ -- $ 189 $ 40,012
--------- --- ----- ---------
--------- --- ----- ---------
AT JUNE 30, 1995
Money market and auction instruments.................... $ 984 $ -- $ -- $ 984
U.S. Treasury notes..................................... 9,425 31 4 9,452
Municipal bonds......................................... 3,984 -- -- 3,984
Corporate debt securities............................... 6,471 45 7 6,509
Commercial paper........................................ 10,985 11 10 10,986
Certificates of deposit................................. 5,798 6 6 5,798
Other securities........................................ 3,253 -- -- 3,253
--------- --- ----- ---------
$ 40,900 $ 93 $ 27 $ 40,966
--------- --- ----- ---------
--------- --- ----- ---------
Included in cash and cash equivalents................... $ 3,253 $ -- $ -- $ 3,253
Included in short-term investments...................... 37,647 93 27 37,713
--------- --- ----- ---------
$ 40,900 $ 93 $ 27 $ 40,966
--------- --- ----- ---------
--------- --- ----- ---------
</TABLE>
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method. Inventories consist principally of software and related
documentation.
FURNITURE AND EQUIPMENT
Furniture and equipment (including leasehold improvements) are depreciated
and amortized over the shorter of the lease term or the estimated useful lives
of the assets (two to five years) using the straight-line method.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs incurred in developing a
product once technological feasibility of the product has been determined.
Capitalized software costs also include
F-8
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
amounts paid for purchased software and outside development on products that
have reached technological feasibility. The Company wrote-off capitalized
software of approximately $6,187,000 during 1993 related to projects for which
development efforts have been terminated and write-downs to net realizable
value. All capitalized software costs are amortized to cost of revenues on the
basis of the greater of each product's projected revenues or straight-line over
the remaining estimated economic life of the product, generally one to three
years. For the years ended December 31, 1992, 1993, and 1994, and the six months
ended June 30, 1994 and 1995, software amortization expense was $875,000,
$328,000, $1,013,000, $344,000, and $780,000, respectively.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based upon weighted average common and common
equivalent shares outstanding during the period. Equivalent shares are
calculated using the treasury stock method and consist of outstanding stock
options that have a dilutive effect on income per share. During 1993, no common
stock equivalents were included in the computation of earnings per share as
their effect was antidilutive.
CONCENTRATION OF CREDIT RISK
The Company sells to original equipment manufacturers, distributors,
resellers, and directly to end users. The Company performs ongoing credit
evaluations of its customers but does not require collateral. The Company
maintains reserves for potential credit losses, and such losses have not been
material and have been within management's expectations.
FOREIGN CURRENCY ACCOUNTING
The U.S. dollar is the functional currency for all foreign operations.
Foreign currency exchange gains or losses were not material during the three
years and six-month periods reported.
INTERIM FINANCIAL DATA (UNAUDITED)
The unaudited financial statements for the six months ended June 30, 1994
and 1995 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the financial position and results of operations, in accordance with generally
accepted accounting principles.
2. MERGER WITH DATALOGICS
On August 18, 1992, the Company acquired all of the common stock of
Datalogics, Inc. ("Datalogics") for 1,000,000 shares of the Company's common
stock. Datalogics supplies computer programming services and general consulting
services in the computer science field through various contractual arrangements.
The merger was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements and notes to consolidated financial
statements have been previously restated to include the results of Datalogics
for all periods presented. In connection with the acquisition, the Company
incurred costs of approximately $600,000 for legal, accounting, and financial
advisory services.
See table in Note 4 for the combined net revenues and net income for the
year ended December 31, 1992.
F-9
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
3. MERGER WITH CURO
On August 3, 1994, the Company acquired Curo Technology International, Inc.
("Curo") for approximately $3,200,000. Curo designs, manufactures and markets
electronic document management software.
The acquisition was accounted for as a purchase and the excess of the cost
over the fair value of the tangible net assets acquired was $3,228,000 which was
allocated to intangible assets and is being amortized over seven years on a
straight-line basis. The Company periodically assesses the recoverability of
such intangible assets. A total of 200,526 shares of the Company's common stock
were exchanged for all the outstanding shares of Curo's common stock. The
purchase price includes the value of the Company's common stock and other
transaction costs. The merger was structured as a tax-free reorganization. The
Company's consolidated results of operations include the operations of Curo from
August 1994. Pro forma information has not been shown due to the amounts not
being material to the financial statements.
4. MERGER WITH MASTERSOFT
On July 28, 1995, the Company acquired all of the capital stock of
Mastersoft, an Arizona Subchapter S-corporation, for 1,200,000 shares of the
Company's common stock. Mastersoft develops, markets and supports file
conversion, viewing and document comparison software. As a result of this
transaction, Mastersoft continued as the surviving corporation and a wholly
owned subsidiary of the Company.
The merger was accounted for as a pooling of interests and, accordingly, the
Company's supplemental consolidated financial statements and notes to
supplemental consolidated financial statements have been prepared to include
Mastersoft for all periods presented. The Company did not incur any material
amount of costs associated with the merger.
The table below sets forth the combined net revenues and net income for the
years ended December 31, 1992, 1993, and 1994, and for the six months ended June
30, 1994 and 1995:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1992 1993 1994 1994 1995
--------- ---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues:
Frame..................................... $ 62,990 $ 56,093 $ 72,413 $ 33,297 $ 43,536
Datalogics................................ 13,595 -- -- -- --
Mastersoft................................ 3,383 3,773 5,432 2,374 3,039
--------- ---------- --------- --------- ---------
$ 79,968 $ 59,866 $ 77,845 $ 35,671 $ 46,575
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Net income (loss):
Frame..................................... $ 4,429 $ (34,018) $ 9,705 $ 3,631 $ 7,733
Datalogics................................ 1,348 -- -- -- --
Mastersoft................................ 1,498 1,626 2,165 971 1,115
--------- ---------- --------- --------- ---------
$ 7,275 $ (32,392) $ 11,870 $ 4,602 $ 8,848
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
5. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain furniture and equipment under capital leases. The
furniture and equipment has been capitalized and is being amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the assets. The related obligations under capital leases
F-10
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
5. OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
represent the present value of future minimum lease payments. Assets capitalized
under leases totaled $4,860,000, $4,844,000, $4,228,000, and $4,164,000 at
December 31, 1992, 1993, and 1994, and June 30, 1995, respectively. Accumulated
amortization of these leased assets was $2,890,000, $4,037,000, $4,131,000, and
$4,122,000 at December 31, 1992, 1993, and 1994, and June 30, 1995,
respectively. There were no leases entered into in 1993 or 1994 or during the
six month period ended June 30, 1995.
The aggregate minimum annual payments under capital lease obligations were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
--------------- -----------
(IN THOUSANDS)
<S> <C> <C>
1995........................................................................... $ 139 $ 26
1996........................................................................... 6 6
----- ---
Future minimum lease payments.................................................. 145 32
Less amounts representing interest............................................. 7 1
----- ---
Present value of future minimum lease payments................................. 138 31
Less current obligations under capital leases.................................. 132 31
----- ---
Noncurrent obligations under capital leases.................................... $ 6 $ --
----- ---
----- ---
</TABLE>
6. COMMITMENTS
The Company currently leases facilities under agreements that expire between
July 1995 and December 2026. Aggregate future minimum annual payments under
these operating leases that have noncancelable lease terms as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
1995.......................................................................... $ 2,654 $ 1,671
1996.......................................................................... 2,507 2,658
1997.......................................................................... 2,518 2,704
1998.......................................................................... 2,541 2,744
1999.......................................................................... 1,699 1,836
Thereafter.................................................................... 3,276 3,358
------------ ---------
Future minimum lease payments................................................. $ 15,195 $ 14,971
------------ ---------
------------ ---------
</TABLE>
The amounts above include approximately $2,386,000 and $1,810,000 accrued at
December 31, 1994 and June 30, 1995 for future rental payments on vacated
facilities.
Operating lease expense charged to operations amounted to $1,460,000,
$1,729,000, $2,070,000, $803,000 and $1,469,000, for the years ended December
31, 1992, 1993, and 1994, and for the six month periods ended June 30, 1994 and
1995, respectively.
7. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK AND WARRANTS
On February 12, 1992, the Company made an initial public offering of its
common stock. At that time, all issued and outstanding shares of the Company's
Series A and B convertible preferred stock were converted into approximately
2,836,000 shares of the Company's common stock. In addition, at
F-11
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
the closing of the offering, all of the outstanding warrants to purchase common
stock and Series A preferred stock were converted into common stock. On June 24,
1992, the Company sold additional shares of common stock in a public offering.
The Board of Directors has the authority to issue, without further action by
shareholders, up to 2,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges, and restrictions, including
dividend rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms, and the number of shares constituting any series or the
designation of such series.
STOCK OPTION AND EMPLOYEE BENEFIT PLANS
DUAL STOCK OPTION PLAN
The Company has a Dual Stock Option Plan that provides for the granting of
options to employees, consultants, and officers. The Board of Directors
determines the term of each option, the option price, and conditions under which
the option becomes exercisable. On June 8, 1993, the Company repriced
approximately 841,000 stock options ranging from $6.75 to $22.50 to $6.00. In
January 1995, the Board of Directors approved an additional 680,000 shares
available for grant.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------
NUMBER OF AGGREGATE
SHARES PRICE PER SHARE PRICE
----------- ----------------- ---------
(IN THOUSANDS, EXCEPT PRICE PER SHARE)
<S> <C> <C> <C>
Balance at December 31, 1991................................. 1,923 $ .02 - $ 6.75 $ 3,256
Options granted............................................ 1,101 $ 8.25 - $22.50 17,270
Options exercised.......................................... (507) $ .06 - $ 6.75 (427)
Options canceled........................................... (132) $ .30 - $22.50 (717)
----- ---------
Balance at December 31, 1992................................. 2,385 $ .02 - $22.50 19,382
Options granted............................................ 3,039 $ 6.00 - $ 9.13 20,982
Options exercised.......................................... (435) $ .06 - $14.25 (570)
Options repriced........................................... (841) $ 6.75 - $22.50 (1,116)
Options canceled........................................... (987) $ .30 - $22.50 (19,706)
----- ---------
Balance at December 31, 1993................................. 3,161 $ .02 - $22.50 18,972
Options granted............................................ 831 $ 1.79 - $16.00 9,783
Options exercised.......................................... (569) $ .30 - $ 8.63 (2,095)
Options canceled........................................... (368) $ .60 - $22.50 (2,847)
----- ---------
Balance at December 31, 1994................................. 3,055 $ .60 - $16.00 23,813
Options granted............................................ 651 $ 1.79 - $24.00 11,113
Options exercised.......................................... (334) $ .60 - $14.25 (1,397)
Options canceled........................................... (156) $ 3.00 - $24.00 (1,812)
----- ---------
Balance at June 30, 1995..................................... 3,216 $ .60-$24.00 $ 31,717
----- ---------
----- ---------
</TABLE>
At December 31, 1994 and June 30, 1995, there were approximately 354,000 and
518,000 shares, respectively, available for grant. Options of approximately
599,000, 829,000, 804,000, and 906,000 as of December 31, 1992, 1993, and 1994,
and June 30, 1995, respectively, were exercisable at an aggregate price of
approximately $933,000, $3,096,000, $4,330,000, and $6,129,000, respectively.
F-12
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In December 1991, the Company adopted an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code and reserved 600,000 shares of common
stock for issuance under the plan. Under this plan, qualified employees are
entitled to purchase shares at 85% of fair market value. During 1992, 1993, and
1994, and for the six month period ended June 30, 1995, shares totalling
approximately 36,000, 92,000, 95,000, and 71,000, respectively, were issued
under the plan.
DIRECTOR'S STOCK OPTION PLAN
In January 1994, the Board of Directors approved the 1994 Director's Stock
Option Plan (the 1994 Plan) and reserved 100,000 shares of common stock for
issuance thereunder. In January 1995, the Board of Directors approved an
amendment of the 1994 Plan and added an additional 75,000 shares available for
grant. Under this plan, nonemployee directors are granted options to purchase
common stock at 100% of fair market value on dates specified in the plan. During
both the 1994 year and for the six month period ended June 30, 1995, 75,000
shares were granted under the plan at an aggregate price of approximately
$731,000 and $1,350,000, respectively. At June 30, 1995, options for 125,000
shares at an aggregate exercise price of approximately $1,838,000 remained
outstanding under this plan of which 28,000 were exercisable at an aggregate
price of $343,000.
BONUS PLANS
The Company has adopted bonus plans for officers and key employees, which
provides for payment of cash bonuses to the participants based upon the Company
attaining certain sales and operating profit goals and each participant's
performance during the year. The Company's Board of Directors determines the
amounts of the cash bonuses and establishes the specific goals upon which awards
are based for the Chief Executive Officer and Chief Financial Officer. In
addition, the Company pays discretionary bonuses to employees. The Company
recorded bonus expenses of $1,741,000, $667,000, $2,137,000, $908,000, and
$883,000 for the years ended December 31, 1992, 1993, and 1994, and for the six
month periods ended June 30, 1994 and 1995, respectively.
401(K) PLAN
The Company has a retirement savings plan (the 401(k) Plan) that covers all
employees of the Company. An employee may elect to defer, in the form of
contributions to the 401(k) Plan, up to 15% of the total compensation that would
otherwise be paid to the employee, not to exceed a statutorily prescribed annual
limit. Employee contributions are held and invested by the plan's trustees for
the benefit of plan participants. The contributions are fully vested and
nonforfeitable at all times. The 401(k) Plan permits, but does not require that,
the Company make contributions to the plan. In July 1992, the Company announced
that contributions would be made to the 401(k) Plan based upon the Company's
profitability up to a maximum of 50% of the employee's elective deferrals. The
Company recorded expense relating to the Plan of approximately $93,000, $83,000,
and $66,000 for the years ended December 31, 1992, 1993, and 1994 and none for
the six month periods ended June 30, 1994 and 1995, respectively.
F-13
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON STOCK RESERVED
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Dual stock option plan......................................................... 3,392 3,734
Director's stock option plan................................................... 110 166
Employee stock purchase plan................................................... 376 306
----- -----
3,878 4,206
----- -----
----- -----
</TABLE>
8. TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes."
During the periods presented, Mastersoft elected to be taxed as an
S-corporation whereby the income tax effects accrued directly to its
shareholders. As of the effective date of the merger with the Company,
Mastersoft's S-corporation election terminated. Had Mastersoft been subject to
income tax during the periods presented, the additional income tax provision
would not have been material to the Company's results of operations.
The provision (benefit) for income taxes for the years ended December 31,
1992, 1993, and 1994 consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................................. $ 1,879 $ (987) $ 272
Deferred................................................................ 165 501 --
--------- --------- ---------
2,044 (486) 272
State:
Current................................................................. 777 25 50
Foreign:
Current................................................................. 437 135 757
Deferred................................................................ -- 16 --
--------- --------- ---------
437 151 757
--------- --------- ---------
Total provision (benefit)................................................. $ 3,258 $ (310) $ 1,079
--------- --------- ---------
--------- --------- ---------
</TABLE>
The benefit for income taxes in 1993 is limited to $310,000 due to uncertainty
regarding realization of operating loss carryforwards, tax credit carryforwards,
and temporary differences between the tax bases of assets and liabilities and
their reported amounts.
Pretax income (loss) from foreign operations amounted to approximately
$1,500,000, $(750,000), and $1,773,000 in 1992, 1993, and 1994, respectively.
For the six months ended June 30, 1994 and 1995, income taxes have been
provided based upon an estimated annualized effective tax rate of 10% applied to
earnings for the period. The provision for income taxes differs from a provision
calculated by applying the statutory federal income tax rate (35%) to pretax
income primarily due to the tax benefits resulting from the realization of
operating loss carryforwards and tax credit carryforwards.
F-14
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
8. TAXES (CONTINUED)
The components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Capitalization of software development costs.............. $ (670) $ (1,018)
Installment sales......................................... -- --
Earnings from foreign operations.......................... (128) (428)
Other..................................................... (165) (354)
--------- ---------
Total deferred tax liabilities.......................... (963) (1,800)
Deferred tax assets:
Deferred revenue.......................................... 2,162 1,160
Accrued expenses and reserves............................. 1,586 3,128
Purchased software........................................ 848 258
Restructuring and other charges........................... 3,814 2,440
Net operating loss carryforwards.......................... 6,848 6,784
Tax credit carryforwards.................................. 1,241 1,614
Other..................................................... 197 993
--------- ---------
Total deferred tax assets............................... 16,696 16,377
Deferred tax asset valuation allowance.................. (15,749) (14,593)
--------- ---------
Total net deferred tax assets........................... 947 1,784
--------- ---------
Total net deferred taxes................................ $ (16) $ (16)
--------- ---------
--------- ---------
</TABLE>
The change in the valuation allowance was a net decrease of $192,000 for
1992, a net increase of $15,638,000 for 1993, and a net decrease of $1,156,000
for 1994. Approximately $3,100,000 of the deferred tax asset valuation allowance
at December 31, 1994 relates to tax benefits of stock option deductions which
will be credited to equity when realized.
At December 31, 1994, the Company has federal income tax net operating loss
carryforwards of approximately $19,000,000 which will expire in the years 2007
and 2008, federal foreign tax credit carryforwards of approximately $960,000
which will expire in the years 1995 through 1999, and other federal tax credit
carryforwards of approximately $475,000 which will expire in the years 2005
through 2007.
F-15
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
8. TAXES (CONTINUED)
The total provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate of 34% for 1992, and 35% for 1993
and 1994 to income before income taxes, as follows:
<TABLE>
<CAPTION>
1992 1993 1994
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed expected tax provision (benefit).............................. $ 3,581 $ (11,446) 4,532
State taxes (net of federal benefit)................................... 513 17 33
Tax exempt interest income............................................. (291) (352) (158)
Acquisition costs...................................................... 208 -- --
Operating loss not utilized (utilized)................................. -- 5,287 (2,297)
Temporary items with no current tax benefit............................ -- 6,395 --
Valuation of temporary differences..................................... -- -- (545)
Rate differential from foreign operations.............................. (180) 90 9
S-corporation earnings prior to change in tax status................... (510) (569) (758)
Other individually immaterial items.................................... (63) 268 263
--------- ---------- ---------
$ 3,258 $ (310) 1,079
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
At December 31, 1994, U.S. income taxes had not been provided on $1,225,000
of undistributed earnings of certain of the Company's foreign subsidiaries. It
is intended that these earnings will be permanently invested in operations
outside the U.S. Except for such permanently invested earnings, the Company
provides federal income taxes currently on undistributed earnings of foreign
subsidiaries.
The Company's manufacturing operations in Ireland operate under an Irish tax
incentive program which expires in the year 2010. The tax incentive program
increased net income in 1992 by approximately $180,000 ($0.01 per share) and had
no material impact on 1993 and 1994 results of operations.
9. LINE OF CREDIT
In March 1995, the Company renewed its line of credit with a bank. The
amount of the credit facility is $10,000,000 and expires in August 1996.
Interest accrues at the bank's prime rate, payable monthly on the outstanding
balance and the agreement includes certain covenants. There were no borrowings
against this line of credit at December 31, 1994 and June 30, 1995.
