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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DECEMBER 20, 1995
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-15325 94-3011736
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
4100 BOHANNON DRIVE
MENLO PARK, CALIFORNIA 94025
(Address of principal executive offices)
(415) 926-6300
(Registrant's telephone number, including area code)
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FORWARD-LOOKING STATEMENTS
This Report and the attached Annexes made a part hereof contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results could differ materially from those projected in the
forward-looking statements as a result of certain factors set forth below.
Reference is made to the particular discussions set forth in Annex C, "Informix
Management's Discussion and Analysis of Financial Condition and Results of
Operations." In connection with forward-looking statements which appear in these
disclosures, persons should carefully review the factors set forth in Annex A,
"Risk Factors," and in particular those set forth under "Risk Factors --
Uncertainties Relating to the Merger with Illustra," "-- Fluctuation in
Quarterly Results," "-- Volatility of Informix Stock Prices," "-- Competition,"
"-- International Operations" and "-- Management of Growth."
ITEM 5. OTHER EVENTS.
On December 20, 1995, Informix Corporation ("Informix" or the "Registrant")
entered into a definitive agreement to acquire Illustra Information
Technologies, Inc., a Delaware corporation ("Illustra"), by means of a merger
(the "Merger") of Informix Delaware, Inc., a Delaware corporation and a wholly
owned subsidiary of Informix ("Merger Sub"), with and into Illustra pursuant to
an Agreement and Plan of Reorganization, dated as of December 20, 1995 (the
"Reorganization Agreement"), by and among Informix, Merger Sub and Illustra. It
is presently anticipated that the Merger will be completed in February 1996.
TERMS OF THE MERGER. At the effective time of the Merger ("Effective
Time"), Illustra will become a wholly-owned subsidiary of Informix. Informix
intends to combine the operations of the two corporations as soon as practicable
following the closing of the Merger. As a result of the Merger, the maximum
number of shares of Common Stock of Informix ("Informix Common Stock") to be
issued (including Informix Common Stock to be reserved for issuance upon
exercise of any of Illustra's options and warrants to be assumed by Informix) in
exchange for the acquisition by Informix of all outstanding shares of Common
Stock of Illustra ("Illustra Common Stock") and Preferred Stock of Illustra
("Illustra Preferred Stock") and all unexpired and unexercised options and
warrants to acquire Illustra Common Stock or Illustra Preferred Stock
(collectively, "Illustra Capital Stock") will be 15,000,000.
Subject to the terms and conditions of the Merger Agreement, as of the
Effective Time, by virtue of the Merger, the following will occur:
CONVERSION OF ILLUSTRA COMMON STOCK. Each share of Illustra Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares held by a holder who has exercised and perfected appraisal or dissenters'
rights for such shares) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares of Informix Common
Stock equal to the Common Exchange Ratio (as defined below), including with
respect to each whole share of Informix Common Stock to be received, the right
to receive one preferred share purchase right (a "Right") under Informix's
Amended and Restated Preferred Shares Rights Agreement dated as of September 12,
1991 and amended and restated as of May 15, 1992 and July 25, 1995, and in any
case, subject to the escrow provisions of the Merger Agreement described below.
The "Common Exchange Ratio" will depend on the capitalization of Illustra at
the Effective Time. Assuming that all shares of Illustra Preferred Stock are
converted to shares of Illustra Common Stock prior to the Effective Time, and
further assuming that the capitalization of Illustra at the Effective Time is in
all other respects identical to the capitalization of Illustra at January 2,
1996 (although there can be no assurance as to the foregoing), the Common
Exchange Ratio will be 0.77184 of a share of Informix Common Stock for each
share of Illustra Common Stock.
CONVERSION OF ILLUSTRA PREFERRED STOCK. Holders of a sufficient number of
shares of Illustra Preferred Stock to cause the automatic conversion of all
other shares of Illustra Preferred Stock into
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shares of Illustra Common Stock have entered into Voting Agreements
(collectively, the "Voting Agreements") with Informix, which provide for their
irrevocable election to vote in favor of such conversion immediately prior to
the Effective Time.
STOCK OPTIONS. At the Effective Time, each outstanding option to purchase
shares of Illustra Common Stock (each an "Illustra Option") under Illustra's
1992 Equity Incentive Plan (the "Option Plan"), or otherwise, whether vested or
unvested, will be, in connection with the Merger, assumed by Informix. Each
Illustra Option so assumed by Informix under the Merger Agreement will continue
to have, and be subject to, the same terms and conditions set forth in the
Option Plan and/or as provided in the respective option agreements governing
such Illustra Option immediately prior to the Effective Time, except that (i)
such Illustra Option will be exercisable for that number of whole shares of
Informix Common Stock equal to the product of the number of shares of Illustra
Common Stock that were issuable upon exercise of such Illustra Option
immediately prior to the Effective Time multiplied by the Common Exchange Ratio,
rounded down (in the case of Illustra Options granted under the Option Plan) to
the nearest whole number of shares of Informix Common Stock and (ii) the per
share exercise price for the shares of Informix Common Stock issuable upon
exercise of such assumed Illustra Option will be equal to the quotient
determined by dividing the exercise price per share of Illustra Common Stock at
which such Illustra Option was exercisable immediately prior to the Effective
Time by the Common Exchange Ratio, rounded up to the nearest whole cent. It is
the intention of Informix and Illustra that the Illustra Options assumed by
Informix qualify following the Effective Time as incentive stock options under
the Internal Revenue Code of 1986, as amended (the "Code"), to the extent the
Illustra Options qualified as incentive stock options immediately prior to the
Effective Time.