F-16
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, principally the design,
development, and sale of document publishing software. The following table
summarizes selected financial information of the Company's operations by
geographic location for the years ended December 31, 1992, 1993, and 1994, and
for the periods ended June 30, 1994 and 1995:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATION TOTAL
------------ --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1992
Sales to unaffiliated customers............................... $ 67,775 $ 12,193 $ -- $ 79,968
Intercompany transfers........................................ 2,769 107 (2,876) --
------------ --------- ----------- ----------
Net revenues.................................................. $ 70,544 $ 12,300 $ (2,876) $ 79,968
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Operating income.............................................. $ 7,605 $ 1,528 $ 269 $ 9,402
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Identifiable assets........................................... $ 87,015 $ 6,801 $ (5,590) $ 88,226
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Liabilities................................................... $ 21,335 $ 5,141 $ (5,278) $ 21,198
------------ --------- ----------- ----------
------------ --------- ----------- ----------
1993
Sales to unaffiliated customers............................... $ 48,555 $ 11,311 $ -- $ 59,866
Intercompany transfers........................................ (600) (34) 634 --
------------ --------- ----------- ----------
Net revenues.................................................. $ 47,955 $ 11,277 $ 634 $ 59,866
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Operating income.............................................. $ (33,635) $ (676) $ 614 $ (33,697)
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Identifiable assets........................................... $ 55,387 $ 4,457 $ (926) $ 58,918
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Liabilities................................................... $ 22,312 $ 3,566 $ (1,120) $ 24,758
------------ --------- ----------- ----------
------------ --------- ----------- ----------
1994
Sales to unaffiliated customers............................... $ 62,483 $ 15,362 $ -- $ 77,845
Intercompany transfers........................................ 1,272 18 (1,290) $ --
------------ --------- ----------- ----------
Net revenues.................................................. $ 63,755 $ 15,380 $ (1,290) $ 77,845
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Operating income.............................................. $ 9,838 $ 1,765 $ (74) $ 11,529
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Identifiable assets........................................... $ 69,677 $ 6,431 $ (959) $ 75,149
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Liabilities................................................... $ 25,240 $ 3,896 $ (3,419) $ 25,717
------------ --------- ----------- ----------
------------ --------- ----------- ----------
SIX MONTHS ENDED JUNE 30, 1994
Sales to unaffiliated customers............................... $ 29,403 $ 6,268 $ -- $ 35,671
Intercompany transfers........................................ 644 5 (649) $ --
------------ --------- ----------- ----------
Net revenues.................................................. $ 30,047 $ 6,273 $ (649) $ 35,671
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Operating income.............................................. $ 3,323 $ 1,170 $ (54) $ 4,439
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Identifiable assets........................................... $ 62,601 $ 4,921 $ (5,487) $ 62,035
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Liabilities................................................... $ 25,608 $ 2,956 $ (5,735) $ 22,829
------------ --------- ----------- ----------
------------ --------- ----------- ----------
</TABLE>
F-17
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATION TOTAL
------------ --------- ----------- ----------
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 1995
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................... $ 37,894 $ 8,681 $ -- $ 46,575
Intercompany transfers........................................ 542 4 (546) --
------------ --------- ----------- ----------
Net revenues.................................................. $ 38,436 $ 8,685 $ (546) $ 46,575
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Operating income.............................................. $ 6,698 $ 2,102 $ (128) $ 8,672
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Identifiable assets........................................... $ 76,129 $ 9,875 $ (1,848) $ 84,156
------------ --------- ----------- ----------
------------ --------- ----------- ----------
Liabilities................................................... $ 23,521 $ 5,360 $ (4,346) $ 24,535
------------ --------- ----------- ----------
------------ --------- ----------- ----------
</TABLE>
The Company's European operation was established late in 1991. Intercompany
transfers between geographic areas are accounted for at prices that approximate
arm's length transactions. In addition, United States export sales were
$2,175,000 (2% to Europe, 98% to other international), $3,062,000 (10% to
Europe, 90% to other international), $5,359,000 (15% to Europe, 85% to other
international), $2,753,000 (21% to Europe, 79% to other international), and
$3,125,000 (7% to Europe, 93% to other international) for the years ended
December 31, 1992, 1993, and 1994, and for the six months ended June 30, 1994
and 1995, respectively. For the years ended December 31, 1993 and 1994, and for
the six months ended June 30, 1994 and 1995, no customer accounted for greater
than 10% of net revenues. For the year ended December 31, 1992, Ingram Micro, a
distributor of the Company's products, accounted for 12% of net revenues.
11. SALE OF TECHNOLOGY RIGHTS
In 1992, the Company recognized nonrecurring revenue of $3,700,000 in lieu
of future royalty payments in connection with the sale of certain of the
Company's products to Digital Equipment Corporation (Digital). As part of these
transactions, the Company recorded long-term receivables at their present value.
During 1993, the outstanding balances of these notes were sold to a financing
company at an amount which was not substantially different from their aggregate
remaining carrying value of approximately $4,463,000.
12. RESTRUCTURING AND OTHER CHARGES
Due to lower than anticipated revenues experienced in the first three
quarters of 1993, the Company undertook certain restructuring measures primarily
related to reducing the size and scope of its operations and re-evaluating and
re-directing its product and distribution strategies, resulting in restructuring
charges totalling $16,000,000. In addition to the restructuring charges, the
Company incurred other charges related to the restructuring totalling
approximately $9,800,000, which consist primarily of the write-off of
capitalized software, the write-off of obsolete inventory and equipment, and the
settlement of certain contingencies. Of the total restructuring and other
charges, $12,800,000 resulted from the write-off of assets and $13,000,000
involves cash outflows of which $8,300,000 were future cash outflows as of
December 31, 1993.
During the second quarter of 1994, the results of the settlement of certain
contingencies and the reshaping of its foreign distribution in Japan were more
favorable than expected by approximately $2,200,000. However, these amounts were
offset by increased estimates of costs related to facilities previously vacated
and the Company's decision in the second quarter to significantly curtail its
Irish operations resulting in a charge for termination costs, vacated facilities
and fixed asset write-offs. Of the $8,300,000 accrued at December 31, 1993, the
Company paid during 1994 approximately
F-18
<PAGE>
FRAME TECHNOLOGY CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
12. RESTRUCTURING AND OTHER CHARGES (CONTINUED)
$1,600,000 of salary costs, $885,000 for the settlement of certain contingencies
and $2,600,000 related to reshaping its foreign distribution in Japan, the
curtailment of the Irish operations, lease payments for vacated facilities and
other charges.
During the first six months of 1995, the Company paid $1,421,000 of
restructuring charges accrued in prior periods, consisting of approximately
$1,232,000 primarily related to the curtailment of its Irish operations and
$90,000 related to lease payments of vacated facilities. At June 30, 1995,
$1,810,000 remains accrued and represents primarily future cash outflows related
to on-going payments for vacated facilities.
13. MERGER AGREEMENT WITH ADOBE
The Company has entered into an Agreement and Plan of Merger and
Reorganization dated as of June 22, 1995 (the "Merger Agreement") whereby,
subject to certain conditions including approval by the shareholders of the
Company, the Company will become a wholly owned subsidiary of Adobe Systems
Incorporated ("Adobe") and each share of common stock of the Company will be
converted into and exchanged for 0.52 shares of Adobe common stock. The
transaction is intended to be accounted for as a pooling of interests and is
intended to qualify as a tax-free reorganization. The merger is expected to
close in September 1995 subject to shareholder approval.
14. LITIGATION
In April 1994, a settlement was reached to resolve the outstanding
shareholder class action lawsuits against the Company and certain of its current
and former officers and directors which were filed during 1993. The settlement
did not have a material effect on the financial statements of the Company.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial statements.
F-19
<PAGE>
ANNEX A
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
ADOBE SYSTEMS INCORPORATED,
J ACQUISITION CORPORATION
AND
FRAME TECHNOLOGY CORPORATION
DATED AS OF JUNE 22, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGERS
<TABLE>
<S> <C>
SECTION 1.01. THE MERGERS............................................................. 1
SECTION 1.02. EFFECTIVE TIME.......................................................... 1
SECTION 1.03. EFFECT OF THE MERGER.................................................... 2
SECTION 1.04. ARTICLES OF INCORPORATION; BY-LAWS...................................... 2
SECTION 1.05. DIRECTORS AND OFFICERS.................................................. 2
SECTION 1.06. EFFECT ON CAPITAL STOCK................................................. 2
SECTION 1.07. EXCHANGE OF CERTIFICATES................................................ 3
SECTION 1.08. DISSENTING SHARES....................................................... 4
SECTION 1.09. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK..................... 5
SECTION 1.10. LOST, STOLEN OR DESTROYED CERTIFICATES.................................. 5
SECTION 1.11. TAX AND ACCOUNTING CONSEQUENCES......................................... 5
SECTION 1.12. TAKING OF NECESSARY ACTION; FURTHER ACTION.............................. 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES............................ 5
SECTION 2.02. ARTICLES OF INCORPORATION AND BY-LAWS................................... 6
SECTION 2.03. CAPITALIZATION.......................................................... 6
SECTION 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT.................................... 7
SECTION 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.............................. 7
SECTION 2.06. COMPLIANCE; PERMITS..................................................... 7
SECTION 2.07. SEC FILINGS; FINANCIAL STATEMENTS....................................... 8
SECTION 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS.................................... 8
SECTION 2.09. NO UNDISCLOSED LIABILITIES.............................................. 8
SECTION 2.10. ABSENCE OF LITIGATION................................................... 9
SECTION 2.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS........................... 9
SECTION 2.12. LABOR MATTERS........................................................... 10
SECTION 2.13. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS...................... 10
SECTION 2.14. RESTRICTIONS ON BUSINESS ACTIVITIES..................................... 10
SECTION 2.15. TITLE TO PROPERTY....................................................... 11
SECTION 2.16. TAXES................................................................... 11
SECTION 2.17. ENVIRONMENTAL MATTERS................................................... 12
SECTION 2.18. BROKERS................................................................. 13
SECTION 2.19. FULL DISCLOSURE......................................................... 13
SECTION 2.20. INTELLECTUAL PROPERTY................................................... 13
SECTION 2.21. INTERESTED PARTY TRANSACTIONS........................................... 14
SECTION 2.22. OPTION PLANS............................................................ 15
SECTION 2.23. POOLING MATTERS......................................................... 15
SECTION 2.24. OPINION OF FINANCIAL ADVISOR............................................ 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES............................ 15
SECTION 3.02. ARTICLES OF INCORPORATION AND BY-LAWS................................... 15
SECTION 3.03. CAPITALIZATION.......................................................... 15
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT.................................... 16
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.............................. 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3.06. SEC FILINGS; FINANCIAL STATEMENTS....................................... 17
SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS.................................... 17
SECTION 3.08. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS...................... 17
SECTION 3.09. OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES............................ 18
SECTION 3.10. BROKERS................................................................. 18
SECTION 3.11. FULL DISCLOSURE......................................................... 18
SECTION 3.12. OPINION OF FINANCIAL ADVISOR............................................ 18
SECTION 3.13. TAXES................................................................... 18
SECTION 3.14. NO UNDISCLOSED LIABILITIES.............................................. 18
SECTION 3.15. ABSENCE OF LITIGATION................................................... 19
SECTION 3.16. TITLE TO PROPERTY....................................................... 19
SECTION 3.17. INTELLECTUAL PROPERTY................................................... 19
SECTION 3.18. POOLING MATTERS......................................................... 19
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER................... 19
SECTION 4.02. NO SOLICITATION......................................................... 21
SECTION 4.03. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER........................ 22
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT...................... 23
SECTION 5.02. COMPANY SHAREHOLDERS' MEETING........................................... 23
SECTION 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY.................................. 23
SECTION 5.04. CONSENTS; APPROVALS..................................................... 24
SECTION 5.05. STOCK OPTIONS........................................................... 24
SECTION 5.06. COMPANY EMPLOYEE STOCK PURCHASE PLAN.................................... 24
SECTION 5.07. AGREEMENTS OF AFFILIATES................................................ 25
SECTION 5.08. INDEMNIFICATION......................................................... 25
SECTION 5.09. NOTIFICATION OF CERTAIN MATTERS......................................... 26
SECTION 5.10. FURTHER ACTION/TAX TREATMENT............................................ 26
SECTION 5.11. PUBLIC ANNOUNCEMENTS.................................................... 26
SECTION 5.12. POOLING ACCOUNTING TREATMENT............................................ 27
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER............. 27
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB........... 28
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY...................... 28
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION............................................................. 29
SECTION 7.02. EFFECT OF TERMINATION................................................... 30
SECTION 7.03. FEE AND EXPENSES........................................................ 30
</TABLE>
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<S> <C>
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS............. 31
SECTION 8.02. NOTICES................................................................. 31
SECTION 8.03. CERTAIN DEFINITIONS..................................................... 32
SECTION 8.04. AMENDMENT............................................................... 32
SECTION 8.05. WAIVER.................................................................. 33
SECTION 8.06. HEADINGS................................................................ 33
SECTION 8.07. SEVERABILITY............................................................ 33
SECTION 8.08. ENTIRE AGREEMENT........................................................ 33
SECTION 8.09. ASSIGNMENT.............................................................. 33
SECTION 8.10. PARTIES IN INTEREST..................................................... 33
SECTION 8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE................... 33
SECTION 8.12. GOVERNING LAW........................................................... 33
SECTION 8.13. COUNTERPARTS............................................................ 33
SECTION 8.14. WAIVER OF JURY TRIAL.................................................... 33
</TABLE>
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of June 22, 1995
(this "AGREEMENT"), among ADOBE SYSTEMS INCORPORATED, a California corporation
("PARENT"), J ACQUISITION CORPORATION, a California corporation and a wholly
owned subsidiary of Parent ("MERGER SUB"), and FRAME TECHNOLOGY CORPORATION, a
California corporation (the "COMPANY"),
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective shareholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "MERGER")
of Merger Sub with and into the Company in accordance with the California
Corporations Code ("CALIFORNIA LAW") and upon the terms and subject to the
conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by executing this
Agreement, to adopt a plan of reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations thereunder, and to cause the Merger and the Upstream Merger (as
defined in Section 1.01(b)) to qualify as a reorganization under the provisions
of Section 368(a) of the Code;
WHEREAS, for accounting purposes, it is intended that the transaction
contemplated hereby shall be accounted for as a pooling of interests under
United States generally accepted accounting principles ("GAAP");
WHEREAS, pursuant to the Merger, each outstanding share (a "SHARE") of the
Company's common stock, no par value (the "COMPANY COMMON STOCK"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.07(b)), upon the terms and subject to the conditions set forth herein;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.01. THE MERGERS. (a) At the Effective Time (as defined in
Section 1.02 hereof), and subject to and upon the terms and conditions of this
Agreement and California Law, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION"; provided that, in the event of an Upstream Merger
(as such term is defined in Section 1.01(b) hereof) or in the event of a Forward
Merger (as defined in Section 8.04 hereof), Parent shall be deemed to be the
"Surviving Corporation".
(b) UPSTREAM MERGER. As soon as reasonably practicable after the Effective
Time (as defined in Section 1.02), Parent shall cause the Surviving Corporation
to be merged with and into Parent (the "Upstream Merger"), and Parent shall
continue as the surviving corporation after the Upstream Merger.
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing this Agreement, or a
merger agreement as contemplated by Section 1101 of the California Law
<PAGE>
(the "MERGER AGREEMENT"), with the Secretary of State of the State of
California, in such form as required by, and executed in accordance with the
relevant provisions of, California Law (the time of such filing being the
"EFFECTIVE TIME").
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Merger Agreement and the
applicable provisions of California Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04. ARTICLES OF INCORPORATION; BY-LAWS. (a) ARTICLES OF
INCORPORATION. Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time the Articles of Incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation; PROVIDED, HOWEVER, that Article I of
the Articles of Incorporation of the Surviving Corporation shall be amended to
read as follows: "The name of the corporation is Frame Technology Corporation".
(b) BY-LAWS. The By-Laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by California Law, the Articles of Incorporation
of the Surviving Corporation and such By-Laws.
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.06. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) CONVERSION OF SECURITIES. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares held in the
treasury of the Company or owned by Parent, Merger Sub or any of their
subsidiaries and any Dissenting Shares (as defined in Section 1.08)) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive 0.52 shares (the "EXCHANGE RATIO") of
validly issued, fully paid and nonassessable common stock, no par value, of
Parent ("PARENT COMMON SHARES").
(b) CANCELLATION. All Shares to be converted into Parent Common Shares
pursuant to subsection (a) of this Section 1.06 shall, by virtue of the Merger
and without any action on the part of the holders thereof, cease to be
outstanding, be canceled and retired and cease to exist, and each holder of a
certificate (a "CERTIFICATE") representing any such Shares shall thereafter
cease to have any rights with respect to such Shares, except the right to
receive for each of the Shares, upon the surrender of such Certificate in
accordance with Section 1.07, the Merger Consideration and cash in lieu of
fractional Parent Common Shares as contemplated by Section 1.06(g).
(c) SHARES OWNED BY PARENT, ETC. Each Share issued and outstanding and
owned by Parent, Merger Sub or any of their subsidiaries immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to exist.
(d) ASSUMPTION OF STOCK OPTIONS. All options to purchase Company Common
Stock then outstanding under the Company's Dual Stock Option Plan, 1991
Directors' Stock Option Plan and 1994 Directors Stock Option Plan shall be
assumed by Parent in accordance with Sections 5.05.
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(e) CAPITAL STOCK OF MERGER SUB. Each share of common stock, no par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving Corporation.
Each stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Shares or Company Common Stock), reorganization, recapitalization or
other like change with respect to Parent Common Shares or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Parent Common Shares will
be issued, but in lieu thereof each holder of shares of Company Common Stock who
would otherwise be entitled to a fraction of a share of Parent Common Shares
(after aggregating all fractional shares of Parent Common Shares to be received
by such holder) shall receive from Parent an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average of the last reported sale price for trades of Parent Common
Shares on the Nasdaq National Market (the "NNM") as of each of the thirty (30)
consecutive trading days immediately preceding the Effective Time as quoted in
the Wall Street Journal or other reliable financial newspaper or publication.
For the purposes of the preceding sentence, a "TRADING DAY" means a day on which
trading generally takes place on the NNM and on which trading in Parent Common
Shares has occurred.
SECTION 1.07. EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Parent shall
supply, or shall cause to be supplied, to or for the account of a bank or trust
company designated by Parent (the "EXCHANGE AGENT"), in trust for the benefit of
the holders of Company Common Stock (other than Dissenting Shares), for exchange
in accordance with this Section 1.07, through the Exchange Agent, certificates
evidencing the Parent Common Shares issuable pursuant to Section 1.06 in
exchange for outstanding Shares.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a Certificate or Certificates (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions to effect the surrender of
the Certificates in exchange for the certificates evidencing shares of Parent
Common Shares and, in lieu of any fractional shares thereof, cash. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates evidencing
that number of whole Parent Common Shares which such holder has the right to
receive in accordance with the Exchange Ratio in respect of the Shares formerly
evidenced by such Certificate, (B) any dividends or other distributions to which
such holder is entitled pursuant to Section 1.07(c), and (C) cash in lieu of
fractional Parent Common Shares to which such holder is entitled pursuant to
Section 1.06(g) (the Parent Common Shares, dividends, distributions and cash
described in this clause (C) being, collectively, the "MERGER CONSIDERATION"),
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Shares which is not registered in the transfer
records of the Company as of the Effective Time, Parent Common Shares and cash
may be issued and paid in accordance with this Article I to a transferee if the
Certificate evidencing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
pursuant to this Section 1.07(b) and by evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of the Company
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of the
number of
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<PAGE>
full shares of Parent Common Shares into which such shares of the Company Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.06.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Shares with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate until the holder of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Shares
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Shares.
(d) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common
Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any person designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Shares in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) NO LIABILITY. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) WITHHOLDING RIGHTS. Parent, the Surviving Corporation and the Exchange
Agent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Company Common
Stock such amounts as Parent, the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code or any provision of state, local, provincial or foreign tax law. To the
extent that amounts are so withheld, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made.
SECTION 1.08. DISSENTING SHARES. (a) Notwithstanding any provision of this
Agreement to the contrary, any shares of capital stock of the Company held by a
holder who has exercised dissenters' rights for such shares in accordance with
California Law and who, as of the Effective Time, has not effectively withdrawn
or lost such dissenters' rights ("DISSENTING SHARES"), shall not be converted
into or represent a right to receive Parent Common Shares pursuant to Section
1.06, but the holder thereof shall only be entitled to such rights as are
granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) his dissenters' rights, then, as of the later of Effective Time or
the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive the Merger Consideration,
without interest thereon, upon surrender of the certificate or certificates
representing such Dissenting Shares.
(c) The Company shall give Parent (i) prompt notice of any written demands
received by the Company to require the Company to purchase shares of capital
stock of the Company, withdrawals of such demands, and any other instruments
served pursuant to California Law and received by the Company and (b) the
opportunity to participate in all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any such demands or offer
to settle or settle any such demands.
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(d) Prior to the consummation of the Upstream Merger, the Company shall
establish an escrow account with a financial institution selected by the Parent
and the Company shall fund such escrow account with cash or cash equivalents in
an amount sufficient to make all payments to holders of Dissenting Shares. Such
escrow account shall survive the Merger and Upstream Merger. All payments to
holders of Dissenting Shares shall be made out of such escrow account, and no
such payments shall be made or otherwise funded by Parent.
SECTION 1.09. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof (including any cash in lieu of fractional
shares paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.10. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Shares and cash for fractional shares, if any, as may be required
pursuant to Section 1.06; PROVIDED, HOWEVER, that Parent may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
SECTION 1.11. TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger and the Upstream Merger shall (a) constitute a
reorganization within the meaning of Section 368 of the Code and (b) qualify for
accounting treatment as a pooling of interests under GAAP. The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
SECTION 1.12. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule previously delivered by
the Company to Parent (the "COMPANY DISCLOSURE SCHEDULE"):
SECTION 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) Each of
the Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("APPROVALS") necessary
to own, lease and operate the properties it purports to own, operate or lease
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and Approvals would not, individually or in the aggregate, have a
Material Adverse Effect (as defined
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below). Each of the Company and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company or any of its
subsidiaries, the term "MATERIAL ADVERSE EFFECT" means any change or effect
that, individually or when taken together with all other such changes or effects
that have occurred prior to the date of determination of the occurrence of the
Material Adverse Effect, is or is reasonably likely to be materially adverse to
the business, assets (including intangible assets), financial condition or
results of operations of the Company and its subsidiaries, taken as a whole. A
true and complete list of all of the Company's subsidiaries, together with the
jurisdiction of incorporation of each subsidiary and the percentage of each
subsidiary's outstanding capital stock owned by the Company or another
subsidiary, is set forth in Section 2.01 of the Company Disclosure Schedule.
Except as set forth in Section 2.01 of the Company Disclosure Schedule, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
SECTION 2.02. ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws, as amended to date, and equivalent organizational
documents of each of its subsidiaries. Such Articles of Incorporation, By-Laws
and equivalent organizational documents of each of its subsidiaries are in full
force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or By-Laws
or equivalent organizational documents.
SECTION 2.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 2,000,000 shares of
undesignated preferred stock, no par value, of the Company (the "COMPANY
PREFERRED STOCK"). As of June 21, 1995, (i) 15,031,549 shares of Company Common
Stock were issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) no shares of Company Common Stock were held by
subsidiaries of the Company, (iii) 564,258 shares of Company Common Stock were
reserved for future issuance pursuant to outstanding employee stock options or
stock purchase rights granted pursuant to the Company's Dual Stock Option
Program, (iv) 84,168 Shares of Company Common Stock were reserved for future
issuance pursuant to the Company's 1991 Directors' Stock Option Plan, (v)
338,174 shares of Company Common Stock were reserved for future issuance
pursuant to the Company's 1991 Employee Stock Purchase Plan, (vi) 41,049 shares
of Company Common Stock were reserved for issuance pursuant to the Company's
1994 Directors Stock Option Plan and (vii) no shares of Company Preferred Stock
were issued or outstanding. No material change in such capitalization has
occurred between May 10, 1995 and the date hereof. As of the date hereof, none
of the shares of Company Preferred Stock is issued and outstanding. Except as
set forth in this Section 2.03 or Section 2.11 or in Section 2.03 or Section
2.11 of the Company Disclosure Schedule, or pursuant to the terms of that
certain Agreement and Plan Reorganization, dated as of May 24, 1995, by and
among the Company, VI Acq. Corp., a California corporation, and Mastersoft,
Inc., an Arizona corporation ("MASTERSOFT") (the "MASTERSOFT AGREEMENT"), there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, register or sell any shares of capital stock of, or other
equity interests in, the Company or any of its subsidiaries. All shares of
Company Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the Company
or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or the capital stock of any subsidiary or to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such subsidiary or any other entity other than guarantees of
bank obligations of subsidiaries entered into in the ordinary course of
business. All
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of the outstanding shares of capital stock (other than directors' qualifying
shares) of each of the Company's subsidiaries is duly authorized, validly
issued, fully paid and nonassessable and all such shares (other than directors'
qualifying shares) are owned by the Company or another subsidiary free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
the Company's voting rights, charges or other encumbrances of any nature
whatsoever.
SECTION 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
approval and adoption of the Merger by the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote in accordance with
California Law and the Company's Articles of Incorporation and By-Laws). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitutes a legal, valid and binding obligation of the Company.
SECTION 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Section
2.05(a) of the Company Disclosure Schedule includes a list of all agreements
heretofore filed with the SEC as a "material contract" and all agreements which,
as of the date hereof, will be required to be filed with the SEC as a "material
contract" (the "MATERIAL CONTRACTS") of the Company and its subsidiaries.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company shall not, (i) conflict with or
violate the Articles of Incorporation or By-Laws or equivalent organizational
documents of the Company or any of its subsidiaries, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default), or impair the Company's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material Contract, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such breaches,
defaults or other occurrences that would not, individually or in the aggregate,
have a Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), state securities laws ("BLUE SKY LAWS"), the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), and the filing and recordation of appropriate
merger or other documents as required by California Law and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the Merger, or otherwise prevent the Company from performing its obligations
under this Agreement, and would not have a Material Adverse Effect.
SECTION 2.06. COMPLIANCE; PERMITS. (a) Neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease,
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license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) The Company and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
the Company and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "COMPANY PERMITS"). The Company and its subsidiaries are in
compliance with the terms of the Company Permits, except where the failure to so
comply would not have a Material Adverse Effect.
SECTION 2.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) The Company has filed
all forms, reports and documents required to be filed with the Securities and
Exchange Commission ("SEC") since February 12, 1992, and has made available to
Parent (i) its Annual Reports on Form 10-K for the fiscal years ended December
31, 1992, 1993 and 1994, (ii) its Quarterly Report on Form 10-Q for the period
ended March 31, 1995, (iii) all proxy statements relating to the Company's
meetings of shareholders (whether annual or special) held since February 12,
1992, (iv) all other reports or registration statements (other than Reports on
Form 10-Q not referred to in clause (ii) above) filed by the Company with the
SEC since February 12, 1992 and (vi) all amendments and supplements to all such
reports and registration statements filed by the Company with the SEC
(collectively, the "COMPANY SEC REPORTS"). The Company SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presented the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount and did or do not contain all footnotes that would be required by
GAAP.
(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
SECTION 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.08 of the Company Disclosure Schedule, since December 31, 1994 the
Company has conducted its business in the ordinary course and there has not
occurred: (i) any Material Adverse Effect; (ii) any amendments or changes in the
Articles of Incorporation or Bylaws of the Company; (iii) any damage to,
destruction or loss of any assets (tangible or intangible) of the Company,
(whether or not covered by insurance) that could have a Material Adverse Effect;
or (iv) any sale of a material amount of property (including, without
limitation, intellectual property) of the Company, except in the ordinary course
of business.
SECTION 2.09. NO UNDISCLOSED LIABILITIES. Except as is disclosed in
Section 2.09 of the Company Disclosure Schedule and the Company SEC Reports,
neither the Company nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) which are, in the aggregate, material to the
business, operations or financial condition of the Company and its subsidiaries
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taken as a whole, except liabilities (a) adequately provided for in the
Company's audited balance sheet (including any related notes thereto) for the
fiscal year ended December 31, 1994 included in the Company SEC Reports (the
"1994 BALANCE SHEET"), (b) incurred in the ordinary course of business and not
required under GAAP to be reflected on the balance sheet, or (c) incurred since
December 31, 1994 in the ordinary course of business and consistent with past
practice, and liabilities incurred in connection with this Agreement.
SECTION 2.10. ABSENCE OF LITIGATION. Except as set forth in Section 2.10
of the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign, that, individually or in the aggregate, could have a Material Adverse
Effect.
SECTION 2.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS. (a) Section
2.11 of the Company Disclosure Schedule lists all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
fringe or employee benefit plans, programs or arrangements, and any current or
former employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee, officer or director
of the Company, any trade or business (whether or not incorporated) which is a
member or which is under common control with the Company (an "ERISA AFFILIATE")
within the meaning of Section 414 of the Code, or any subsidiary of the Company
(together, the "EMPLOYEE PLANS"), and a copy of each such written Employee Plan
has been made available to Parent.
(b) (i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person; (ii) there has been no "prohibited
transaction", as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Employee Plan, which could result in any
material liability of the Company or any of its subsidiaries; (iii) all Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all statutes (including ERISA and the Code), orders, or
governmental rules and regulations currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Internal Revenue Service or Secretary of the Treasury), and
the Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any default or violation
by any other party to, any of the Employee Plans; (iv) each Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code does so qualify and a favorable
determination letter with respect to each such Employee Plan and trust has been
received from the Internal Revenue Service (the "IRS"), and nothing has occurred
which may reasonably be expected to cause the loss of such qualification or
exemption; (v) all contributions required to be made to any Employee Plan
pursuant to Section 412 of the Code, the terms of the Employee Plan or any
collective bargaining agreement, have been made on or before their due dates and
a reasonable amount has been accrued for contributions to each Employee Plan for
the current plan years; (vi) with respect to each Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 of ERISA has occurred; and (vii) no Employee Plan is covered by,
and neither the Company nor any subsidiary has incurred or expects to incur any
liability under, Title IV of ERISA or Section 412 of the Code.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds any option to purchase Company
Common Stock or Company Preferred Stock as of the date hereof, together with the
number of shares of Company Common Stock or Company Preferred Stock subject
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to such option, the date of grant of such option, the extent to which such
option is vested, the option price of such option, whether such option is
intended to qualify as an incentive stock option within the meaning of Section
422(b) of the Code (an "ISO"), and the expiration date of such option. Section
2.11(c) of the Company Disclosure Schedule also sets forth the total number of
ISOs and of nonqualified options to purchase Company Common Stock or Company
Preferred Stock.
(d) The Company has made available to Parent (i) copies of all employment
agreements with officers of the Company; (ii) copies of all agreements with
consultants who are individuals obligating the Company to make annual cash
payments in an amount exceeding $100,000; (iii) a schedule listing all officers
of the Company who have executed a non-competition agreement with the Company;
(iv) copies of all severance agreements, programs and policies of the Company
with or relating to its employees; and (v) copies of all plans, programs,
agreements and other arrangements of the Company with or relating to its
employees which contain change in control provisions.
SECTION 2.12. LABOR MATTERS. Except as set forth in Section 2.12 of the
Company Disclosure Schedule, (i) there are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees, which
controversies have or may have a Material Adverse Effect; (ii) neither the
Company nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or its subsidiaries nor does the Company or any of its subsidiaries know
of any activities or proceedings of any labor union to organize any such
employees; and (iii) neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries.
SECTION 2.13. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by the Company for inclusion in the Registration Statement
(as defined in Section 3.08) shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The information supplied by the Company
for inclusion in the proxy statement/prospectus to be sent to the shareholders
of the Company in connection with the meeting of the Company's shareholders to
consider the Merger (the "COMPANY SHAREHOLDERS' MEETING") (such proxy statement/
prospectus as amended or supplemented is referred to herein as the "PROXY
STATEMENT/PROSPECTUS"), shall not, on the date the Proxy Statement/Prospectus
(or any amendment thereof or supplement thereto) is first mailed to
shareholders, at the time of the Company Shareholders' Meeting, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
Parent and Merger Sub. The Proxy Statement/Prospectus shall comply in all
material respects as to form and substance with the requirement of the Exchange
Act and the rules and regulations thereunder. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any information
supplied by Parent or Merger Sub which is contained in any of the foregoing
documents.
SECTION 2.14. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, there is no material agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
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impairing any business practice of the Company or any of its subsidiaries, any
acquisition of property by the Company or any of its subsidiaries or the conduct
of business by the Company or any of its subsidiaries as currently conducted or
as proposed to be conducted by the Company.
SECTION 2.15. TITLE TO PROPERTY. The Company owns no real property.
Section 2.15 of the Company Disclosure Statement sets forth a true and complete
list of all real property leased by the Company or any of its subsidiaries
requiring annual lease payments of more than $100,000, and the aggregate monthly
rental or other fee payable under such lease. The Company and each of its
subsidiaries have good and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances except liens for
taxes not yet due and payable and such liens or other imperfections of title, if
any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which, individually or in the
aggregate, would not have a Material Adverse Effect; and, to the knowledge of
the Company, all leases pursuant to which the Company or any of its subsidiaries
lease from others material amounts of real or personal property, are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing material default or event
of default (or event which with notice or lapse of time, or both, would
constitute a material default and in respect of which the Company or such
subsidiary has not taken adequate steps to prevent such a default from
occurring) except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
have a Material Adverse Effect. All the facilities of the Company and its
subsidiaries, except such as may be under construction, are in good operating
condition and repair, except where the failure of such plants, structures and
equipment to be in such good operating condition and repair would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 2.16. TAXES. (a) For purposes of this Agreement, "TAX" or "TAXES"
shall mean taxes, fees, levies, duties, tariffs, imposts, and governmental
impositions or charges of any kind in the nature of (or similar to) taxes,
payable to any federal, state, local or foreign taxing authority, including
(without limitation) (i) income, franchise, profits, gross receipts, AD VALOREM,
net worth, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes and (ii)
interest, penalties and additions to tax imposed with respect thereto; and "TAX
RETURNS" shall mean returns, reports, and information statements with respect to
Taxes required to be filed with the IRS or any other taxing authority, domestic
or foreign, including, without limitation, consolidated, combined and unitary
tax returns.
(b) The Company on behalf of itself and all its affiliates hereby represents
that, other than as disclosed on Section 2.16(b) of the Company Disclosure
Schedule: the Company and its "affiliates" (excluding for the purposes of this
Section 2.16 only officers, directors and 10% or greater shareholders of the
Company) have filed all United States federal income tax and all other material
tax returns required to be filed by them, and the Company and its affiliates
have paid and discharged all Taxes due in connection with or with respect to the
filing of all Tax Returns and have paid all other Taxes as are due, except such
as are being contested in good faith by appropriate proceedings (to the extent
any such proceedings are required) and with respect to which the Company is
maintaining reserves to the extent currently required in all material respects
adequate for their payment except to the extent the failure to do so would not
have a Material Adverse Effect. The Company and each of its affiliates have
disclosed to the relevant taxing authority any position it has taken where such
disclosure would enable such person to avoid penalties or additions to tax.
Neither the IRS nor any other taxing authority or agency is now asserting or, to
the best of the Company's knowledge, threatening to assert against the Company
or any of its affiliates any deficiency or claim for additional Taxes other than
additional Taxes with respect to which the Company is maintaining reserves in
all material respects adequate for their payment, and there are no requests for
information currently outstanding that could affect the Taxes of the Company or
any affiliates. Neither the Company nor any of its affiliates is currently being
audited by any taxing authority. There are no tax liens on any assets of the
Company
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or any affiliate. Neither the Company nor any of its affiliates has granted any
waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax. The accruals and reserves for taxes
reflected in the 1994 Balance Sheet are in all material respects adequate to
cover all Taxes accruable through the date thereof (including interest and
penalties, if any, thereon and Taxes being contested) in accordance with
generally accepted accounting principles. Neither the Company nor any of its
affiliates is required to include in income (i) any amount in respect of any
adjustment under Section 481 of the Code, (ii) any deferred intercompany
transaction or (iii) any installment sale gain, where the inclusion in income
would result in a tax liability materially in excess of the reserves therefor.
Neither the Company nor any of its affiliates has given a consent under Section
341(f) of the Code. Neither the Company nor any of its affiliates is a party to
a tax sharing or allocation agreement nor does the Company or any of its
affiliates owe any amount under any such agreement. Neither the Company nor any
of its affiliates is, or has been at any time, a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code.
(c) The Company on behalf of itself and all its affiliates hereby represents
that, other than as disclosed on Section 2.16(c) of the Company Disclosure
Schedule, and other than with respect to items the inaccuracy of which would not
have a Material Adverse Effect: Neither the Company nor any of its affiliates is
a party to any agreement, contract or arrangement that may result, separately or
in the aggregate, in the payment of any "excess parachute payment" within the
meaning of Section 280G of the Code, determined without regard to Section
280G(b)(4) of the Code. Except as disclosed on Section 2.16(c) of the Company
Disclosure Schedule, no acceleration of the vesting schedule for any property
that is substantially unvested within the meaning of the regulations under
Section 83 of the Code will occur in connection with the transactions
contemplated by this Agreement. Neither the Company nor any of its affiliates is
or has been subject to any accumulated earnings tax or personal holding company
tax. Neither the Company nor any of its affiliates owns stock in a passive
foreign investment company within the meaning of Section 1296 of the Code.
Neither the Company nor any of its affiliates is obligated under any agreement
with respect to industrial development bonds or other obligations with respect
to which the excludibility from gross income of the holder for federal income
tax purposes could be affected by the transactions contemplated hereunder.
Neither the Company nor any of its affiliates has an unrecaptured overall
foreign loss within the meaning of Section 904(f) of the Code or has
participated in or cooperated with an international boycott within the meaning
of Section 999 of the Code. Neither the Company nor any of its affiliates owns
any property of a character, the transfer of which would give rise to (x) a
revaluation of such property for purposes of any AD VALOREM or similar tax, or
(y) any documentary, stamp or other transfer tax. Neither the Company nor any of
its affiliates has an "excess loss account" for purposes of the treasury
regulations promulgated under Section 1502 of the Code.