In connection with the Merger, the Illustra Common Stock subject to an early
exercise stock purchase agreement under the Option Plan will be exchanged for
Informix Common Stock at the Common Exchange Ratio, and the shares of Informix
Common Stock so received shall continue to be subject to the same repurchase
right in favor of the surviving corporation, which the surviving corporation may
assign to Informix. The number of shares of Informix Common Stock subject to
repurchase from time to time after the Merger and the repurchase price per share
shall be appropriately adjusted to reflect the exchange of Illustra Common Stock
for Informix Common Stock.
WARRANTS. Each warrant to purchase shares of Illustra Preferred Stock
outstanding at the Effective Time will be, in connection with the Merger,
assumed by Informix. Each warrant so assumed by Informix under the Merger
Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the warrant agreement governing such warrant immediately
prior to the Effective Time, except that each such warrant will, following the
Effective Time, be exercisable only for shares of Informix Common Stock, in such
number, and at such exercise price as is determined by applying the appropriate
exchange ratio in accordance with the terms of the applicable warrant agreement.
No fractional shares will be issued by Informix in the Merger. Each
stockholder of Illustra otherwise entitled to a fractional share (after
aggregating all fractional shares of such stockholder) will receive an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction multiplied by (ii) the average closing price of a share of Informix
Common Stock for the five most recent days that Informix Common Stock has traded
ending on the trading day immediately prior to the Effective Time, as reported
on the Nasdaq National Market ("Nasdaq").
STOCK OWNERSHIP FOLLOWING THE MERGER. Based upon the capitalization of
Illustra as of the close of business on January 2, 1996, and assuming that (i)
all shares of Illustra Preferred Stock are converted into Illustra Common Stock
prior to the Effective Time, (ii) all warrants to acquire Illustra Preferred
Stock are exercised prior to the Effective Time, and (iii) no holder of Illustra
Capital Stock exercises appraisal or dissenters' rights, an aggregate of
approximately 12,315,000 shares of Informix Common Stock will be issued to
Illustra stockholders in the Merger and Informix will assume options exercisable
for up to an additional approximately 2,685,000 shares of Informix Common Stock.
Based
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upon the number of shares of Informix Common Stock issued and outstanding as of
December 31, 1995, and after giving effect to the issuance of Informix Common
Stock as described in the previous sentence, the former holders of Illustra
Capital Stock would hold, and have voting power with respect to, approximately
8.3% of Informix's total issued and outstanding shares, and holders of former
Illustra Options would hold options exercisable for approximately 1.8% of
Informix's total issued and outstanding shares (assuming the exercise of only
such options). The foregoing numbers of shares and percentages are subject to
change in the event that the capitalization of Illustra changes subsequent to
January 2, 1996 and prior to the Effective Time, and there can be no assurance
as to the actual capitalization of Illustra at the Effective Time.
ESCROW FUND. In connection with the Merger, at the Effective Time, 10% of
the shares of Informix Common Stock issuable to holders of Illustra Capital
Stock by virtue of the Merger (the "Escrow Shares") will be registered in the
name of and deposited with First Trust of California, as escrow agent (the
"Escrow Agent"), such deposit to constitute the escrow fund (the "Escrow Fund").
The Escrow Shares shall be contributed to the Escrow Fund on behalf of each
holder of Illustra Capital Stock at the Effective Time in proportion to the
aggregate number of shares of Informix Common Stock such holder would otherwise
receive by virtue of the Merger (10% of the shares otherwise deliverable to each
holder of Illustra Capital Stock). No portion of the Escrow Fund will be
contributed in respect of any options or warrants to acquire shares of Illustra
Capital Stock. The Escrow Shares will be held in escrow as security for any
losses that Informix incurs or reasonably anticipates incurring by reason of
breaches by Illustra of covenants, representations or warranties contained in
the Merger Agreement. Subject to the resolution of unsatisfied claims of
Informix, the Escrow Fund shall terminate upon the earlier of (i) twelve months
following the closing date of the Merger and (ii) the issuance of Informix's
audited financial statements for the fiscal year ending December 31, 1996.
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to the
satisfaction of various conditions, including among others, approval of the
Merger by the requisite vote of the stockholders of Illustra and the receipt by
Informix and Illustra of certain letters from their respective independent
accountants regarding the ability of Informix to account for the Merger as a
pooling of interests.
VOTING AGREEMENTS. Each of the "affiliates" (as that term is defined for
purposes of Rule 145 promulgated under the Securities Act of 1933, as amended
(the "Securities Act")) of Illustra (who own an aggregate of 2,537,300 shares of
Illustra Common Stock and 7,483,503 shares of Illustra Preferred Stock
representing approximately 58.8% and 66.4%, respectively, of the votes entitled
to be cast by holders of shares of Illustra Common Stock and Illustra Preferred
Stock issued and outstanding as of January 2, 1996) has entered into a Voting
Agreement (collectively, the "Voting Agreements") with Informix. Pursuant to the
Voting Agreements, which are irrevocable, each of the foregoing Illustra
stockholders has agreed to vote in favor of approval and adoption of the Merger
Agreement and approval of the Merger. The vote in accordance with the Voting
Agreements of the shares of Illustra Common Stock and Illustra Preferred Stock
subject to the Voting Agreements will be adequate to approve the Merger
Agreement and the Merger by Illustra stockholders.