(d) Within ten days after the date hereof, the Company will make available
to Parent or its legal counsel for inspection copies of all income and sales and
use tax returns for all periods since the date of the Company's incorporation.
SECTION 2.17. ENVIRONMENTAL MATTERS. Except as set forth in Section 2.17
of the Company Disclosure Schedule, and except in all cases as, in the
aggregate, have not had and could not reasonably be expected to have a Material
Adverse Effect, the Company and each of its subsidiaries to their respective
knowledge (i) have obtained all applicable permits, licenses and other
authorization which are required under Federal, state or local laws relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its subsidiaries (or their respective agents); (ii) are in
compliance with all terms and conditions of such required permits, licenses and
authorization, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order,
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decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) as of the date hereof, are not aware of nor have
received notice of any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or prevent
continued compliance or which would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit or proceeding,
based on or resulting from the Company's or any of its subsidiary's (or any of
their respective agent's) manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, or
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste; and (iv) have taken all actions necessary under
applicable requirements of Federal, state or local laws, rules or regulations to
register any products or materials required to be registered by the Company or
its subsidiaries (or any of their respective agents) thereunder.
SECTION 2.18. BROKERS. No broker, finder or investment banker (other than
Hambrecht & Quist LLC) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and Hambrecht & Quist LLC pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereunder.
SECTION 2.19. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by the Company or its subsidiaries to
Parent or Merger Sub in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
shall omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.
SECTION 2.20. INTELLECTUAL PROPERTY. (a) The Company owns, or is licensed
or otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material that are used or
proposed to be used in the business of the Company as currently conducted or as
proposed to be conducted by the Company (the "COMPANY INTELLECTUAL PROPERTY
RIGHTS") free and clear of all liens, charges, security interests or similar
encumbrances. Section 2.20(a) of the Company Disclosure Schedule lists all
patents, registered and material unregistered trademarks and service marks,
registered and material unregistered copyrights, trade names and any
applications therefor of the Company included in the Company Intellectual
Property Rights, and specifies the jurisdictions in which each such Company
Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners, together with a list of all of the Company's currently marketed software
products and an indication as to which, if any, of such software products have
been registered for copyright protection with the United States Copyright Office
and any foreign offices and by whom such items have been registered. Section
2.20(b) of the Company Disclosure Schedule includes and specifically identifies
all patents, registered and material unregistered trademarks and service marks,
registered and material unregistered copyrights, trade names and any
applications therefor included in the third party patents, trademarks, trade
names, service marks, copyrights, mask works, net lists, schematics, technology,
know-how, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material (the "THIRD PARTY INTELLECTUAL PROPERTY RIGHTS"), of which the Company
is aware, and which are incorporated in, are, or form a part of, any Company
product. Section 2.20(b) of the Company Disclosure Schedule lists (i) any
requests the Company has received to make any such registration, including the
identity of the requestor and the item requested to be so registered, and the
jurisdiction for which such request has been made; (ii) except for object code
license agreements for the Company's products executed in the ordinary course of
business and in accordance with the Company's past practices, all material
licenses, sublicenses and other agreements as to which the Company is a party
and pursuant to which any person is
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authorized to use any Company Intellectual Property Right, or any trade secret
material to the Company; and (iii) all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any Third Party Intellectual Property Rights, or other
trade secret of a third party in or as any product, and includes the identity of
all parties thereto, a description of the nature and subject matter thereof, the
applicable royalty rates and the term thereof if not perpetual or automatically
renewable by the Company.
(b) The Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any license, sublicense or agreement described in Section 2.20(b)
of the Company Disclosure Schedule. No claims with respect to the Company
Intellectual Property Rights, any trade secret material to the Company, or Third
Party Intellectual Property Rights to the extent arising out of any use,
reproduction or distribution of such Third Party Intellectual Property Rights by
or through the Company, have been asserted or, to the knowledge of the Company,
are threatened by any person, nor does the Company know of any valid grounds for
any bona fide claims (i) to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or proposed for use, sale or
license by Company infringes on any copyright, patent, trademark, service mark
or trade secret; (ii) against the use by the Company of any trademarks, trade
names, trade secrets, copyrights, patents, maskworks, net lists, schematics,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or as proposed to be conducted by the
Company; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property Rights or other trade secret material to the
Company; or (iv) challenging the Company's license or legally enforceable right
to use of the Third Party Intellectual Rights. To the Company's knowledge, all
material patents, registered trademarks, maskworks and copyrights held by the
Company are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or cancelled or is the subject of a
cancellation proceeding. The consummation of the transactions contemplated
hereby will not alter or impair any of the Company Intellectual Property Rights.
Neither the Company nor any of its subsidiaries has entered into any consent
decree or any material indemnification, forbearance to sue or settlement
agreement with respect to the Company Intellectual Property Rights other than
indemnities given in the ordinary course of business. Except as set forth in
Section 2.20(c) of the Company Disclosure Schedule, the Company is not aware of
any material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property by any third party, including any employee or
former employee of the Company or any of its subsidiaries. Except as set forth
in Section 2.20(c) of the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries (i) has been sued or charged in writing as a defendant
in any claim, suit, action or proceeding which involves a claim or infringement
of trade secrets, any patents, trademarks, service marks, maskworks or
copyrights and which has not been finally terminated prior to the date hereof or
(ii) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, maskwork or copyright of another.
(c) Each employee of the Company has executed a confidentiality and
invention agreement substantially in the form previously delivered to Parent.
SECTION 2.21. INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 2.21 of the Company Disclosure Schedule or in the Company SEC Reports,
no officer, director or shareholder of the Company who owns at least 10% of the
outstanding capital stock of the Company (nor any ancestor, sibling, descendant
or spouse of any of such persons, or any trust, partnership or corporation in
which any of such persons has or has had an interest), is indebted to the
Company for borrowed money or has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services
or products that the Company furnishes or sells, or proposes to furnish or sell,
(ii) any interest in any entity that purchases from or sells or furnishes to,
the Company, any goods or services or (iii) a beneficial interest in any
material contract or agreement of the Company or any of its subsidiaries;
PROVIDED, THAT ownership of no more than five percent (5%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed an "interest
in any entity" for purposes of this Section 2.21.
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SECTION 2.22. OPTION PLANS. Except as described in Section 2.22 of the
Company Disclosure Schedule, the Board of Directors of the Company has taken all
necessary action (or refrained from taking action, where appropriate) under the
Company Stock Option Plans (as defined in Section 5.05) so that none of the
Company Options (as defined in Section 5.05) (or any portion thereof) will be
accelerated or be entitled to receive cash or other property as a result of the
consummation of the transactions contemplated hereby, but instead shall be
assumed as provided in Section 1.06(d) hereof.
SECTION 2.23. POOLING MATTERS. Neither the Company nor any of its
affiliates has, to the Company's knowledge and based upon consultation with its
independent accountants, taken or agreed to take any action, or is aware of any
condition, that (without giving effect to any action taken or agreed to be taken
by Parent or any of its affiliates) would affect the ability of Parent to
account for the business combination to be effected by (a) the Merger, (b) the
Merger and the Upstream Merger, or (c) the Forward Merger, as a pooling of
interests.
SECTION 2.24. OPINION OF FINANCIAL ADVISOR. The Company has been advised
by its financial advisor, Hambrecht & Quist LLC, that in its opinion, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
Company and the shareholders of the Company and has delivered a written copy of
such opinion to Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
previously delivered by Parent to the Company (the "PARENT DISCLOSURE
SCHEDULE"):
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) Each of
Parent and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and Approvals would not,
individually or in the aggregate, have a Material Adverse Effect (as defined
below). Each of Parent and each of its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect. When used in connection with Parent
or any of its subsidiaries, the term "MATERIAL ADVERSE EFFECT" means any change
or effect that, individually or when taken together with all such other changes
or effects that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of Parent and its subsidiaries,
taken as a whole. A true and complete list of all of Parent's subsidiaries,
together with the jurisdiction of incorporation of each subsidiary and the
percentage of each subsidiary's outstanding capital stock owned by Parent or
another subsidiary, is set forth in Section 3.01 of the Parent Disclosure
Schedule.
SECTION 3.02. ARTICLES OF INCORPORATION AND BY-LAWS. Parent has heretofore
furnished to the Company a complete and correct copy of its Articles of
Incorporation and the By-Laws, as amended to date. Such Articles of
Incorporation, By-Laws and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Neither Parent nor any of its
subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or By-Laws or equivalent organizational documents.
SECTION 3.03. CAPITALIZATION. (a) As of June 2, 1995, the authorized
capital stock of Parent consisted of (i) 200,000,000 shares of Parent Common
Stock of which: 62,981,379 shares were issued
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and outstanding, no shares were held in treasury, 7,507,825 shares were reserved
for issuance pursuant to outstanding options under Parent stock option plans,
6,000,000 shares were reserved for issuance under Parent's Employee Purchase
Plan, its 1994 Performance and Restricted Stock Plan and its Restricted Stock
Option Plan and (ii) 2,000,000 shares of Preferred Stock, no par value, none of
which were issued and outstanding. No material change in such capitalization has
occurred between June 2, 1995 and the date hereof. The authorized capital stock
of Merger Sub consists of 1,000 shares of common stock, no par value, 100 shares
of which, as of the date hereof, are issued and outstanding. All of the
outstanding shares of Parent's and Merger Sub's respective capital stock have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in this Section 3.03 of the Parent Disclosure Schedule,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
Parent or any of its subsidiaries or obligating Parent or any of its
subsidiaries to issue or sell any shares of capital stock of, or other equity
interests in, Parent or any of its subsidiaries.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and nonassessable and shall
be available for trading on the NNM.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
Parent and Merger Sub.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Parent is
not, as of the date hereof, a party to any agreement that is required to be
filed with the SEC as a "material contract" which has not been so filed or
provided to the Company.
(b) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub shall not,
(i) conflict with or violate the Articles of Incorporation, By-Laws or
equivalent organizational documents of Parent or any of its subsidiaries, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Parent or any of it subsidiaries or by which its or their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or impair Parent's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of it subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected, except for any such breaches, defaults or
other occurrences that would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, Blue Sky Laws, the pre-merger notification requirements of the HSR
Act and the rules and regulations thereunder, and the filing and recordation of
appropriate merger or other documents as
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required by California Law and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise prevent
Parent or Merger Sub from performing their respective obligations under this
Agreement, and would not have a Material Adverse Effect.
SECTION 3.06. SEC FILINGS; FINANCIAL STATEMENTS. (a) Parent has filed all
forms, reports and documents required to be filed with the SEC since June 1,
1994, and has heretofore delivered to the Company, in the form filed with the
SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended November 27,
1992, November 26, 1993, and November 25, 1994, (ii) its Quarterly Report on
Form 10-Q for the period ended March 3, 1995, (iii) all proxy statements
relating to Parent's meetings of shareholders (whether annual or special) held
since January 1, 1992, (iv) all other reports or registration statements (other
than Reports on Form 10-Q not referred to in clause (ii) above and Reports on
Form 3, 4 or 5 filed on behalf of affiliates of the Parent) filed by Parent with
the SEC since June 1, 1994 and (v) all amendments and supplements to all such
reports and registration statements filed by Parent with the SEC (collectively,
the "PARENT SEC REPORTS"). The Parent SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of Parent and its subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since November 25,
1994, Parent has conducted its business in the ordinary course and there has not
occurred: (i) any Material Adverse Effect; (ii) any amendments or changes in the
Articles of Incorporation or Bylaws of Parent; (iii) any damage to, destruction
or loss of any assets of the Parent, (whether or not covered by insurance) that
could have a Material Adverse Effect; or (iv) any sale of a material amount of
assets of Parent, except in the ordinary course of business.
SECTION 3.08. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject
to the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "REGISTRATION STATEMENT") pursuant to which the
Parent Common Shares to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Proxy Statement/Prospectus shall not, on the date the Proxy
Statement/ Prospectus is first mailed to shareholders, at the time of the
Company Shareholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or shall omit to
state any material fact necessary in order to make the statements therein not
false or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect
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to the solicitation of proxies for the Company Shareholders' Meeting which has
become false or misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent and Merger Sub make no representation or
warranty with respect to any information supplied by the Company which is
contained in any of the foregoing documents. The Registration Statement and
Proxy Statement/Prospectus shall comply in all material respects as to form and
substance with the requirements of the Securities Act, the Exchange Act and the
rules and regulations thereunder.
SECTION 3.09. OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. (a) Merger
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities or any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 3.10. BROKERS. No broker, finder or investment banker (other than
Morgan Stanley & Co. Incorporated) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Merger Sub.
SECTION 3.11. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by Parent or Merger Sub to the Company
in, or pursuant to the provisions of, this Agreement contains or shall contain
any untrue statement of a material fact or omits or shall omit to state any
material fact necessary, in the light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading.
SECTION 3.12. OPINION OF FINANCIAL ADVISOR. Parent has been advised by its
financial advisor, Morgan Stanley & Co. Incorporated, that in its opinion, as of
the date hereof, the Exchange Ratio is fair from a financial point of view to
Parent and has delivered a written copy of such opinion to the Company.
SECTION 3.13. TAXES. Parent, on behalf of itself and all its affiliates,
hereby represents that each of them have filed all United States federal income
tax and all other material tax returns required to be filed by them, and have
paid and discharged all Taxes due in connection with or with respect to the
filing of all Tax Returns and have paid all other Taxes as are due, except such
as are being contested in good faith by appropriate proceedings (to the extent
any such proceedings are required) and with respect to which Parent is
maintaining reserves to the extent currently required in all material respects
adequate for their payment except to the extent the failure to do so would not
have a Material Adverse Effect.
SECTION 3.14. NO UNDISCLOSED LIABILITIES. Except as is disclosed in the
Parent Disclosure Schedule and the Parent SEC Reports, neither Parent nor any of
its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise
including, without limitation, liabilities arising under or with respect to
ERISA, environmental or labor laws) which are, in the aggregate, material to the
business, operations or financial condition of Parent and its subsidiaries taken
as a whole, except liabilities (a) adequately provided for in the Parent's
audited balance sheet (including any related notes thereto) as of November 25,
1994 included in the Parent SEC Reports (the "NOVEMBER BALANCE SHEET"), (b)
incurred in the ordinary course of business and not required under GAAP to be
reflected on the November Balance Sheet, or (c) incurred since November 25, 1994
in the ordinary course of business and consistent with past practice, and
liabilities incurred in connection with this Agreement.
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SECTION 3.15. ABSENCE OF LITIGATION. Except as set forth in Section 3.15
of the Parent Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of Parent, threatened
against Parent or any of its subsidiaries, or any properties or rights of Parent
or any of its subsidiaries, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that could
have a Material Adverse Effect.
SECTION 3.16. TITLE TO PROPERTY. Parent and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and clear
of all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which, individually or in the aggregate, would not
have a Material Adverse Effect.
SECTION 3.17. INTELLECTUAL PROPERTY. Parent owns, or is licensed or
otherwise possesses legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material that are used or
proposed to be used in the business of the Parent as currently conducted or as
proposed to be conducted by Parent, except where the failure to so own, license
or possess would not have a Material Adverse Effect.
SECTION 3.18. POOLING MATTERS. Neither Parent nor any of its affiliates
has, to its knowledge and based upon consultation with its independent
accountants, taken or agreed to take any action, or is aware of any condition,
that (without giving effect to any action taken or agreed to be taken by the
Company or any of its affiliates) would affect the ability of Parent to account
for the business combination to be effected by (a) the Merger, (b) the Merger
and the Upstream Merger, or (c) the Forward Merger, as a pooling of interests.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, unless Parent shall otherwise agree in
writing, and except for the transactions contemplated by the Mastersoft
Agreement, the Company shall and shall cause the businesses of its subsidiaries
to be conducted only in, and the Company and its subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; and the Company shall use reasonable commercial efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement, neither the Company nor any of its subsidiaries
shall, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change the Company's Articles of Incorporation or
By-Laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, (i) any shares of
capital stock of any class, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock, or any
other ownership interest of the Company, any of its subsidiaries or
affiliates (except for (A) the issuance of shares of Company Common Stock
issuable pursuant to employee stock options under the Company Stock Option
Plans (as hereinafter defined) or pursuant to rights to purchase such
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shares under the Company Stock Purchase Plan (as hereinafter defined), which
options or rights, as the case may be, are outstanding on the date hereof,
(B) the issuance of options granted consistent with past practices with
prior notice to Parent, to employees, other than officers, hired after the
date hereof, which options shall represent the right to acquire no more than
100,000 shares of Company Common Stock in the aggregate and (C) the issuance
of not more than an aggregate of 1,200,000 shares of Company Common Stock
and options to acquire shares of Company Common Stock pursuant to the
Mastersoft Agreement), or (ii) any assets of the Company or any of its
subsidiaries (except for sales of assets in the ordinary course of business
and in a manner consistent with past practice);
(c) except pursuant to the plans or arrangements listed on Section 2.22
of the Company Disclosure Schedule, accelerate, amend or change the period
(or permit any acceleration, amendment or change) of exercisability of
options or restricted stock granted under the Employee Plans (including the
Company Stock Option Plans) or authorize cash payments in exchange for any
options granted under any of such plans;
(d) sell, pledge, dispose of or encumber any assets of the Company or
any of its subsidiaries (except for (i) sales of assets in the ordinary
course of business and in a manner consistent with past practice and (ii)
dispositions of obsolete or worthless assets);
(e) (i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except (A) that a wholly owned subsidiary of
the Company may declare and pay a dividend to its parent and (B) for the
payment of dividends pursuant to Section 4.1(t) of the Mastersoft Agreement,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii) amend
the terms of, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any of its securities
or any securities of its subsidiaries, or propose to do any of the
foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
Company Intellectual Property, or amend or modify any existing agreements
with respect to any Company Intellectual Property or Third Party
Intellectual Property Rights, other than nonexclusive object and source code
licenses in the ordinary course of business consistent with past practices;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof (other than Mastersoft); (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee (other than
guarantees of bank debt of the Company's subsidiaries entered into in the
ordinary course of business) or endorse or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances, except in the ordinary course of business consistent with past
practice; (iii) enter into or amend any contract or agreement other than in
the ordinary course of business; (iv) authorize any capital expenditures or
purchase of fixed assets which are, in the aggregate, in excess of
$3,000,000 for the Company and its subsidiaries taken as a whole; or (v)
enter into or amend any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this Section 4.01(g);
(h) except pursuant to the plans and arrangements listed in Section 2.22
of the Company Disclosure Schedule, increase the compensation payable or to
become payable to its officers or employees (including, without limitation,
by way of promotion or addition of title), except for scheduled increases in
salary or wages of employees of the Company or its subsidiaries who are not
officers of the Company in accordance with past practices, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee (except for officers
or other employees who are terminated on an involuntary basis pursuant to
the Company's severance policy in effect on the date hereof or pursuant to
agreements in effect on the date hereof and set forth on Section 2.11 or
2.22 of the Company
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Disclosure Schedule) of the Company or any of its subsidiaries, or
establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any current or former directors, officers or employees;
(i) take any action other than in the ordinary course of business and in
a manner consistent with past practice with respect to accounting policies
or procedures (including, without limitation, procedures with respect to
revenue recognition, the capitalization of software development costs,
payments of accounts payable and collection of accounts receivable);
(j) make any material tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations except to the
extent the amount of any such settlement has been reserved for on the
Company's most recent SEC Report, enter into any transaction that would
cause the Company or any of its affiliates to be required to include in
income (i) any amount in respect of any adjustment under Section 481 of the
Code, (ii) any deferred intercompany transaction or (iii) any installment
sale gain, or enter into any transaction that would create or increase any
excess loss account;
(k) commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where the Company in good faith determines that
failure to commence suit would result in the material impairment of a
valuable aspect of the Company's business, provided that the Company
consults with Parent prior to the filing of such a suit, or (iii) for a
breach of this Agreement or the Mastersoft Agreement;
(l) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice;
(m) enter into or commit to enter into any contract, agreement,
arrangement or understanding having a term longer than six months unless
such contract, agreement, arrangement or understanding either (i) may be
cancelled by it without penalty on not more than thirty days' notice or (ii)
does not require the expenditure by the Company of more than $100,000 for
any single contract, agreement or arrangement and $500,000 for all such
contracts, arrangements and agreements;
(n) except as may be required by law, take any action to terminate or
amend any of its Employee Plans;
(o) modify, amend or terminate the Mastersoft Agreement (other than
amending the Mastersoft Agreement as described in Section 6.02(f)), modify,
amend or terminate any other contracts, waive, release, relinquish or assign
any contract or other rights or claims or cancel or forgive any indebtedness
owed to it, other than in the ordinary course of business consistent with
past practice with respect to contracts which are not material to the
Company and its subsidiaries taken as a whole; or
(p) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (o) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants hereunder.
SECTION 4.02. NO SOLICITATION. (a) The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent of
the Company or any of its subsidiaries, solicit or encourage (including by way
of furnishing nonpublic information) the initiation of any inquiries or
proposals regarding any merger, sale of substantial assets, sale of shares of
capital stock
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(including without limitation by way of a tender offer) or similar transactions
involving the Company or any subsidiaries of the Company (any of the foregoing
inquiries or proposals being referred to herein as an "ACQUISITION PROPOSAL");
PROVIDED, HOWEVER, that nothing contained in this Agreement shall prevent (i)
the Board of Directors of the Company in the exercise of its fiduciary duties
and after receiving the advice of outside counsel, from referring any third
party to this Section 4.02 or from making a copy of this Section 4.02 available
to any third party or (ii) after receiving the advice of outside counsel to the
effect that the Board of Directors is required to do so in order to discharge
properly its fiduciary duties, from considering, negotiating and approving and
recommending to the shareholders of the Company another unsolicited bona fide
Acquisition Proposal which the Board of Directors of the Company determines in
good faith, after consultation with its financial advisors, would result in a
transaction more favorable to the Company's shareholders than the transaction
contemplated by this Agreement (any such Acquisition Proposal being referred to
herein as a "SUPERIOR PROPOSAL").
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any subsidiary
by any person or entity that informs the Board of Directors of the Company or
such subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Parent shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
(c) If the Board of Directors of the Company receives a request for material
nonpublic information by a party who makes a bona fide Acquisition Proposal and
the Board of Directors of the Company determines that such proposal is a
Superior Proposal and, after receiving the advice of outside counsel to the
effect that the Board of Directors has a fiduciary obligation to provide such
information to such party, then, and only in such case, the Company may, subject
to the execution of a confidentiality and standstill agreement substantially
similar to that then in effect between the Company and Parent, provide such
party with access to information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(e) The Company agrees to use its best efforts to ensure that the officers,
directors and employees of the Company and its subsidiaries and any investment
banker or other advisor or representative retained by the Company are aware of
the restrictions described in this Section.
SECTION 4.03. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted, in
the ordinary course of business, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Parent's Articles of Incorporation;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person, or agree to dispose of a
material portion of its assets, which, in each case, would materially delay
or prevent the consummation of the transactions contemplated by this
Agreement;
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(c) take any action other than in the ordinary course of business and in
a manner consistent with past practice with respect to accounting policies
or procedures (including, without limitation, procedures with respect to
revenue recognition, the capitalization of software development costs,
payments of accounts payable and collection of accounts receivable);
(d) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of Parent
may declare and pay a dividend to its parent and except that Parent may
declare and pay cash dividends of $0.05 per quarter consistent with past
practice; or
(e) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement of the Company (the "PROXY STATEMENT") and
the Registration Statement of the Parent with respect to the Parent Common
Shares to be issued in connection with the Merger. As promptly as practicable
after comments are received from the SEC thereon and after the furnishing by the
Company and Parent of all information required to be contained therein, the
Company and Parent shall file with the SEC a combined proxy and registration
statement on Form S-4 (or on such other form as shall be appropriate) (the
"REGISTRATION STATEMENT") relating to the approval of the Merger and the
transactions contemplated hereby by the shareholders of the Company and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. The Proxy Statement shall include
the recommendation of the Board of Directors of the Company in favor of the
Merger, subject to the proviso in Section 4.02(a).
SECTION 5.02. COMPANY SHAREHOLDERS' MEETING. The Company shall promptly
after the date hereof take all action necessary in accordance with California
Law and its Articles of Incorporation and Bylaws to convene the Company
Shareholders' Meeting. The Company shall consult with Parent as to the date of
the Company Shareholders' Meeting and shall not postpone or adjourn (other than
for the absence of a quorum or, after consulting with Parent, to comply with the
disclosure requirements of the 1934 Act) the Company Shareholders' Meeting
without the consent of Parent. Subject to the proviso in Section 4.02(a) and
5.01(a), the Company shall use its best efforts to solicit from shareholders of
the Company proxies in favor of the Merger and shall take all other action
necessary or advisable to secure the vote or consent of shareholders required by
California law to effect the Merger.
SECTION 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), the Company and Parent each shall (and shall cause each of
their subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the other, reasonable access, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each party shall make available to the
other party the appropriate individuals (including attorneys, accountants and
other professionals) for discussion of such party's business, properties, tax
situation and personnel as the other party may reasonably request.
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(b) Each party shall keep such information confidential in accordance with
the terms of the Confidentiality Agreement, dated June 7, 1995, between Parent
and the Company (the "CONFIDENTIALITY AGREEMENT").
SECTION 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
Each party's use of best efforts shall not include any obligation to divest
assets or enter into consent or similar decrees. The Company and Parent shall
furnish all information required to be included in the Proxy Statement and the
Registration Statement, or for any application or other filing to be made
pursuant to the rules and regulations of any United States or foreign
governmental body in connection with the transactions contemplated by this
Agreement.
SECTION 5.05. STOCK OPTIONS; EMPLOYEE BENEFITS. (a) At the Effective
Time, each outstanding option to purchase shares of Company Common Stock (each a
"COMPANY OPTION") under the Company's Dual Stock Option Plan, 1991 Directors'
Stock Option Plan and 1994 Directors Stock Option Plan (the "COMPANY STOCK
OPTION PLANS"), whether vested or unvested, will be assumed by Parent. Each
Company Option so assumed by Parent under this Agreement shall continue to have,
and be subject to, the same terms and conditions set forth in the applicable
Company Stock Option Plan immediately prior to the Effective Time, except that
(i) such Company Option will be exercisable for that number of whole shares of
Parent Common Shares equal to the product of the number of shares of Company
Common Stock that were purchasable under such Company Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Shares, and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option will be equal to the quotient determined by dividing
the exercise price per share of Company Common Stock at which such Company
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, and rounding the resulting exercise price up to the nearest whole cent.
(b) It is the intention of the parties that the Company Options assumed by
Parent qualify following the Effective Time as ISOs to the extent the Company
Options qualified as ISOs prior to the Effective Time. Parent shall take all
corporate action necessary to reserve for issuance a sufficient number of Parent
Common Shares for delivery pursuant to the terms set forth in this Section 5.05.
(c) Parent shall file and cause to become effective not later than the
Effective Time a registration statement under the Securities Act of 1933 with
respect to the assumption by Parent of the Company Options referred to in
Section 5.05 and with respect to the issuance of Parent Common Shares upon
exercise of those options and to keep such registration statement effective
throughout the term of such options.
(d) Parent shall take such reasonable actions as are necessary to allow
eligible employees of the Company to participate in the benefit programs of
Parent, or alternative benefit programs substantially comparable to those
applicable to employees of Parent on similar terms, as soon as practicable after
the Effective Time (with credit, where appropriate for prior service with the
Company).
(e) From and after the Effective Time, Parent and the Surviving Corporation
will adopt and implement the arrangements listed on Exhibit A hereto with
respect to the individuals listed on Exhibit A hereto.
SECTION 5.06. COMPANY EMPLOYEE STOCK PURCHASE PLAN. (a) The Company shall
take such actions as are necessary to cause the Exercise Date (as such term is
used in the Company's 1991 Employee Stock Purchase Plan (the "COMPANY STOCK
PURCHASE PLAN"), applicable to the then current
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Offering Period (as such term is used in the Company Stock Purchase Plan), to be
the last trading day on which the Parent Common Shares are traded on the NNM
immediately prior to the Effective Time (the "FINAL COMPANY PURCHASE DATE");
PROVIDED, THAT, such change in the Exercise Date shall be conditioned upon the
consummation of the Merger. On the Final Company Purchase Date, the Company
shall apply the funds credited as of such date under the Company Stock Purchase
Plan within each participant's payroll withholdings account to the purchase of
whole shares of Company Common Stock in accordance with the terms of the Company
Stock Purchase Plan. The cost to each participant in the Company Stock Purchase
Plan for shares of Company Common Stock shall be 85% of the lower of the closing
sale price of Company Common Stock on the NNM on (i) the first day of the then
current Offering Period or (ii) the last trading day on or prior to the Final
Company Purchase Date.
(b) Employees of the Company as of the Effective Time shall be permitted to
participate in Parent's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with the Company).
SECTION 5.07. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under the
Securities Act, a letter (the "AFFILIATE LETTER") identifying all persons who
are, or may deemed to be, at the time of the Company Shareholders' Meeting,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each person who is identified as
an "affiliate" in the Affiliate Letter to deliver to Parent, prior to the
Effective Time, a written agreement (an "AFFILIATE AGREEMENT") in substantially
the form of Exhibit B hereto.
SECTION 5.08. INDEMNIFICATION. (a) The Articles of Incorporation of the
Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Articles of Incorporation of the Company, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under the Parent's or the Surviving
Corporation's Articles of Incorporation or By-Laws, indemnify and hold harmless,
each present and former director, officer, employee, fiduciary and agent of the
Company or any of its subsidiaries (collectively, the "INDEMNIFIED PARTIES")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, to the extent arising out of
or pertaining to any action or omission in their capacity as a director,
officer, employee, fiduciary or agent of the Company occurring prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) for a period of six years after the date hereof. In the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) any counsel retained by the Indemnified
Parties for any period after the Effective Time shall be reasonably satisfactory
to the Surviving Corporation and Parent, (ii) after the Effective Time, the
Surviving Corporation and Parent shall pay the reasonable fees and expenses of
such counsel, promptly after statements therefor are received and (iii) the
Surviving Corporation and Parent will cooperate in the defense of any such
matter; PROVIDED, HOWEVER, that neither the Surviving Corporation nor Parent
shall be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); and PROVIDED FURTHER, that, in the
event that any claim or claims for indemnification are asserted or made within
such six-year period, all rights to indemnification in respect of any such claim
or claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm
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to represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(c) The Surviving Corporation and Parent shall honor and fulfill in all
respects the obligations of the Company pursuant to indemnification agreements
with the Company's directors and officers set forth on Section 5.08 of the
Company Disclosure Schedule and existing at or before, and as in effect on, the
Effective Time.
(d) For a period of three years after the Effective Time, Parent shall cause
the Surviving Corporation to use its best efforts to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by the Company's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to Parent) on
terms comparable to those applicable to the then current directors and officers
of Parent, or (ii) those now applicable to directors and officers of the
Company, whichever is more favorable to such directors and officers; PROVIDED,
HOWEVER, that in no event shall Parent or the Surviving Corporation be required
to expend in excess of 150% of the annual premium currently paid by the Company
for such coverage, and provided further, that if the premium for such coverage
exceeds such amount, Parent or the Surviving Corporation shall purchase a policy
with the greatest coverage available for such 150% of the annual premium.
(e) This Section shall survive any termination of this Agreement and the
consummation of the Merger at the Effective Time, is intended to benefit the
Company, the Surviving Corporation and the Indemnified Parties, and shall be
binding on all successors and assigns of the Surviving Corporation.
SECTION 5.09. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 5.10. FURTHER ACTION/TAX TREATMENT. Subject to Section 5.04
hereof, upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and to otherwise satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement; PROVIDED, HOWEVER,
that the withdrawal by the Board of Directors of the Company of its
recommendation of the Merger after receiving the advice of outside counsel to
the effect that the Board of Directors is required to do so in order to
discharge properly its fiduciary duties, shall not constitute a breach of this
covenant by the Company. Each of Parent, Merger Sub and the Company shall use
its best efforts to cause (a) the Merger, (b) the Merger and the Upstream Merger
and (c) the Forward Merger to qualify, and will not (both before and after
consummation of such merger or mergers) take any actions which could prevent
such merger or mergers from qualifying, as a reorganization under the provisions
of Section 368 of the Code. Each of Parent, Merger Sub and the Company shall
report the Merger, the Merger and the Upstream Merger, or the Forward Merger, as
applicable, as a reorganization under the provisions of Section 368 of the Code
and, to the extent permitted, on all state and local Tax returns, filed after
the Effective Time. In the event that the Company has not acquired Mastersoft
prior to the Effective Time, Parent shall execute the amendment to the
Mastersoft Agreement referred to in Section 6.02(f) upon execution and delivery
thereof by the Company and Mastersoft.
SECTION 5.11. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the
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Merger or this Agreement and shall not issue any such press release or make any
such public statement without the prior consent of the other party, which shall
not be unreasonably withheld; PROVIDED, HOWEVER, that a party may, without the
prior consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the National
Association of Securities Dealers, Inc., if it has used reasonable efforts to
consult with the other party.
SECTION 5.12. POOLING ACCOUNTING TREATMENT. Each of Parent and the Company
agrees not to take any action that would adversely affect the ability of Parent
to treat the Merger, the Merger and the Upstream Merger, or the Forward Merger,
as a pooling of interests under GAAP.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that
purpose and no similar proceeding in respect of the Proxy Statement shall
have been initiated or threatened by the SEC;
(b) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of the
Company;
(c) HSR ACT. The applicable waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by any administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; and there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal;
(e) ACCOUNTANTS' POOLING LETTERS. Each of the Company and Parent shall
have received letters dated as of the Effective Date from Ernst & Young LLP
and KPMG Peat Marwick to the effect that whichever is effectuated of (i) the
Merger, (ii) the Merger and the Upstream Merger and (iii) the Forward Merger
qualifies for pooling of interests accounting treatment if consummated in
accordance with the Agreement; and
(f) TAX OPINIONS. Parent and the Company shall have received written
opinions of Shearman & Sterling and Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation, respectively, in form and substance reasonably
satisfactory to them to the effect that whichever is effectuated of (i) the
Merger, (ii) the Merger and the Upstream Merger and (iii) the Forward Merger
will constitute a reorganization within the meaning of Section 368 of the
Code. In rendering such opinions, counsel may rely upon representations and
certificates of Parent, Merger Sub and the Company.
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SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time, except for changes
contemplated by this Agreement, and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as
if made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omission of such representations and warranties as
do not have a Material Adverse Effect, and Parent and Merger Sub shall have
received a certificate to such effect signed by the President and Chief
Financial Officer of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by the President and Chief Financial Officer of the
Company;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company;
(d) GOVERNMENTAL ACTIONS. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or
other inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, nor
shall there be in effect any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction, in
either case, seeking to prohibit or limit Parent from exercising all
material rights and privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Parent or any of its
subsidiaries of all or a material portion of the business or assets of
Parent or any of its subsidiaries, or seeking to compel Parent or any of its
subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Parent or any of its subsidiaries, as a result of
the Merger or the transactions contemplated by this Agreement;
(e) AFFILIATE AGREEMENTS. Parent shall have received from each person
who is identified in the Affiliate Letter as an "affiliate" of the Company,
an Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect; and
(f) MASTERSOFT AMENDMENT. The Company and Mastersoft, in the event
that the Company has not acquired Mastersoft prior to the Effective Time,
shall have executed and delivered to Parent an amendment to the Mastersoft
Agreement, in form and substance satisfactory to Parent, providing for each
holder of shares and options of Mastersoft to receive that number of Parent
Common Shares or options to receive that number of Parent Common Shares,
respectively, equal to the product of (i) the Exchange Ratio and (ii) that
number of Shares or options to purchase that number of Shares, as the case
may be, that such holder would have received pursuant to the Mastersoft
Agreement (assuming that the "Average Price" (as defined in the Mastersoft
Agreement) exceeded $20).
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time, except for
changes contemplated by this Agreement and except for those
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representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same
force and effect as if made on and as of the Effective Time, except, in all
such cases, for such breaches, inaccuracies or omission of such
representations and warranties as do not have a Material Adverse Effect, and
the Company shall have received a certificate to such effect signed by the
President and Treasurer of Parent;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed by the President and Treasurer of
Parent; and
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
shareholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by October 31, 1995; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger to occur on
or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken any other action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by Parent or the Company, if (i) at the Company Shareholders'
Meeting (including any adjournment or postponement thereof), the requisite
vote of the shareholders of the Company shall not have been obtained and
(ii) in the case of the termination of this Agreement under this Section
7.01(d) by the Company, the Company shall have paid to Parent all amounts
owing by the Company to Parent under Section 7.03(b); or
(e) by Parent or the Company, if (i) the Board of Directors of the
Company shall have resolved to accept, accepted or recommended to the
shareholders of the Company, a Superior Proposal, and (ii) in the case of
the termination of this Agreement under this Section 7.01(e) by the Company,
the Company shall have paid to Parent all amounts owing by the Company to
Parent under Section 7.03(b); or
(f) by Parent, if (i) the Board of Directors of the Company shall have
withdrawn, modified or changed in a manner adverse to Parent its
recommendation of the Merger or shall have resolved to do so; (ii) the Board
of Directors of the Company shall have taken a "neutral" position with
respect to an Alternative Transaction (as defined in Section 7.03(c)); or
(iii) a tender offer or exchange offer for 40% or more of the outstanding
shares of Company Common Stock is commenced (other than by Parent or an
affiliate of Parent), and within 10 business days of such commencement the
Board of Directors of the Company shall not have recommended that the
shareholders of the Company not tender their shares in such tender or
exchange offer; or
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(g) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.03(a) or Section
6.03(b) would not be satisfied (a "TERMINATING PARENT BREACH"), PROVIDED,
THAT, if such Terminating Parent Breach is curable by Parent through the
exercise of its reasonable best efforts and for so long as Parent continues
to exercise such reasonable best efforts, the Company may not terminate this
Agreement under this Section 7.01(g); and
(h) by Parent, upon breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.02(a) or Section
6.02(b) would not be satisfied ("TERMINATING COMPANY BREACH"), PROVIDED,
THAT, if such Terminating Company Breach is curable by the Company through
the exercise of its reasonable best efforts and for so long as Company
continues to exercise such reasonable best efforts, Parent may not terminate
this Agreement under this Section 7.01(h).