TERMINATION; FEES; EXPENSES. The Merger Agreement may be terminated under
certain circumstances, including without limitation, by mutual written consent
of Informix and Illustra and by either Informix or Illustra if the other party
commits certain breaches of any representation, warranty or covenant contained
in the Merger Agreement or if the Merger is not consummated on or before May 15,
1996.
If the Merger Agreement is terminated by Informix as a result of certain
breaches of the Merger Agreement on the part of Illustra, other than as a result
of a knowing or willful breach by Illustra, then, within two business days
following such termination by Informix, Illustra has agreed to pay to Informix
the sum of $12 million as liquidated damages for the breach giving rise to such
termination. Nothing in the Merger Agreement, however, limits the liability of
Illustra for any knowing or willful breaches of the Merger Agreement on the part
of Illustra.
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If the Merger Agreement is terminated by Illustra as a result of certain
breaches of the Merger Agreement on the part of Informix, other than as a result
of a knowing or willful breach by Informix, then, within two business days
following such termination by Illustra, Informix has agreed to pay to Illustra
the sum of $12 million as liquidated damages for the breach giving rise to such
termination. Nothing in the Merger Agreement, however, limits the liability of
Informix for any knowing or willful breaches of the Merger Agreement on the part
of Informix.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. The Merger is intended to
qualify as a reorganization under Section 368 (a) of the Code, in which case no
gain or loss should generally be recognized by the holders of shares of Illustra
Capital Stock on the exchange of their shares of Illustra Capital Stock for
shares of Informix Common Stock.
ACCOUNTING TREATMENT. The Merger is intended to qualify as a pooling of
interests for financial reporting purposes in accordance with generally accepted
accounting principles. Consummation of the Merger is conditioned upon receipt at
the closing of the Merger by Informix and Illustra of letters from Ernst & Young
LLP, Informix's independent auditors, and KPMG Peat Marwick LLP, Illustra's
independent auditors, reaffirming those firms' concurrence with Informix
management's and Illustra management's conclusions, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if consummated in accordance with
the Merger Agreement.
AFFILIATE AGREEMENT. The persons identified by Illustra as "affiliates" (as
that term is defined for purposes of Rule 145 promulgated under the Securities
Act) of Illustra have entered into agreements restricting sales, dispositions or
other transactions reducing their risk of investment in respect of the shares of
Illustra Capital Stock held by them prior to the Merger and the shares of
Informix Common Stock received by them in the Merger, subject to a de minimis
exception, so as to comply with the requirements of applicable federal
securities and tax laws and to help ensure that the Merger will be treated as a
pooling of interest for accounting and financial reporting purposes. The persons
identified by Informix as affiliates of Informix have entered into agreements
with respect to Informix Common Stock held by them in order to help ensure that
the Merger will be treated as a pooling of interests for accounting and
financial reporting purposes.
Attached to this Form 8-K and made a part hereof is the following
information:
<TABLE>
<CAPTION>
<S> <C>
Annex A -- Risk Factors
Annex B -- Description of Informix's Business
Annex C -- Informix's Management's Discussion and Analysis of Financial Condition and Results of
Operations
Annex D -- Informix's Management and Executive Compensation
Annex E -- Informix's Stock Information
Annex F -- Informix's Pro Forma Combined Condensed Financial Statements
</TABLE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibit in accordance with Item 601 of Regulation S-K is filed
as part of this report:
EXHIBIT.
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<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of December 20, 1995, by and
among Informix Corporation, a Delaware corporation, Illustra Information
Technologies, Inc., a Delaware corporation, and Informix Delaware, Inc., a
Delaware corporation.
</TABLE>
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ANNEX A
RISK FACTORS
In addition to the other information in this Report, the following factors
should be considered carefully in evaluating Informix and its business:
UNCERTAINTIES RELATING TO THE MERGER WITH ILLUSTRA. Informix and Illustra
Information Technologies, Inc. ("Illustra") have entered into an Agreement and
Plan of Reorganization dated as of December 20, 1995 (the "Merger Agreement")
pursuant to which Illustra will be merged into a wholly-owned subsidiary of
Informix ("Merger"). Illustra develops, produces, markets and supports object-
relational database systems and software tools and also provides consulting,
training and maintenance services. As a result of the Merger, all outstanding
shares of Illustra Common Stock and Illustra Preferred Stock will become shares
of Informix Common Stock and all outstanding options and warrants to acquire
Illustra Common Stock or Illustra Preferred Stock will become options and
warrants to acquire Informix Common Stock. The maximum number of shares of
Informix Common Stock to be issued (including Informix Common Stock to be
reserved for issuance upon exercise of any of Illustra's options and warrants to
be assumed by Informix) in the Merger in exchange for the outstanding shares of
Illustra Common Stock and Illustra Preferred Stock and all unexpired and
unexercised options and warrants to acquire Illustra Common Stock or Illustra
Preferred Stock will be 15,000,000. The Merger is subject to a number of
conditions, including approval by the Illustra stockholders. Assuming all
conditions to the Merger are met or waived prior thereto, it is currently
anticipated that the effective time of the Merger will be on or about February
15, 1996. The following are risks associated with the Merger:
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS. Informix and
Illustra have entered into the Merger Agreement with the expectation that
the Merger will result in beneficial synergies for the combined companies.
Achieving the anticipated benefits of the Merger will depend in part upon
whether the integration of the two companies' businesses is achieved in an
efficient and effective manner, and there can be no assurance that this will
occur. The combination of the two companies will require, among other
things, integration of Illustra's object-relational database technology with
Informix's relational database technology and integration of their
respective sales and marketing and research and development efforts. There
can be no assurance that integration will be accomplished smoothly, on time
or successfully. The difficulties of such integration may be increased by
the complexity of the technologies being integrated and the necessity of
coordinating geographically separated organizations. The integration of
certain operations following the Merger will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the combined companies. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on Informix's results of operations and financial condition.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS. Although the companies
believe that beneficial synergies will result from the Merger, there can be
no assurance that the combining of the two companies' businesses, even if
achieved in an efficient, effective and timely manner, will result in
combined results of operations and financial condition superior to what
would have been achieved by each company independently, or as to the period
of time required to achieve such result. The issuance of Informix Common
Stock in connection with the Merger will have the effect of reducing
Informix's net income per share and could reduce the market price of
Informix Common Stock unless and until revenue growth or cost savings and
other business synergies sufficient to offset the effect of such issuance
can be achieved. There can be no assurance that such synergies will be
achieved.
NEED FOR ACCEPTANCE OF OBJECT-RELATIONAL TECHNOLOGY. The market for the
object-relational database products of Illustra is new and evolving, and its
growth depends both upon the growing need to store complex data and the
broader market acceptance of Illustra's object-relational technology as the
solution for this need. Because object-relational technology represents a
shift in
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programming methodology, it requires a substantial investment in the
retraining of programmers, which can be expensive and reduce the
productivity of programmers during the training period. As a result, there
can be no assurance that organizations will choose to make the transition
from conventional relational database management systems to
object-relational database management systems, and the time frame within
which such transition may occur, even if they believe that they can benefit
from the advantages of an object-relational system. Any delay in the
market's acceptance of object-relational database management systems will
reduce the anticipated benefits of the Merger and could have an adverse
effect on Informix's results of operations and financial condition.
COSTS OF INTEGRATION; TRANSACTION EXPENSES. The combined companies'
results of operations will be adversely affected by Merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other related charges
estimated to be approximately $6 million dollars. These nonrecurring costs
will be charged to operations in the fiscal quarter in which the Merger is
consummated. This estimate is preliminary and is therefore subject to
change.
FLUCTUATIONS IN QUARTERLY RESULTS. Informix's operating results can vary
substantially from period to period. The timing and amount of Informix's license
revenues are subject to a number of factors that make estimation of operating
results prior to the end of a quarter extremely uncertain. Informix has operated
historically with little or no backlog, and as a result, license revenues in any
quarter are dependent on contracts entered into or orders booked and shipped in
that quarter. Informix's quarterly operating margins have generally followed a
historic pattern, with second half revenues and operating margins generally
being higher than those of the preceding first half. Informix believes that this
pattern has been primarily related to customers' capital spending cycles at the
end of a calendar year as well as to Informix's selling efforts, influenced by
annual sales incentive plans, at the end of the calendar year, which is the end
of Informix's fiscal year. Additionally, as is common in the industry, a
disproportionate amount of Informix's license revenue is derived from
transactions that close in the last few weeks of a quarter. The timing of
closing of large license agreements also increases the risk of
quarter-to-quarter fluctuations and the uncertainty of estimating quarterly
operating results. Informix's operating expenses are based on projected annual
and quarterly revenue levels, have been increasing at rates approaching the rate
of total revenue growth and are incurred approximately ratably throughout each
quarter. As a result, if projected revenues are not realized in the expected
period, Informix's operating results for that period would be adversely affected
as the operating expenses are relatively fixed in the short term. Failure to
achieve revenue, earnings and other operating and financial results as
forecasted or anticipated by brokerage firm analysts or industry analysts could
result in an immediate and adverse effect on the market price of Informix's
Common Stock. Further, Informix may not learn of, or be able to confirm, revenue
or earning shortfalls until the end of each quarter, which could result in an
even more immediate and adverse effect on the trading price of Informix's Common
Stock.
VOLATILITY OF INFORMIX STOCK PRICES. The market for Informix's Common Stock
is highly volatile. The trading price of Informix's Common Stock could be
subject to wide fluctuations in response to quarterly variations in operating
and financial results, announcements of technological innovations or new
products by Informix or its competitors, changes in prices of Informix's or its
competitors' products and services, changes in product mix, changes in
Informix's revenue and revenue growth rates for Informix as a whole or for
individual geographic areas, business units, products or product categories, as
well as other events or factors. Statements or changes in opinions, ratings, or
earnings estimates made by brokerage firms or industry analysts relating to the
market in which Informix does business or relating to Informix specifically have
resulted, and could in the future result, in an immediate and adverse effect on
the market price of Informix's Common Stock. Statements by financial or industry
analysts regarding the extent of the dilution in Informix's net income per share
resulting from the Merger and the extent to which such analysts expect potential
business synergies to offset such dilution can be expected to contribute to
volatility in the market price of Informix
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Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market price for the securities of many high-technology companies and which
often have been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of Informix
Common Stock.