SECTION 7.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except (i)
as set forth in Section 7.03 and Section 8.01 hereof, and (ii) nothing herein
shall relieve any party from liability for any willful breach hereof.
SECTION 7.03. FEE AND EXPENSES. (a) Except as set forth in this Section
7.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; PROVIDED, HOWEVER, that
Parent and the Company shall share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of the Proxy
Statement (including any preliminary materials related thereto) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) The Company shall pay Parent a fee of $18,000,000 (the "FEE") upon the
earlier to occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
7.01(f) or, if and only if the Company shall have breached Section 4.02,
Section 7.01(h);
(ii) the termination of this Agreement by Parent or the Company pursuant
to Section 7.01(d) (if, at the time of termination, an Alternative
Transaction shall have published, or sent or given to the holders of the
Shares and not publicly withdrawn or a proxy statement and/or consent
solicitation recommending an Alternative Transaction shall have been
published, or sent or given to the holders of the Shares and not publicly
withdrawn) or Section 7.01(e); and
(iii) at any time on or before April 30, 1996, an Alternative Transaction
shall have been consummated or the Company shall have entered into an
agreement contemplating an Alternative Transaction, in either case with a
per Share consideration having a greater nominal value than the per Share
consideration (determined as of the date hereof) to be received by holders
of Shares pursuant to the Merger.
(c) As used herein, "ALTERNATIVE TRANSACTION" means either (i) a transaction
pursuant to which any person other than Parent or its affiliates (a "THIRD
PARTY") acquires more than 40% of the outstanding Shares, whether from the
Company or pursuant to a tender offer or exchange offer or otherwise, (ii) a
merger or other business combination involving the Company pursuant to which any
Third Party acquires more than 40% of the outstanding equity securities of the
Company or the entity surviving such merger or business combination or (iii) any
other transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
the Company, and the entity surviving any merger or business consideration
including any of them)
30
<PAGE>
of the Company or any of its subsidiaries having a fair market value (as
determined by the Board of Directors of the Company in good faith) equal to more
than 40% of the fair market value of all the assets of the Company, and its
subsidiaries, taken as a whole, immediately prior to such transaction.
(d) If the Fee is payable pursuant to Section 7.03(b), then the Fee shall be
paid (i) concurrently with any termination of this Agreement by the Company
pursuant to Section 7.01(d) (if the Fee is payable pursuant to Section
7.03(b)(ii)) or 7.01(e) or (ii) within one business day after the first to occur
of (A) the termination of this Agreement pursuant to Section 7.01(f) or 7.01(h)
(if the Fee is payable pursuant to Section 7.03(b)(i)), (B) the termination of
this Agreement by Parent pursuant to Section 7.01(d) (if the Fee is payable
pursuant to Section 7.03(b)(ii)) or 7.01(e) and (C) the events described in
Section 7.03(b)(iii), as the case may be.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I, Section 5.05, Section 5.06 and Section 5.08 shall survive
the Effective Time indefinitely and those set forth in Section 5.03(b) and
Section 7.03 shall survive termination indefinitely.
SECTION 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
change of address) or sent by electronic transmission, with confirmation
received, to the telecopy number specified below:
(a) If to Parent or Merger Sub:
Adobe Systems Incorporated
1585 Charleston Road
Mountain View, California 94043
Telecopier No. (415) 960-0359
Attention: President
With a copy to:
Shearman & Sterling
555 California Street, Suite 2000
San Francisco, California 94104
Telecopier No. (415) 616-1199
Attention: Michael J. Kennedy, Esq.
(b) If to the Company:
Frame Technology Corporation
333 West San Carlos Street
San Jose, California 95110
Telecopier No. (408) 975-6799
Attention: President
31
<PAGE>
With a copy to:
Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopier No. (415) 493-6811
Attention: David J. Segre, Esq.
SECTION 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATES" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation, any
partnership or joint venture in which the Company (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an
interest of 5% or more;
(b) "BENEFICIAL OWNER" with respect to any shares of Company Common
Stock, means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates (as such term is defined in Rule 12b-2 of the
Exchange Act) has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares;
(c) "BUSINESS DAY" means any day other than a day on which banks in San
Francisco are required or authorized to be closed;
(d) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "PERSON" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(f) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be, (either alone
or through or together with any other subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of the Merger by the shareholders of the Company, no amendment may be made which
by law requires further approval by such shareholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto; PROVIDED, HOWEVER, that, prior to the Effective
Time, Parent may, by an instrument
32
<PAGE>
signed only by Parent, amend this Agreement to remove the Upstream Merger or to
cause the acquisition of the Company by Parent to be effected solely by means of
a forward merger of the Company with and into Parent (the "FORWARD MERGER").
SECTION 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 8.09. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Merger Sub may assign all
or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
SECTION 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.08 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties).
SECTION 8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. GOVERNING LAW. This Agreement shall governed by, and
construed in accordance with, the laws of the State of California.
SECTION 8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF THE PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
33
<PAGE>
BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ADOBE SYSTEMS INCORPORATED
By /s/ JOHN WARNOCK
-----------------------------------
John Warnock
Chairman of the Board and
Chief Executive Officer
J ACQUISITION CORPORATION
By /s/ M. BRUCE NAKAO
-----------------------------------
M. Bruce Nakao
President
FRAME TECHNOLOGY CORPORATION
By /s/ L. GEORGE KLAUS
-----------------------------------
L. George Klaus
Chairman of the Board,
President and Chief Executive
Officer
34
<PAGE>
EXHIBIT A
I. COVERED EMPLOYEES: (a) The term "Covered Employees" means L. George Klaus,
William R. Pieser, Thomas F. Kelly, Harold E. Julsen, Robert F. Donohue,
Steven J. Sherman, Charles N. Corfield and Noreen G. Bergen.
The term "performance options" means the non-qualified stock options
granted to Messrs. Klaus, Pieser, Kelly, Julsen, Donohue and Sherman on
6/8/93 (1660), 10/11/93 (2347), 9/9/93 (001742), 9/10/93 (1744), 12/31/93
(2375) and 7/1/94 (2476), respectively.
(b) CONSULTING/EMPLOYMENT AGREEMENTS. On or prior to the Effective
Time, Parent and the Surviving Corporation shall offer to enter into with
each Covered Employee a consulting (employment, for Mr. Klaus) agreement
which shall (i) provide that such Covered Employee will provide consulting
and transition services to Parent and/or the Surviving Corporation through
March 31, 1997 or such earlier time as all but 25% of the remaining
performance options of such Covered Employee shall have vested (or, in the
case of Mr. Klaus and Mr. Kelly, until June 30 and September 30, 1997,
respectively), (ii) be in consideration of the payments referred to below,
(iii) contain a non-compete provision for the term of the
consulting/employment agreement and other mutually acceptable provisions and
provide that vesting of such covered Employee's stock options (other than
performance options and the options held by Mr. Klaus and Mr. Kelly) shall
cease twelve months after the termination of such Covered Employee's
full-time employment with the Company subject to Section IV hereof in the
case of Mr. Klaus and Mr. Kelly. During the term of the
consulting/employment agreement, each Covered Employee will be free to
render services to third parties so long as the rendering thereof does not
violate the non-competition clause of such agreement or interfere with the
level of service agreed to by such Covered Employee. If a Covered Employee's
full-time employment with the Surviving Corporation and/or Parent terminates
within the twelve-month period following the Effective Time (or at any time
in the case of Mr. Klaus, Mr. Kelly or Mr. Donohue) (other than, except for
Mr. Klaus, Mr. Kelly or Mr. Donohue, (i) voluntary termination (which shall
exclude termination by the Covered Employee as a result of (A) a salary
reduction, (B) a significant diminution in such Covered Employee's status,
responsibilities or duties and (C) constructive termination) or (ii)
termination as a result of death or disability of such Covered Employee),
then such Covered Employee shall be entitled to receive consulting payments
equal to twelve (12) months base salary, calculated at the Covered
Employee's monthly rate of compensation in effect immediately prior to the
Effective Time and one year's targeted bonus in effect immediately prior to
the Effective Time (not pro-rated for prior partial periods). The payment
referred to in this subsection shall be in lieu of any other severance
benefits (excluding COBRA) of Parent, the Surviving Corporation or the
Company and, in the case of Mr. Kelly or Mr. Klaus, severance benefits
contained in existing agreements (other than the medical continuation
provided for in Section 1(d) of Mr. Klaus' employment agreement). The
payment shall be, at Parent's option, in a lump sum or twelve monthly
installments (except that such payment shall be made to Messrs. Klaus and
Kelly in twelve monthly installments) and shall be net of all applicable
withholding and similar taxes.
II. SEPTEMBER 9, 1993 EMPLOYMENT LETTER WITH MR. THOMAS KELLY. On or prior to
the Effective Time, Parent will consent to an amendment to Mr. Thomas
Kelly's September 9, 1993 employment agreement with the Company to provide
for the consulting payments referred to in I above, which shall replace the
severance payments set forth in paragraph (a) of such agreement.
III. PERFORMANCE SHARES: All unvested performance shares shall be assumed by
Parent as provided in Section 5.05 of the Merger Agreement; PROVIDED, THAT,
on or prior to the Effective Time mutually acceptable changes to the
performance criteria (designed to take into account the Merger) shall have
been agreed to by Parent and each respective optionholder.
IV. KLAUS AND KELLY OPTIONS: Pursuant to Section 2(e) of Mr. Klaus' June 8,
1993 Employment Agreement, as amended, and Section (e) of Mr. Kelly's
September 9, 1993 Employment Agreement, as
A-1
<PAGE>
amended, each with the Company, and each of which will be assumed by Parent
or the Surviving Corporation (other than certain provisions thereof which
are superseded by the provisions hereof), each of Mr. Klaus and Mr. Kelly,
respectively, agrees to defer acceleration of a portion of his Company
Options that would otherwise be accelerated upon a "change of control" so
that such options continue to vest during the term of their respective
employment and consulting agreements in accordance with their terms.
V. 1995 BONUS: Parent agrees that, immediately prior to the Effective Time,
the Company shall be entitled to pay 75% of the amounts which have (if the
Effective Time is after September 30, 1995) or would have (if the Effective
Time is before September 30, 1995) been earned under any bonus plans for the
Covered Employees, including any applicable accelerators as applied to such
nine month period PROVIDED, THAT, the Company will give Parent prior notice
of the amount thereof.
VI. GENERAL: Parent and the Company agree that (i) they shall, subject to
Section 2(e) of Mr. Klaus' employment agreement and Section (e) of Mr.
Kelly's employment agreement, modify the arrangements specified in I through
V above to the extent that the implementation of any such arrangements would
cause the breach of Section 5.12 of the Merger Agreement or impose an
unanticipated cost or tax on Parent, the Company or the relevant individuals
and (ii) any such modification shall as closely as possible replicate the
economic effects of I through V above consistent with compliance with
Section 5.12 of the Merger Agreement and amelioration of such costs.
A-2
<PAGE>
EXHIBIT B
FORM OF AFFILIATE AGREEMENT
AFFILIATE AGREEMENT
, 1995
Adobe Systems Incorporated
1585 Charleston Road
Mountain View, California 94043
Ladies and Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger and
Reorganization, dated as of June 22, 1995 (the "MERGER AGREEMENT"; capitalized
terms used herein and not otherwise defined are used herein as defined in the
Merger Agreement), among Adobe Systems Incorporated, a California corporation
("CHIP"), J Acquisition Corporation, a California corporation and wholly owned
subsidiary of Parent ("SUB"), and Frame Technology Corporation, a California
corporation (the "COMPANY"), Parent will acquire the Company through a merger of
Sub with and into the Company (the "MERGER"). Subject to the terms and
conditions of the Merger Agreement, at the Effective Time, outstanding shares of
the common stock, no par value (the "COMPANY COMMON STOCK"), of the Company will
be converted into the right to receive shares of the common stock, no par value
(the "PARENT COMMON STOCK"), of Parent, on the basis described in the Merger
Agreement.
The undersigned has been advised that as of the date hereof it may be deemed
to be an "affiliate" of the Company, as the term "affiliate" is (i) defined for
the purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations
(the "RULES AND REGULATIONS") of the Securities and Exchange Commission (the
"COMMISSION") under the Securities Act of 1933, as amended (the "ACT"), and/or
(ii) used in and for purposes of Accounting Series Releases 130 and 135, as
amended, and Staff Accounting Bulletins 65 and 76, of the Commission.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, shareholders of
Parent, the Company, other shareholders of the Company and their respective
counsel and accounting firms.
The undersigned represents and warrants to and agrees with Parent that:
1. The undersigned has full power to execute and deliver this Agreement
and to make the representations and warranties herein and to perform its
obligations hereunder.
2. The undersigned has carefully read this Agreement and the Merger
Agreement and, to the extent the undersigned felt necessary, discussed its
requirements and other applicable limitations upon its ability to sell,
transfer or otherwise dispose of Parent Common Stock with its counsel or
counsel for the Company.
3. The undersigned shall not make any sale, transfer or other
disposition of Parent Common Stock in violation of the Act or the Rules and
Regulations.
4. The undersigned has been advised that the issuance of shares of
Parent Common Stock to the undersigned in connection with the Merger has
been or will be registered with the Commission under the Act on a
Registration Statement on Form S-4. However, the undersigned has also been
advised that, since, at the time the Merger was submitted for a vote of the
shareholders of the Company the undersigned may be deemed to have been an
affiliate of the Company and the distribution by the undersigned of any
Parent Common Stock has not been registered under the Act, the undersigned
may not sell, transfer or otherwise dispose of Parent Common Stock issued to
the undersigned in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with the requirements of Rule 145
promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to Parent, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
B-1
<PAGE>
5. Parent is under no obligation to register the sale, transfer or
other disposition of Parent Common Stock by the undersigned or on its behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
6. Stop transfer instructions will be given to Parent's transfer agents
with respect to the Parent Common Stock and that there will be placed on the
certificates for the Parent Common Stock issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
[ ], 1995, BETWEEN THE REGISTERED HOLDER HEREOF AND ADOBE
SYSTEMS INCORPORATED, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF ADOBE SYSTEMS INCORPORATED."
7. Unless the transfer of the undersigned of its Parent Common Stock
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to place the following
legend on the certificates issued any transferee of the undersigned:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE
WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933."
8. The legends set forth in paragraphs 6 and 7 above shall be removed
by delivery of substitute certificates without such legend if the
undersigned shall have delivered to Parent a copy of a letter from the staff
of the Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Parent, to the effect that such legend is not required for
purposes of the Act.
9. The undersigned is the beneficial owner of (I.E., has sole or shared
voting or investment power with respect to) all the shares of Company Common
Stock and options to purchase shares of Company Common Stock indicated on
the last page of this Agreement (the "COMPANY SECURITIES"). Except for the
Company Securities, the undersigned does not beneficially own any shares of
Company Common Stock or any other equity securities of the Company or any
options, warrants or other rights to acquire any equity securities of the
Company.
10. Any other provision of this Agreement to the contrary
notwithstanding, the undersigned has not at any time since June 22, 1995 or
in contemplation of the Merger engaged, and will not after the Effective
Time and until such time as results covering at least 30 days of combined
operations of the Company and Parent have been published by Parent, in the
form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q or
8-K, or any other public filing or announcement which includes such combined
results of operations, engage, in any sale, exchange, transfer, pledge,
disposition of or grant of any option, the establishment of any "short" or
put-equivalent position with respect to or the entry into of any similar
transaction intended to reduce the risk of the undersigned's ownership of or
investment in, any of the following:
(a) any shares of Parent Common Stock which the undersigned may
acquire in connection with the Merger, or any securities which may be
paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution
B-2
<PAGE>
therefore (all such shares and other securities being referred to herein,
collectively, as "RESTRICTED SECURITIES"), or any option, right or other
interest with respect to any Restricted Securities;
(b) any Company Securities; or
(c) any shares of Company Common Stock or any other equity securities
of the Company which the undersigned purchases or otherwise acquires
after the execution of this Agreement.
11. As promptly as practicable following the Merger, Parent shall
publish results covering at least 30 days of combined operations of the
Company and Parent in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the Commission
on Form 10-K 10-Q or 8-K, or any other public filing or announcement which
includes such combined results of operations; PROVIDED, HOWEVER, that Parent
shall be under no obligation to publish any such financial information other
than with respect to a fiscal quarter of Parent.
12. The undersigned currently intends to vote all Company Common Stock
held by the undersigned in favor or the Merger.
13. The undersigned will not exercised dissenters' rights in connection
with the Merger.
Number of shares of Company Common Stock
beneficially owned by the undersigned:
Number of shares of Company Common Stock subject to
options beneficially owned by the undersigned:
Very truly yours,
--------------------------------------
(print name of shareholder above)
By
-----------------------------------
Name:
Title:
(if applicable)
Accepted this [ ] day of
[ ], 1995, by
ADOBE SYSTEMS INCORPORATED
By
-----------------------------------
Name:
Title:
B-3
<PAGE>
ANNEX B
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CA 94104
(415) 576-3300
June 22, 1995
The Board of Directors
Frame Technology Corporation
333 West San Carlos Street
San Jose, CA 95110
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Frame Technology Corporation ("Frame") and the holders of the
outstanding shares of common stock (the "Common Stock") of Frame of the
consideration to be received by such shareholders in connection with the
proposed merger of J Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary
of Adobe Systems Incorporated ("Adobe"), with and into Frame (the "Proposed
Transaction") pursuant to the Agreement and Plan of Merger and Reorganization,
dated as of June 22, 1995, among Adobe, Merger Sub and Frame (the "Agreement").
The Agreement provides, among other things, that the holders of the outstanding
shares of Common Stock will receive upon consummation of the Proposed
Transaction 0.52 shares of Adobe common stock in the manner more fully described
in the Agreement (the "Merger Consideration").
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, corporate
restructurings, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. We are familiar with Frame. Hambrecht & Quist has in the past provided
investment banking and other financial advisory services to Frame and has
received fees for rendering these services. We have acted as financial advisor
to the Board of Directors of Frame in connection with the Proposed Transaction
and will receive a fee for our services, which include the rendering of this
opinion.
As we have previously disclosed to you, Hambrecht & Quist has in the past
provided investment banking and other financial advisory services to Adobe and
has received fees for rendering these services. William R. Hambrecht, Chairman
of Hambrecht & Quist Group, which owns a majority of the equity of and controls
Hambrecht & Quist, is a member of the Board of Directors of Adobe. An affiliate
of Hambrecht & Quist manages a venture capital fund of Adobe.
In the ordinary course of business, Hambrecht & Quist acts as a market maker
and broker in the publicly traded securities of Frame and Adobe and receives
customary compensation in connection therewith, and also provides research
coverage with respect to the securities of Frame and Adobe. In the ordinary
course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of Frame and Adobe for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Hambrecht & Quist may in the future provide
additional investment banking or other financial advisory services to Adobe.
B-1
SAN FRANCISCO - NEW YORK - BOSTON
MEMBERS NEW YORK STOCK EXCHANGE-AMERICAN STOCK EXCHANGE-PACIFIC STOCK EXCHANGE
<PAGE>
The Board of Directors CONFIDENTIAL
Frame Technology Corporation
June 22, 1995
Page 2
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
Frame for recent years and interim periods to date, and certain other
relevant financial and operating data of Frame made available to us from
published sources and from the internal records of Frame;
(ii) discussed with certain members of management of Frame and the Board of
Directors of Frame the business, financial condition and prospects of
Frame;
(iii) reviewed certain financial and operating information, including certain
projections, relating to Frame and discussed such information with
certain members of the management of Frame and the Board of Directors
of Frame;
(iv) reviewed the publicly available consolidated financial statements of
Adobe for recent years and interim periods to date and certain other
relevant financial and operating data of Adobe made available to us from
published sources;
(v) discussed with certain members of management of Adobe the business,
financial condition and prospects of Adobe;
(vi) reviewed certain financial and operating information relating to Adobe
and discussed such information with certain members of the management of
Adobe;
(vii) reviewed the recent reported prices and trading activity for the Common
Stock and the Adobe common stock and compared such information and
certain financial information of Frame and Adobe with similar
information for certain other companies engaged in businesses we
consider comparable to those of Frame and Adobe;
(viii) reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions we deem comparable to the Proposed
Transaction;
(ix) discussed with parties other than Adobe the possibility of a transaction
or series of transactions involving a business combination with Frame;
(x) participated in discussions and negotiations among Frame, Adobe and
their respective representatives;
(xi) reviewed the Agreement; and
(xii) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
We have not assumed any responsibility for independent verification of any
of the information concerning Frame or Adobe considered in connection with our
review of the Proposed Transaction and, for purposes of the opinion set forth
herein, we have assumed and relied upon the accuracy and completeness of all
such information. We have not prepared or obtained any independent evaluation or
appraisal of any of the assets or liabilities of Frame or Adobe nor have we
conducted a physical inspection of the properties and facilities of Frame or
Adobe. With respect to the financial forecasts, projections and other
information relating to the future performance of Frame and Adobe made
B-2
<PAGE>
The Board of Directors CONFIDENTIAL
Frame Technology Corporation
June 22, 1995
Page 3
available to us and used in our analyses, we have assumed that they reflect the
best currently available estimates and judgments of the expected future
performance of Frame and Adobe. For purposes of this opinion, we have assumed
that the Proposed Transaction will qualify as a reorganization under the United
States Internal Revenue Code and that the Proposed Transaction will be accounted
for as a pooling of interests. We have assumed that, except for the pending
merger involving Frame and Mastersoft, Inc., which has been disclosed to us,
neither Frame nor Adobe is a party to any pending transaction, including any
external financing, recapitalization or merger other than those activities
undertaken by Frame and Adobe in the ordinary course of conducting their
respective businesses. Our opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated as of the date
of this letter and any change in such conditions would require a reevaluation of
this opinion. We express no opinion as to the price at which the Adobe common
stock will trade subsequent to the Effective Time (as defined in the Agreement).
Our advisory services and the opinion expressed herein are provided for the
use of the Board of Directors of Frame in its evaluation of the Proposed
Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Merger consideration is fair to Frame and the holders of the Common Stock
from a financial point of view. We express no opinion, however, as to the
adequacy of any consideration received in the Proposed Transaction by Adobe or
any of its affiliates, any holder of unvested options to acquire shares of
Common Stock or any holder of Common Stock that perfects its appraisal rights,
if any, under applicable laws.
Very truly yours,
HAMBRECHT & QUIST LLC
By: /s/ JAMES A. DAVIDSON
-----------------------------------
James A. Davidson
MANAGING DIRECTOR
B-3
<PAGE>
ANNEX C
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA
94104
(415) 576-2000
June 22, 1995
Board of Directors
Adobe Systems Incorporated
1585 Charleston Road
P.O. Box 7900
Mountain View, CA 94039-7900
Members of the Board:
We understand that Frame Technology Corporation ("Frame"), Adobe Systems
Incorporated ("Adobe") and J Acquisition Corp., a wholly owned subsidiary of
Adobe ("Merger Sub") have entered into an Agreement and Plan of Merger and
Reorganization, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, for the merger (the "Merger") of Merger Sub with
and into Frame. Pursuant to the Merger, Frame will become a wholly owned
subsidiary of Adobe and each outstanding share of common stock, no par value, of
Frame, other than shares held in treasury or held by Adobe or any affiliate of
Adobe or as to which dissenters' rights have been perfected (the "Frame Common
Stock"), shall be converted into the right to receive 0.520 (the "Exchange
Ratio") of a share of common stock, no par value (the "Adobe Common Stock") of
Adobe. The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Adobe.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of Frame and Adobe, respectively;
(ii) analyzed certain internal financial statements and other financial and
operating data concerning Frame prepared by the management of Frame;
(iii) analyzed certain financial projections prepared by the management of
Frame;
(iv) discussed the past and current operations and financial condition and
the prospects of Frame with senior executives of Frame;
(v) discussed the past and current operations and financial condition and
the prospects of Adobe with senior executives of Adobe, and analyzed the
pro forma impact of the Merger on Adobe's earnings per share and
consolidated capitalization;
(vi) reviewed the reported prices and trading activity for the Frame Common
Stock;
C-1
<PAGE>
(vii) compared the financial performance of Frame and the prices and trading
activity of the Frame Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(viii) reviewed the reported prices and trading activity for the Adobe Common
Stock;
(ix) compared the financial performance of Adobe and the prices and trading
activity of the Adobe Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xi) reviewed and discussed with the senior management of Adobe the strategic
rationale of the Merger and the benefits of the Merger to Adobe;
(xii) participated in discussions and negotiations among representatives of
Frame and Adobe and their financial and legal advisors;
(xiii) reviewed the Merger Agreement; and
(xiv) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Frame.
We have also relied upon without independent verification the estimate of
Adobe's management of the cost savings and other synergies that may be achieved
if the Merger is consummated. We have also relied upon, without independent
verification, Adobe management's assessment of the validity of, and the risks
associated with, Frame's products and technology. We have not made any
independent valuation or appraisal of the assets or liabilities of Adobe or
Frame, nor have we been furnished with any such appraisals. We have assumed that
the Merger will be accounted for as a "pooling-of-interests" business
combination in accordance with U.S. Generally Accepted Accounting Principles and
will be consummated in accordance with the terms set forth in the Merger
Agreement. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of Adobe in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Adobe and have received fees for
the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Adobe and may not be used for any other purpose without our prior
written consent.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Adobe.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ G. BOUTROS
-----------------------------------
George F. Boutros
Managing Director
C-2
<PAGE>
ANNEX D
CALIFORNIA DISSENTERS' RIGHTS PROVISIONS
SECTION 1300. RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires
D-1
<PAGE>
to exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in subparagraph (A) or (B) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE -- TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint
D-2
<PAGE>
in the superior court of the proper county praying the court to determine
whether the shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT -- PAYMENT COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
D-3
<PAGE>
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
share, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except for an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to a shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-
D-4
<PAGE>
form merger set aside or rescinded, the shareholder shall not thereafter have
any right to demand payment of cash for the shareholder's shares pursuant to
this chapter. The court in any action attacking the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded shall not restrain or enjoin the consummation of
the transaction except upon 10 days' prior notice to the corporation and upon a
determination by the court that clearly no other remedy will adequately protect
the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to shareholders of the controlled party, and (2) a person who
controls two or more parties to a reorganization shall have the burden of
proving that this transaction is just and reasonable as to the shareholders of
any party so controlled.
D-5
<PAGE>
FRAME TECHNOLOGY CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of FRAME TECHNOLOGY CORPORATION, a California
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement, each dated August 29, 1995, and hereby
appoints L. George Klaus and Robert F. Donohue, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Shareholders of FRAME TECHNOLOGY CORPORATION to be held on September 28, 1995 at
11:00 A.M., local time, at Frame's executive offices, 333 West San Carlos
Street, San Jose, California, and at any adjournment or adjournments thereof,
and to vote all shares of Common Stock that the undersigned would be entitled to
vote if then and there personally present, on the matters set forth below.
1. Proposal to approve and adopt the Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") by and among Adobe Systems
Incorporated, J Acquisition Corporation and Frame Technology
Corporation ("Frame"), dated June 22, 1995, and to approve all
transactions contemplated by the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. To vote or otherwise represent the shares on any and all such other
business which may properly come before the meeting or any adjournment
thereof, according to their discretion and in their discretion.
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS INDICATED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS ON THE REVERSE SIDE HEREOF
AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE
PROXYHOLDERS DEEM ADVISABLE.
Signature: __________________________
Date: _______________________________
Signature: __________________________
Date: _______________________________
PLEASE SIGN EXACTLY AS NAME APPEARS
ON YOUR STOCK CERTIFICATE. IF THE
STOCK IS HELD BY JOINT TENANTS OR AS
COMMUNITY PROPERTY, BOTH SHOULD SIGN.
EXECUTORS, ADMINISTRATORS, TRUSTEES,
GUARDIANS, ATTORNEYS AND CORPORATE
OFFICERS SHOULD INSERT THEIR TITLES.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Registrant's Amended and
Restated Articles of Incorporation and By-laws provide for indemnification of
its directors, officers, employees and other agents to the maximum extent
permitted by the California General Corporation Law. In addition, the Registrant
has entered into Indemnity Agreements with all its directors and officers. The
Registrant has also purchased and maintained insurance for its officers and
directors against liabilities which an officer or a director may incur in his or
her capacity as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION FOOTNOTE
---------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
Agreement and Plan of Merger and Reorganization, dated as of June 22, 1995, among Registrant,
J Acquisition Corporation and Frame Technology Corporation (included as Annex A to the Proxy
Statement/Prospectus included as part of this Registration Statement).
2.1*
Opinion of Shearman & Sterling as to the legality of the Registrant's Common Stock being
registered hereby.
5.1*
Tax opinion of Shearman & Sterling.
8.1*
Tax opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation.
8.2*
Consent of Shearman & Sterling with respect to the legality of securities being registered
(contained in Exhibit 5.1).
23.1*
Consent of Shearman & Sterling with respect to certain tax matters (contained in Exhibit
8.1).
23.2*
Consent of KPMG Peat Marwick LLP, Independent Auditors, with respect to financial statements
of Adobe.
23.3*
Consent of Ernst & Young LLP, Independent Auditors, with respect to financial statements of
Aldus Corporation.
23.4*
Consent of Ernst & Young LLP, Independent Auditors, with respect to financial statements of
Frame.
23.5*
Consent of Ernst & Young LLP, Independent Auditors, with respect to financial statements of
Mastersoft, Inc.
23.6*
Consent of Deloitte & Touche LLP, Independent Auditors, with respect to the 1992 financial
statements of Datalogics, Inc.
23.7*
Consent of Hambrecht & Quist LLC with respect to its fairness opinion.
23.8*
Consent of Morgan Stanley & Co. Incorporated with respect to its fairness opinion.
23.9*
Power of Attorney (included on pages II- and II- ).
24.1*
Voting Agreement, dated as of June 22, 1995, among Registrant, Frame Technology Corporation
and Charles N. Corfield.
99.1*
<FN>
------------------------
* Filed herewith.
</TABLE>
II-1
<PAGE>
(b) Financial Statement Schedules
ADOBE
The following schedule is incorporated by reference to Item 14 of Adobe's
Annual Report on Form 10-K for the fiscal year ended November 25, 1994:
II. Valuation and Qualifying Accounts.
Other financial statement schedules have been omitted since they are either
not required, not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
FRAME
The following schedule is incorporated by reference to Item 14 of Frame's
Annual Report on form 10-K for the fiscal year ended December 31, 1994:
II. Valuation and Qualifying Accounts.
Other financial statement schedules have been omitted since they are either
not required, not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
(c) Reports, Opinions and Appraisals
Opinions of Hambrecht & Quist LLC and Morgan Stanley & Co. Incorporated
(attached as Annexes B and C, respectively, to the Proxy Statement/Prospectus
filed as a part of this Registration Statement).
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
II-2
<PAGE>
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of the Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountain View, State of
California, on the 25th day of August 1995.
ADOBE SYSTEMS INCORPORATED
By ________/s/_JOHN E. WARNOCK________
John E. Warnock
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John E. Warnock and M. Bruce Nakao, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities to sign any amendments to the Registration Statement,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
SIGNATURE TITLE DATE
------------------------------------------------------ ------------------------------------ -------------------
Chairman of the Board and Chief
/s/JOHN E. WARNOCK Executive Officer and Director August 25, 1995
John E. Warnock (Principal Executive Officer)
/s/CHARLES M. GESCHKE
Charles M. Geschke President and Director August 25, 1995
Senior Vice President, Finance and
/s/M. BRUCE NAKAO Administration, Chief Financial
M. Bruce Nakao Officer, Treasurer and Assistant August 25, 1995
Secretary (Principal Financial)
/s/MICHAEL CULLY Vice President and Controller
Michael Cully (Principal Accounting Officer) August 25, 1995
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
/s/WILLIAM R. HAMBRECHT
William R. Hambrecht Director August 25, 1995
/s/DELBERT W. YOCAM
Delbert W. Yocam Director August 25, 1995
Robert Sedgewick Director August , 1995
/s/WILLIAM J. SPENCER
William J. Spencer Director August 25, 1995
/s/PAUL BRAINERD
Paul Brainerd Director August 25, 1995
/s/GENE P. CARTER
Gene P. Carter Director August 25, 1995
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
The Exhibit numbers in the following list correspond to the numbers assigned
to such exhibits in Item 601 and Regulations S-K.
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION FOOTNOTE
---------- --------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
2.1* Agreement and Plan of Merger and Reorganization, dated as of June 22, 1995, among Registrant,
J Acquisition Corporation and Frame Technology Corporation (included as Annex A to the Proxy
Statement/Prospectus included as part of this Registration Statement).
5.1* Opinion of Shearman & Sterling as to the legality of the Registrant's Common Stock being
registered hereby.
8.1* Tax opinion of Shearman & Sterling.
8.2* Tax opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation.
23.1* Consent of Shearman & Sterling with respect to the legality of securities being registered
(contained in Exhibit 5.1).
23.2* Consent of Shearman & Sterling with respect to certain tax matters (contained in Exhibit
8.1).
23.3* Consent of KPMG Peat Marwick LLP, Independent Auditors, with respect to financial statements
of Adobe.
23.4* Consent of Ernst & Young LLP, Independent Auditors, with respect to financial statements of
Aldus Corporation.
23.5* Consent of Ernst & Young LLP, Independent Auditors, with respect to financial statements of
Frame.
23.6 Consent of Ernst & Young LLP, Independent Auditors, with respect to financial statements of
Mastersoft, Inc.
23.7* Consent of Deloitte & Touche LLP, Independent Auditors, with respect to the 1992 financial
statements of Datalogics, Inc.
23.8* Consent of Hambrecht & Quist LLC with respect to its fairness opinion.
23.9* Consent of Morgan Stanley & Co. Incorporated with respect to its fairness opinion.
24.1* Power of Attorney (included on pages II-4 and II-5).
99.1* Voting Agreement, dated as of June 22, 1995, among Registrant, Frame Technology Corporation
and Charles N. Corfield.
<FN>
------------------------
* Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 5.1
AUGUST 25, 1995
ADOBE SYSTEMS INCORPORATED
1585 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-1225
ADOBE SYSTEMS INCORPORATED
REGISTRATION STATEMENT ON FORM S-4
LADIES AND GENTLEMEN:
As counsel to Adobe Systems Incorporated, a California corporation (the
"Company"), we are rendering this opinion in connection with the registration by
the Company pursuant to the above-referenced Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended, of
the shares of the Company's Common Stock, without par value (the "Shares"), to
be issued in connection with the merger of J Acquisition Corporation, a
California corporation ("Merger Sub"), with and into Frame Technology
Corporation, a California corporation ("Frame"), pursuant to an Agreement and
Plan of Merger and Reorganization (the "Merger Agreement"), among the Company,
Merger Sub and Frame, dated as of June 22, 1995.
As such counsel and in connection with the opinion expressed below, we have
examined copies of the Registration Statement, the Company's Amended and
Restated Articles of Incorporation dated November 30, 1988, as amended, the
Company's Restated By-Laws, the Merger Agreement, certificates of public
officials and officers of the Company, and such other documents, instruments and
records as we have deemed necessary or appropriate as a basis for the opinion
expressed below. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that the Shares have been
validly authorized and, when issued pursuant to the terms of the Merger
Agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" therein.
Very truly yours,
SHEARMAN & STERLING
MJK/SLC/LMM
<PAGE>
EXHIBIT 8.1
AUGUST 25, 1995
ADOBE SYSTEMS INCORPORATED
1626 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94039-7900
LADIES AND GENTLEMEN:
We have acted as counsel for Adobe Systems Incorporated, a California
corporation ("Adobe"), in connection with the preparation, execution and
delivery of the Agreement and Plan of Merger and Reorganization, dated as of
June 22, 1995 (the "Merger Agreement"), among Adobe, J Acquisition Corporation,
a California corporation ("Merger Sub"), and Frame Technology Corporation, a
California corporation ("Frame"), and documents related or incidental thereto
and transactions to be effected thereunder. Unless otherwise defined,
capitalized terms used herein have the meanings assigned to them in the Merger
Agreement.
The Merger Agreement provides that, at the Effective Time, Merger Sub will
be merged with and into Frame (the "Merger") and, as reasonably practicable
after the Effective Time, Frame will be merged with and into Adobe (the
"Upstream Merger"). Section 8.04 of the Merger Agreement allows Adobe to amend
the Merger Agreement to remove the Upstream Merger or to cause the acquisition
of Frame by Adobe to be effected solely by means of a forward merger of Frame
with and into Adobe (the "Forward Merger" -- the Merger followed by the Upstream
Merger, the Merger, and the Forward Merger are collectively referred to as the
"Transactions"). You have requested our opinion that whichever is effectuated of
(i) the Merger followed by the Upstream Merger (ii) the Merger, or (iii) the
Forward Merger will constitute a reorganization within the meaning of section
368 of the Internal Revenue Code of 1986, as amended (the "Code").
In delivering this opinion, we have reviewed and relied upon facts and
descriptions set forth in the Registration Statement, the Merger Agreement and
related documents pertaining to the Transactions. We also have relied upon
certificates of officers of Adobe and Frame (the "Officers' Certificates"), and
we have assumed that the Officers' Certificates will be updated by certificates
of officers of Adobe and Frame (the "Updating Certificates") as of the Effective
Time. We have assumed that the Officers' Certificates, respectively, have been
executed and delivered by appropriate officers of Adobe and Frame and are true
and correct on the date hereof. We also have assumed that the Updating
Certificates, respectively, will be executed and delivered by appropriate
officers of Adobe and Frame and will be true and correct on the Effective Date.
In addition, we have assumed that all statements to be made in the Officers'
Certificates and the Updating Certificates (collectively, the "Certificates")
"to the best of the knowledge" of any person or party will be correct as if made
without such qualification.
Based upon the foregoing, and taking into account such consideration as we
deem relevant, we are of the opinion that, if the Merger followed by the
Upstream Merger, the Merger, or the Forward Merger, whichever is effectuated, is
completed in accordance with the terms and conditions of the Merger Agreement,
for United States federal income tax purposes:
(a) Whichever is effectuated of the Merger followed by the Upstream Merger,
the Merger, or the Forward Merger will constitute a reorganization within the
meaning of section 368 of the Code.