COMPETITION. The market for Informix's software products and services is
extremely competitive. The chief competition faced by Informix is currently
provided by Oracle Corporation, Sybase, Inc., CA Ingres (a subsidiary of
Computer Associates International, Inc.), IBM Corporation, Microsoft Corporation
and Red Brick Systems, Inc. and suppliers of third party tools such as Gupta
Corporation, Forte Software, Inc. and Dynasty Technologies, Inc. Some of
Informix's current competitors and many potential competitors have greater
financial, technical and marketing resources than Informix. To the extent that
market acceptance for personal computer oriented technologies increases at the
expense of UNIX or other non-PC platforms, this could result in greater price
pressure on certain of Informix's database products and services. The
availability and market acceptance of Microsoft Corporation's Windows NT
operating system may increase the competition faced by the principal operating
system platforms on which Informix's products operate and may result in greater
price pressure on certain of Informix's database products and services. Also,
new or enhanced products introduced by existing or future competitors could have
an adverse effect on Informix's business, results of operations and financial
condition. Existing and future competition or changes in Informix's product or
services pricing structure or product or service offerings could result in an
immediate reduction in the prices of Informix's products or services. If this
were to result in significant price declines, the effects of which were not
offset by any resulting increases in sales volume of Informix's products or
services, Informix's business, results of operations and financial condition
would be adversely affected. There can be no assurance that Informix will
continue to compete successfully with its existing competitors or will be able
to compete successfully with new competitors.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS. The market for Informix's products
and services is characterized by rapidly changing technology and frequent new
product introductions. Informix's success will depend upon its ability to
enhance its existing products and to introduce new products on a timely and
cost-effective basis that meet dynamic customer requirements. There can be no
assurance that Informix will be successful in developing new products or
enhancing its existing products or that such new or enhanced products will
receive market acceptance or be timely delivered to the market. Informix has
experienced product delays in the past and may have delays in the future. Delays
in the scheduled availability or a lack of market acceptance of its products or
failure to accurately anticipate customer demand or meet customer performance
requirements could have a material adverse effect on Informix's business,
results of operations and financial condition. In addition, products as complex
as those offered by Informix may contain undetected errors or bugs when first
introduced or as new versions are released. There can be no assurance that,
despite testing, new products or new versions of existing products will not
contain undetected errors or bugs that will delay the introduction or commercial
acceptance of such products. Informix's success also depends on the ability of
its products to interoperate and perform well with existing and future,
industry-standard leading application software products intended to be used in
connection with relational database management systems. Failure to meet existing
and future interoperability and performance requirements of certain independent
vendors marketing such applications in a timely manner could adversely affect
the market for Informix's products. Commercial acceptance of Informix's products
and services could also be adversely affected by critical or negative statements
or reports by brokerage firms, industry and financial analysts and industry
periodicals concerning Informix, its products, business or competitors or by the
advertising or marketing efforts of competitors, or other factors that could
affect consumer perception.
INTERNATIONAL OPERATIONS. Over half of Informix's net revenues are derived
from its international operations. Informix's operations and financial results
could be significantly affected by factors associated with international
operations such as changes in foreign currency exchange rates and
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uncertainties relative to regional economic circumstances, as well as by other
risks associated with international activities. Most of Informix's international
revenue and expenses are denominated in local currencies. Although Informix
takes into account changes in exchange rates over time in its pricing strategy,
Informix's business, results of operations and financial condition could be
materially and adversely affected by fluctuations in foreign currency exchange
rates. There can be no assurance that Informix will not experience fluctuations
in international revenues.
INTEGRATION OF ACQUIRED COMPANIES. Informix has recently completed several
acquisitions including the database division of ASCII Corporation in Japan, STG
in the United States and distributors in Germany, Korea and Malaysia, and has
recently entered into the Merger Agreement to acquire Illustra. Informix may
acquire other distributors, companies, products or technologies in the future.
There can be no assurance that these acquisitions and the acquisition of
Illustra can be effectively integrated, that such acquisitions will not result
in costs or liabilities that could adversely effect Informix's results of
operations and financial condition, or that Informix will obtain the anticipated
or desired benefits of such acquisitions.
KEY PERSONNEL. Informix's success depends in part on the continued
contributions of both companies' key management and technical personnel. The
success of Informix also depends on Informix's ability to attract and retain
other qualified technical, managerial, sales and marketing personnel. The
competition for such personnel is intense in the software industry. Uncertainty
during integration of the businesses of Informix and Illustra may adversely
affect the combined companies' ability to attract and retain such personnel.
MANAGEMENT OF GROWTH. Informix has experienced rapid growth in recent
years. There can be no assurance Informix will maintain its recent rate of
growth. Informix's future growth will depend in part on the ability of its
officers and key personnel to manage growth successfully through the
implementation of appropriate management systems and controls. Failure to
effectively implement or maintain such systems and controls could adversely
affect Informix's business, results of operations and financial condition.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
Informix relies on a combination of trade secret, copyright and trademark laws
and contractual provisions to protect its proprietary rights in its software
products. There can be no assurance that these protections will be adequate or
that competitors will not independently develop technologies that are
substantially equivalent or superior to Informix's technology. In addition,
copyright and trade secret protection for Informix's products may be unavailable
or unreliable in certain foreign countries. As of the date hereof, Informix had
no issued patents. As the number of software products in the industry and
software patents increases, Informix believes that software developers may
become increasingly subject to infringement claims. There can be no assurance
that a third party will not assert that its patents or other proprietary rights
are violated by products offered by Informix. Any such claims, with or without
merit, can be time consuming and expensive to defend, and could have an adverse
effect on Informix's business, results of operations and financial condition.
Infringement of valid third party patents and propriety rights could have an
adverse effect on Informix's business, results of operations and financial
condition. Informix also relies on "shrink-wrap" break-the-seal licenses not
signed by the licensee to protect its proprietary rights. "Shrink-wrap" licenses
may be unenforceable under the laws of certain jurisdictions.
DEPENDENCE ON THIRD-PARTY PROVIDERS OF TECHNOLOGY. The products of Informix
use certain products and technologies of various third party software
developers, including both complete products offered as extensions of Informix's
product lines and technology used in the enhancement of internally developed
products. Such products and technologies are obtained from the third party
providers under contractual license agreements, which in some cases are for
limited time periods and in some cases provide that such licenses may be
terminated under certain circumstances. There can be no assurance that Informix
will be able to maintain adequate relations with these third-party providers,
that these third-party providers will commit adequate development resources to
maintain these
A-4
<PAGE>
products and technologies or that the license agreements that are for limited
time periods will be renewed upon termination. In such circumstances, Informix's
inability to obtain or develop substitute technology could adversely affect
Informix's business, results of operations and financial condition.
EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW AND INFORMIX'S CHARTER
DOCUMENTS. Informix is subject to the provisions of Section 203 of the Delaware
General Corporation Law, which has the effect of restricting changes in control
of a company. The Board of Directors of Informix is divided into three classes,
with each class standing for election once every three years. In addition,
Informix's Board of Directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of such shares without any further vote or action by
the stockholders. Informix also has a Preferred Shares Rights Agreement that
provides for the issuance of rights which upon the occurrence of certain events
would result in significant dilution to Informix Common Stock held by a bidder
for Informix. These and other provisions of the Delaware General Corporation Law
applicable to Informix and Informix's charter documents may have the effect of
delaying, deterring or preventing changes in control or management of Informix.
A-5
<PAGE>
ANNEX B
INFORMIX BUSINESS
BACKGROUND
Informix designs, develops, manufactures, markets and supports distributed
relational database management systems, object-oriented, graphical- and
character-based application development tools and graphical data-access tools
for delivering information to most significant desktop platforms. In addition to
software products, Informix offers training, consulting and maintenance to its
customers. Informix was initially incorporated in California in 1980 and was
reincorporated in Delaware in August 1986. Unless the context requires
otherwise, the term "Informix" refers to Informix Corporation and its
subsidiaries.
Informix designs, develops, manufactures, markets and supports database
management systems, connectivity interfaces and gateways and application
development tools for graphical- and character-based software applications all
as part of relational database management systems ("RDBMS"). All of the Informix
database products developed since 1983 support Structured Query Language
("SQL"), an industry standard created by IBM. Informix believes that its
INFORMIX-4GL Product, introduced in 1986, was the first fourth-generation
applications development language consolidating SQL with syntax for menu
creation, formatted screen generation and report writing. The combination of
these features significantly increases programmer productivity and flexibility
in developing applications software. Informix's core database management
software runs on the UNIX-Registered Trademark-, Windows-TM- and Windows/NT-TM-
operating systems, and certain networks composed of computers running these
operating systems.
Informix's customers consist primarily of end-users, application resellers,
computer original equipment manufacturers ("OEMs") and distributors. Informix
markets its products directly to end-users through its sales force and
indirectly to end-users through application resellers, OEMs and distributors.
In 1995, Informix had three internal sales organizations: North America;
Europe, Middle East and Africa; and the Intercontinental Group, which included
Japan and the Asia/Pacific and Latin America regions. Effective January 1, 1996,
these sales organizations were reorganized into the following groups: Americas,
including the North America and Latin America regions; International, including
the Europe, Middle East, Africa and Asia/Pacific regions; and Japan. The
Americas sales organization is headquartered in Menlo Park, California, has
sales offices located in major cities throughout the United States and Canada
and in 7 Latin American countries. The International sales organization,
headquartered in the United Kingdom, has sales offices in 29 countries. Informix
also has a European development, production and distribution center located in
Ireland. The Japan sales organization is headquartered in Tokyo, Japan. Informix
has operating subsidiaries in 36 foreign countries.
PRODUCTS
DATABASE ENGINES
Informix offers the following relational database SQL engines, which share a
common set of development tools:
- INFORMIX-OnLine, Informix's first generation on-line transaction
processing ("OLTP") database server with stored procedures, triggers,
referential integrity, high availability, document imaging support and
fast response times in heavy transaction environments.
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<PAGE>
- INFORMIX-OnLine Dynamic Server-TM-, Informix's second generation OLTP
engine. This server is based on Informix's Dynamic Scalable Architecture
and features parallel data processing capability, replication and
connectivity options built into the core database server, offering users
significant enhancements without adding additional cost. This product is
available on uniprocessor and symmetric multiprocessing systems.
- INFORMIX-OnLine Extended Parallel Server, a new, high-performance,
scalable database server which extends Informix's Dynamic Scalable
Architecture to loosely coupled, "shared nothing" computing architectures,
including clusters of symmetric multiprocessing systems and massively
parallel processing systems. This product became available in the third
quarter of 1995 on a limited basis.
- INFORMIX-SE, designed for smaller organizations with limited MIS staffing
or minimal database expertise because it is easy to install and maintain.
This product provides the power of SQL without the complex database
administration requirements.