(b) The discussion entitled "Certain Federal Income Tax Consequences" in the
Prospectus constituting a part of the Registration Statement, insofar as it
relates to statements of law or legal conclusions, is correct in all material
respects.
We hereby consent to the use of our name under the heading "Certain Federal
Income Tax Consequences" in the prospectus and to the filing of this opinion as
Exhibit 8.1 to the Registration Statement.
This opinion is based on current United States federal income tax law, and
we do not undertake to advise you as to any future changes in United States
federal income tax law that may affect this conclusion unless we are
specifically retained to do so.
<PAGE>
This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied upon
for any other purpose or by any other person or entity and may not be made
available to any other person or entity without our prior written consent.
Very truly yours,
SHEARMAN & STERLING
A.C.G.
L.E.C.
P. B.C.
<PAGE>
EXHIBIT 8.2
[WSGR LETTERHEAD]
August 25, 1995
Frame Technology Corporation
333 West San Carlos Street
San Jose, California 95110
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.01(f) of the
Agreement and Plan of Merger and Reorganization dated as of June 22, 1995 (the
"Merger Agreement") among Adobe Systems Incorporated, a California corporation
("Adobe"), J Acquisition Corporation, a California corporation and wholly-owned
subsidiary of Adobe ("Merger Sub"), and Frame Technology Corporation, a
California corporation ("Frame"). Pursuant to the Merger Agreement, Merger Sub
will merge with and into Frame (the "Merger"), and immediately thereafter Frame
will merge with and into Adobe (the "Upstream Merger"). Alternatively, Section
8.04 of the Merger Agreement allows Adobe to amend the Merger Agreement to
either (i) not consummate the Upstream Merger or (ii) cause the acquisition of
Frame by Adobe to be effected solely by means of a forward merger of Frame with
and into Adobe (the "Forward Merger"). You have requested our opinion that
whichever is effectuated of (i) the Merger, (ii) the Merger and the Upstream
Merger, or (iii) the Forward Merger (the ultimate form of the transaction being
referred to as the "Transaction") will constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code").
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to Frame in connection with the Transaction.
As such, and for the purpose of rendering this opinion, we have examined (or
will examine on or prior to the Effective Time) and are relying (or will rely)
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents:
1. The Merger Agreement;
2. Representations made to us by officers of Adobe and Merger Sub and Frame
in officers' certificates (the "Officers' Certificates") and we have assumed
that such Officers' Certificates will be updated as of the Effective Time; and
3. Such other instruments and documents related to the formation,
organization and operation of Adobe, Merger Sub and Frame, or to the
consummation of the Transaction and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. Each merger undertaken will be effective under the law of California;
and
3. The Upstream Merger (if applicable) will be consummated as soon as
reasonably practicable after the Effective Time.
<PAGE>
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that:
(i) For federal income tax purposes, the Transaction, whether
effectuated by the Merger, the Merger and the Upstream Merger, or the
Forward Merger will qualify as a "reorganization" as defined in Section
368(a) of the Code; and
(ii) The discussion entitled "Certain Federal Income Tax Consequences"
in the Prospectus constituting a part of the Registration Statement insofar
as it relates to the statements of law or legal conclusions is correct in
all material respects.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Transaction as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Transaction or any other transaction (including any transaction undertaken in
connection with the Transaction).
3. No opinion is expressed as to any transaction other than the Transaction
as described in the Merger Agreement or to any transaction whatsoever, including
the Transaction, if all the transactions described in the Merger Agreement are
not consummated in accordance with the terms of such Transaction Agreement and
without waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
4. This opinion has been delivered to you for the purpose of satisfying the
conditions set forth in Section 6.01(f) of the Merger Agreement and is intended
solely for your benefit; it may not be relied upon for any other purpose or by
any other person or entity, and may not be made available to any other person or
entity without our prior written consent. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and to the use of our
name under the heading "Certain Federal Income Tax Consequences" in the
Registration Statement.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 23.3
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Adobe Systems Incorporated:
We consent to incorporation by reference in the registration statement on
Form S-4 of Adobe Systems Incorporated of our report dated December 20, 1994,
relating to the consolidated balance sheets of Adobe Systems Incorporated and
subsidiaries as of November 25, 1994 and November 26, 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended November 25, 1994, and the related
schedule, which appears in the 1994 annual report on Form 10-K of Adobe Systems
Incorporated, and to the reference to our firm under the heading "Experts" in
the prospectus. As indicated in our report, we did not audit the consolidated
financial statements of Aldus Corporation and subsidiaries, a company acquired
by Adobe Systems Incorporated in a business combination accounted for as a
pooling-of-interests. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Aldus Corporation, is based solely on the reports of the
other auditors.
KPMG PEAT MARWICK LLP
San Jose, California
August 25, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Frame Technology Corporation which is made a part of the
Registration Statement (Form S-4) of Adobe Systems Incorporated for the
registration of its common stock and to the incorporation by reference therein
of our report dated January 28, 1994, with respect to the consolidated balance
sheet of Aldus Corporation as of December 31, 1993 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the two
years in the period ended December 31, 1993, included in the 1994 Report on Form
10-K of Adobe Systems Incorporated.
ERNST & YOUNG LLP
Seattle, Washington
August 24, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Frame which is made a part of the Registration Statement
(Form S-4) of Adobe Systems Incorporated for the registration of its common
stock and to the incorporation by reference therein of our report dated January
30, 1995, with respect to the financial statements of Frame incorporated by
reference in its Annual Report (Form 10-K) for the year ended December 31, 1994,
filed with the Securities and Exchange Commission and to the use of our report
dated May 31, 1995, except for Note 13 as to which the date is June 22, 1995
included therein with respect to the supplemental consolidated financial
statements of Frame.
ERNST & YOUNG LLP
August 25, 1995
San Jose, California
<PAGE>
EXHIBIT 23.6
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Frame which is made a part of the Registration Statement
(Form S-4) and Prospectus of Adobe Systems Incorporated for the registration of
its common stock and to the incorporation by reference therein of our report
dated May 31, 1995, with respect to the financial statements of Mastersoft
included in Frame's Current Report on Form 8-K dated July 28, 1995, filed with
the Securities and Exchange Commission.
ERNST & YOUNG LLP
August 25, 1995
Phoenix, Arizona
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Adobe Systems Incorporated on Form S-4 of our reports dated January 15, 1993
relating to the consolidated financial statements and financial statement
schedule of Datalogics, Incorporated and subsidiaries for the year ended
December 31, 1992 appearing in the Annual Report on Form 10-K of Frame
Technology Corporation for the year ended December 31, 1994, and to the
reference to us under the heading "Experts" in the Proxy Statement/Prospectus,
which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
August 25, 1995
Chicago, Illinois
<PAGE>
EXHIBIT 23.8
CONSENT OF HAMBRECHT & QUIST LLC
We hereby consent to the inclusion of our opinion letter dated June 22, 1995
to the Board of Directors of Frame Technology Corporation as Appendix B to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of J Acquisition Corporation, a
wholly-owned subsidiary of Adobe Systems Incorporated, with and into Frame
Technology Corporation and to the references to such opinion in the Proxy
Statement/Prospectus under the captions "Summary -- Recommendation; Reasons for
the Merger; Fairness Opinions," and "The Merger -- Fairness Opinions." In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations issued by the Securities and Exchange Commission
thereunder.
HAMBRECHT & QUIST LLC
By: JAMES A. DAVIDSON_________________
James A. Davidson
MANAGING DIRECTOR
<PAGE>
EXHIBIT 23.9
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
Adobe Systems Inc.
1585 Charleston Road
Mountain View, CA 94039
Dear Sirs:
We hereby consent to the inclusion of the Registration Statement on Form
S-4, relating to the proposed merger of Frame Technology Corporation with J
Acquisition Corporation, a wholly-owned subsidiary of Adobe Systems
Incorporated, to our opinion letter appearing as Annex C to the Proxy
Statement/Prospectus which is a part of the Registration Statement, and to the
references of our firm name therein. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations
adopted by the Securities and Exchange Commission thereunder nor do we admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: GEORGE F. BOUTROS_________________
George F. Boutros
MANAGING DIRECTOR
<PAGE>
EXHIBIT 99.1
CONFORMED COPY
VOTING AGREEMENT
VOTING AGREEMENT, dated as of June 22, 1995 (this "AGREEMENT"), among ADOBE
SYSTEMS INCORPORATED, a California corporation ("PARENT"), FRAME TECHNOLOGY
CORPORATION, a California corporation (the "COMPANY"), and Charles N. Corfield
(the "HOLDER") of shares of the common stock, no par value (the "COMPANY COMMON
STOCK"), of the Company;
W I T N E S S E T H:
WHEREAS, the Company, Parent and J Acquisition Corporation, a California
corporation and wholly owned subsidiary of Parent ("SUB"), propose to enter into
an Agreement and Plan of Merger and Reorganization, dated as of the date hereof
(the "MERGER AGREEMENT"; capitalized terms used herein and not otherwise defined
are used herein as defined in the Merger Agreement), pursuant to which Sub will
be merged (the "MERGER") with and into the Company, and each outstanding share
of Company Common Stock will be converted into the right to receive shares of
the common stock, no par value, of Parent, on the basis described in the Merger
Agreement;
WHEREAS, the Holder, individually or as trustee or custodian, is the owner
of the number of shares of Company Common Stock set forth opposite the Holder's
name on SCHEDULE I to this Agreement (the "SUBJECT SHARES");
WHEREAS, as a condition of its entering into the Merger Agreement, Parent
has requested that the Holder agree, and the Holder has agreed, to vote the
Subject Shares and to grant Parent an irrevocable proxy to vote the Subject
Shares upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, and intending to be legally bound hereby,
the parties hereto hereby agree as follows:
1. AGREEMENT TO VOTE SHARES. At every annual or special meeting of the
shareholders of the Company and at every continuation or adjournment thereof,
and on every action or approval by written consent of the shareholders of the
Company in lieu of any such meeting, the Holder (i) shall vote the Subject
Shares in favor of approval of the Merger Agreement and the Merger and any
matter that could reasonably be expected to facilitate the Merger, (ii) shall
vote the Subject Shares against any proposal made in opposition to or
competition with consummation of the Merger, (iii) shall not vote the Subject
shares in favor of any merger (including, without limitation, a Superior
Proposal or Alternative Transaction), consolidation, sale of assets,
reorganization or recapitalization of the Company with any party other than
Parent or its affiliates and (iv) shall vote the Subject Shares against any
liquidation or winding up of the Company. The Holder agrees not, directly or
indirectly, to solicit or encourage any offer from any party concerning the
possible disposition of all or any substantial portion of the Company(9)s
business, assets or capital stock.
2. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
the Holder agrees to deliver to Parent a proxy in the form attached hereto as
EXHIBIT A, which shall be irrevocable to the full extent permitted by law, with
the total number of shares of capital stock of the Company beneficially owned by
the Holder set forth therein.
3. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder hereby
represents and warrants to Parent that:
(a) This Agreement has been duly executed and delivered by the Holder,
and is the legal, valid and binding obligation of the Holder;
1
<PAGE>
(b) No consent of any court, governmental authority, beneficiary,
co-trustee or other person is necessary for the execution, delivery and
performance of this Agreement by the Holder; and
(c) The Subject Shares have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind,
other than this Agreement, except for Holder's brokerage margin account with
Alex Brown & Sons in the current amount of $4,700,000.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Parent that:
(a) This Agreement has been duly executed and delivered by the Company,
and is the legal, valid and binding obligation of the Company;
(b) No consent of any court, governmental authority or other person is
necessary for the execution, delivery and performance of this Agreement by
the Company; and
(c) All of the Subject Shares have been duly authorized and validly
issued and are fully paid and nonassessable.
5. COVENANTS OF THE HOLDER. The Holder hereby agrees and covenants that:
(a) Prior to the Termination Date, the Holder will not, in the Holder's
capacity as a stockholder, directly or indirectly, encourage, initiate or
engage in discussions or negotiations with, or provide any information to,
any corporation, partnership, person or other entity or group, other than
Parent and its affiliates, concerning the sale of the Subject Shares, or the
issuance and sale of Company Common Stock by the Company or, with respect to
any merger or other business combination, any disposition or grant of an
interest in a substantial asset or any similar transaction involving the
Company;
(b) Other than as provided for in Section 2(c) above, the Holder will
not transfer, sell, exchange, pledge or otherwise dispose of or encumber any
of the Subject Shares or make any offer or agreement relating thereto at any
time prior to the termination of this Agreement pursuant to Section 8
hereof; and
(c) The Holder agrees that any shares of capital stock of the Company
(including Company Common Stock) that the Holder purchases or with respect
to which the Holder otherwise acquires beneficial ownership after the date
of this Agreement and prior to the termination of this Agreement pursuant to
Section 8 shall be considered "Subject Shares" and subject to each of the
terms and conditions of this Agreement.
6. COVENANTS OF THE COMPANY. The Company hereby agrees and covenants that:
(a) The Company will not, and will cause its stock transfer agent not
to, register the transfer of any of the Subject Shares on the stock transfer
ledger of the Company at any time prior to the termination of this Agreement
pursuant to Section 8; and
(b) The Company agrees that any shares of capital stock of the Company
(including Company Common Stock) that the Holder purchases or with respect
to which the Holder otherwise acquires beneficial ownership after the date
of this Agreement and prior to the termination of this Agreement pursuant to
Section 8 shall be considered "Subject Shares" and subject to each of the
terms and conditions of this Agreement.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in the Company Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, exchanges of shares or the like, the number of
Subject Shares shall be adjusted appropriately.
8. TERMINATION. This Agreement shall terminate on the earlier of (a) the
Effective Time, (b) at any time upon written notice by Parent to the Holder
terminating this Agreement and (c) 60 calendar days after the date on which the
Merger Agreement is terminated.
2
<PAGE>
9. NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally or mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or to such other address for a party as shall be specified by like
change of address), or sent by electronic transmission with confirmation
received, to the telecopy number specified below, if any:
(a) if to the Holder,:
Mr. Charles N. Corfield
c/o Frame Technology Corporation
333 West San Carlos Street
San Jose, California 95110
Telecopy: (408) 975-6799
with copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California
Attention: David J. Segre, Esq.
Telecopy: (415) 493-6811
(b) if to the Company:
Frame Technology Corporation
333 West San Carlos Street
San Jose, California 95110
Attention: President
Telecopy: (408) 975-6799
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre, Esq.
Telecopy: (415) 493-6811
(c) if to Parent:
Adobe Systems Incorporated
1585 Charleston Road
Mountain View, California 94039
Attention: President
Telecopy: (415) 960-0359
with a copy to:
Shearman & Sterling
555 California Street
Suite 2000
San Francisco, CA 94104
Attention: Michael J. Kennedy, Esq.
Telecopy: (415) 616-1199
10. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
3
<PAGE>
11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other person any rights or remedies hereunder.
13. ASSIGNMENT. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent may assign all or any of its rights hereunder
to any affiliate provided that no such assignment shall relieve Parent of its
obligations hereunder.
14. AMENDMENT. This Agreement may not be modified, amended or waived in
any manner except by an instrument in writing signed by each of the parties
hereto. Except as is provided in Section 8, this Agreement may only be
terminated in a writing signed by each of the parties hereto. The waiver by any
party of compliance with any provision of this Agreement by any other party
shall not operate or be construed as a waiver of any other provision of this
Agreement, or of any subsequent breach by such party of a provision of this
Agreement.
15. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California. The Holder hereby irrevocably submits to the jurisdiction of any
California state or federal court sitting in the City of San Francisco, in any
action or proceeding arising out of or related to this Agreement, and hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such state or federal court. The Holder hereby
irrevocably consents to the service of process which may be served in any such
action or proceeding by certified mail, return receipt requested, by delivering
a copy of such process to the Holder or by any other method permitted by law.
16. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
hereto individually, by its duly authorized officer or in its capacity as a duly
authorized trustee or custodian, all as of the date first above written.
ADOBE SYSTEMS INCORPORATED
By /s/ JOHN WARNOCK
-----------------------------------
John Warnock
Chairman of the Board and
Chief Executive Officer
FRAME TECHNOLOGY CORPORATION
By /s/ THOMAS F. KELLY
-----------------------------------
Thomas F. Kelly
Executive Vice President
THE HOLDER:
/s/ CHARLES N. CORFIELD
--------------------------------------
Charles N. Corfield
5
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
----------------------------------------------------------------------------------------------- ----------------
<S> <C>
Charles N. Corfield............................................................................ 2,143,333
</TABLE>
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned shareholder of FRAME TECHNOLOGY CORPORATION, a California
corporation (the "COMPANY"), hereby irrevocably (to the full extent permitted by
law) appoints and constitutes the directors on the board of directors of ADOBE
SYSTEMS INCORPORATED, a California corporation ("PARENT"), and Parent, and each
of them, the attorneys and proxies of the undersigned with full power of
substitution and resubstitution, to the full extent of the undersigned's rights
with respect to the shares of capital stock of the Company beneficially owned by
the undersigned, which shares are listed on the final page of this Proxy (the
"SHARES"), and any and all other shares or securities issued or issuable with
respect thereof on or after the date hereof, until such time as the Agreement
and Plan of Merger and Reorganization, dated as of June 22, 1995 (the "MERGER
AGREEMENT"), among Parent, J Acquisition Corporation, a California corporation
and wholly owned subsidiary of Parent, and the Company, shall be terminated in
accordance with its terms. Upon the execution hereof, all prior proxies given by
the undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable (to the full extent permitted by law) and is
granted in connection with the Voting Agreement, dated as of June 22, 1995 (the
"VOTING AGREEMENT"), among Parent, the Company and the undersigned, and is
granted in consideration of Parent entering into the Merger Agreement.
The attorneys and proxies named above will be empowered at any time prior to
termination of the Voting Agreement to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual or
special meeting of the shareholders of the Company and at every continuation or
adjournment thereof, and on every action or approval by written consent of the
shareholders of the Company in lieu of any such meeting, (i) in favor of
approval of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger, (ii) against approval of any
proposal made in opposition to or competition with consummation of the Merger,
(iii) against, or so as to abstain with regard to, any merger, consolidation,
sale of assets, reorganization or recapitalization of the Company with any party
other than Parent or its affiliates, and (iv) against any liquidation or winding
up of the Company.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Voting
Agreement at every annual or special meeting of the shareholders of the Company
and at every continuation or adjournment thereof, and on every action or
approval by written consent of the shareholders of the Company in lieu of any
such meeting, (i) in favor of approval of the Merger Agreement and the Merger
and any matter that could reasonably be expected to facilitate the Merger, (ii)
against approval of any proposal made in opposition to or competition with
consummation of the Merger, (iii) against, or so as to abstain with regard to,
any merger, consolidation, sale of assets, reorganization or recapitalization of
the Company with any party other than Parent or its affiliates, and (iv) against
any liquidation or winding up of the Company, and may not exercise this proxy on
any other matter. The undersigned shareholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: June 22, 1995
Signature of Shareholder:
Print name of Shareholder: Charles N. Corfield
Shares beneficially owned: shares of Company Common Stock