DATABASE TOOLS
Informix offers a variety of database application development tools designed
to allow users to build applications quickly and maintain them easily. The
Informix database tools are:
- INFORMIX-NewEra-TM-, a graphical, object-oriented development environment
designed for creating enterprise-wide multi-tier client/server database
applications. INFORMIX-NewEra features a fourth-generation object-oriented
programming language, reusable class libraries, application partitioning,
and flexible application deployment, and supports open connectivity to
Informix and non-Informix databases. INFORMIX-NewEra is currently
available for Microsoft-Registered Trademark- Windows-TM- and OSF
Motif-TM-.
- INFORMIX-4GL, a character-based development environment, which includes a
fourth-generation programming language with full screen-building, report
entry and SQL database input/ output capabilities. The INFORMIX-4GL
product family is comprised of three core products: INFORMIX-4GL Compiled,
INFORMIX-4GL Rapid Development System and INFORMIX-4GL Interactive
Debugger.
- INFORMIX-SQL, a package of five interactive tools for creating
character-based applications. INFORMIX-SQL consists of a forms package, a
report writer, an interactive SQL editor, a menu builder and an
interactive schema editor.
- C-ISAM-Registered Trademark-, a library of C functions that manage indexed
sequential access method files. C-ISAM bypasses the overhead of an entire
database management system and allows direct access to an application's
records.
- INFORMIX-NewEra ViewPoint-TM-, a graphical database access and analytical
tool specifically designed to give non-technical computer users point and
click access to information contained in corporate or departmental
databases and to run their own customized forms and reports.
- INFORMIX-NewEra ViewPoint Pro, a graphical database administration tool,
includes all of the features of INFORMIX-NewEra ViewPoint, as well as a
database schema builder, a SQL editor and a SuperView-TM- builder, for
creating highly specialized views to the database that simplify access,
retrieval and analysis of data.
- INFORMIX-MetaCube-TM-, a high-performance on-line analytical processing
engine that automatically preconsolidates data and provides a
multidimensional view of data without the constraints of a two dimensional
(row and table) data model. The INFORMIX-MetaCube product family also
includes MetaCube Explorer, an adhoc decision support tool for end users,
MetaCube Warehouse Manager, a graphical tool for administering the
"metadata" describing a database in a logical, user-friendly view,
MetaCube Agents, a scheduler to perform user queries and administrative
tasks on a database in the background, and MetaCube for Excel, an add-in
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to the standard Microsoft spreadsheet environment. The MetaCube products
became available in the fourth quarter of 1995 as a result of Informix's
acquisition of Stanford Technology Group, Inc.
In February 1995, Informix entered into an agreement with Investment
Intelligence Systems Limited ("IISL") which gave IISL exclusive rights to
develop, distribute, sell and support the INFORMIX-Wingz-Registered Trademark-
spreadsheet and the INFORMIX-HyperScript-Registered Trademark- Tools graphical
development environment to new and existing customers. IISL assumed full
responsibility for both products effective June 30, 1995. The agreement is
world-wide, with the exception of Japan, where ASCII Corporation retains the
exclusive rights to market and distribute the Kanji version of INFORMIX-Wingz.
In October 1995, Informix acquired Stanford Technology Group, Inc., a United
States based provider of on-line analytical processing technology, for
approximately 570,000 shares of Informix common stock. The transaction will be
accounted for as a pooling of interests. As a result of this acquisition,
Informix added the INFORMIX-MetaCube product family to its product line.
CONNECTIVITY PRODUCTS
The Informix connectivity products are:
- INFORMIX-Gateway-TM- with DRDA, a UNIX-based connectivity tool allowing
interoperability to IBM databases such as DB2, DB2/VM and DB2/400 from
Windows and UNIX clients. INFORMIX- Gateway with DRDA allows applications
built with Informix application development tools to transparently access
and modify information in Distributed Relational Database Architecture-TM-
-- compliant database management systems.
- INFORMIX-Enterprise Gateway-TM-, a UNIX-based connectivity tool, which
incorporates the Enterprise Data Access SQL suite of products from
Information Builders, Inc. This product provides transparent access
through SQL statements and remote procedure calls to over 60 relational
and non-relational data sources on 35 different hardware platforms and
operating systems.
- INFORMIX-STAR, provides the ability to access INFORMIX-OnLine databases
stored on multiple servers in the same transaction. INFORMIX-STAR allows
the joining and viewing of multiple databases at different locations as if
they were one common database. The functionality of this product is
automatically included in INFORMIX-OnLine Dynamic Server and
INFORMIX-OnLine Extended Parallel Server.
- INFORMIX-NET, allows the off-loading of application processing from the
server to a client workstation. The functionality of this product is
included in INFORMIX-SE and all of Informix's UNIX-based tools.
INFORMIX-NET PC for DOS permits the same offloading between a PC
workstation and an Informix database server.
- INFORMIX DCE/NET, a connectivity product based on the Open Software
Foundation Distributed Computing Environment specification. This Product
allows customers transparent access to Informix and other relational
databases and takes advantage of DCE security and directory services.
- INFORMIX-TP/XA, links INFORMIX-OnLine to a transaction manager to support
transactions involving multiple databases and multiple computer systems.
INFORMIX-TP/XA is a library of C functions that establishes the connection
between INFORMIX-OnLine and the transaction manager.
- INFORMIX-ESQL for C and COBOL, embedded SQL products which permit
developers to take advantage of SQL technology while building applications
in C or COBOL.
B-3
<PAGE>
MAINTENANCE, CONSULTING AND SERVICES
Informix maintains field-based and centralized corporate technical staffs to
provide a comprehensive range of assistance to its customers. These services
include pre- and post- sales technical assistance, consulting, product and sales
training and technical support services. Consultants and trainers provide
services to customers to assist them in the use of Informix's products and the
design and development of applications that utilize Informix's products.
Informix provides maintenance to its RDBMS customers on an optional basis
for fees ranging from 10% to 18% of the license fees paid by the customer which
generally includes product updates.
MARKETING AND CUSTOMERS
In 1995, Informix had three internal sales organizations: North America;
Europe, Middle East and Africa; and the Intercontinental Group, which included
Japan and the Asia/Pacific and Latin America regions. Effective January 1, 1996,
these sales organizations were reorganized into the following groups: Americas,
including the North America and Latin America regions; International, including
the Europe, Middle East, Africa and Asia/Pacific regions; and Japan.
In North America, Informix distributes its products through the channels of
direct end-user licensing, OEMs, application resellers addressing specific
markets and distributors. Informix licenses its products to large companies and
government entities through its direct sales force, and to certain of these
companies, as well as smaller end-users, through its telemarketing sales force.
In Europe, Latin America and Japan, Informix uses distribution channels
similar in type to those used by Informix in the United States. In other foreign
regions, Informix licenses its products to end-users primarily through
application resellers, distributors and OEMs.
Informix has chosen a multiple channel distribution strategy to maintain
broad market coverage and product availability. Informix, therefore, has
generally avoided exclusive relationships with its licensees and other resellers
of its products. Discount policies and reseller licensing programs are intended
to support each distribution channel with a minimum of channel conflict.
At December 31, 1995, Informix's sales, marketing and support staff totaled
1,011 regular employees in the North America region; 103 regular employees in
the Latin America region, 652 regular employees in the Europe, Middle East and
Africa regions, 231 regular employees in the Asia/ Pacific region and 77 regular
employees in Japan.
In January 1995, Informix acquired a 90 percent interest in the database
division of ASCII Corporation, a distributor of its products in Japan. Informix
acquired the remaining 10 percent interest in January 1996. This acquisition has
been recorded as a purchase. The purchase cost of this business was
approximately $46,000,000. Additionally, in April 1995, Informix acquired an 80
percent interest in the database division of Daou Corporation, a distributor of
its products in Korea. Informix will acquire the remaining 20 percent interest
in January 1997. This acquisition has been recorded as a purchase with the
purchase cost of this business being approximately $4,300,000.
Informix provides a financing option to customers in connection with the
license of software in the United States through its wholly-owned subsidiary,
Informix Credit Company. Similar financing is offered in Europe.
LICENSING
END-USER LICENSING
Informix's products are licensed directly to end-users through Informix's
sales force as well as indirectly to end-users through application resellers,
OEMs and distributors. Informix believes that the common core technology of its
RDBMS software products, based on standard operating systems and the SQL
database language places it in a strong position to sell into major corporations
and
B-4
<PAGE>
government agencies that wish to standardize their diverse computing
environments. As a result, certain of these end-user organizations have entered
into general purchasing agreements with Informix which offer volume discounts.
APPLICATION RESELLER LICENSING
Since its inception, Informix has licensed application resellers to
distribute its products. A typical application reseller develops an application
product (e.g., an insurance agency management system) using one of Informix's
products and then licenses the resultant application software to its customers
in the target market. The application reseller customer purchases a license for
use of Informix's product to develop an applications program. Depending on the
application program developed, it may include a run-only license, a full version
license or even multiple product licenses.
Application resellers develop applications using a wide array of application
development tools, including products from Informix, such as INFORMIX-NewEra,
INFORMIX-4GL and INFORMIX-SQL, as well as products offered by third parties.
Applications developed using Informix's products are generally portable across
various brands of computers and different operating systems. Informix believes
that this feature is significant to this distribution channel.
Informix has specialized programs to support the application reseller
distribution channel. Under these programs, Informix provides to selected
application resellers a combination of marketing development services,
consulting and technical marketing support and discounts.
OEM LICENSING
Informix's products are also marketed with the assistance of the sales
forces of its OEM customers who have concluded that "solution selling" of a
combination of software and hardware to their respective customers enhances the
sales of their computer equipment. Informix believes that the compatibility and
range of applications for its products is significant to this distribution
channel.
DISTRIBUTOR LICENSING
Informix has established a network of full service international
distributors who provide local service and support, as well as Informix's
products, to their respective national markets. Informix's products have been
translated by Informix or Informix's distributors into a number of foreign
languages, including Japanese (Kanji), Chinese (Simplified and Traditional),
Czech, Danish, French, German, Hebrew, Hungarian, Korean (Hangul), Italian,
Polish, Russian, Slovak, Spanish, Swedish and Thai.
PRODUCT DEVELOPMENT
The computer software industry is highly competitive and rapidly changing.
Consequently, Informix dedicates considerable resources to research and
development efforts to enhance its existing product line and to develop new
products to meet new market opportunities. Major research and development
projects in 1995 included new releases of INFORMIX-NewEra and INFORMIX-OnLine
Dynamic Server and the release of INFORMIX-OnLine Extended Parallel Server on a
limited basis.
Most of Informix's current software products and accompanying documentation
have been developed internally; however, Informix has acquired certain software
products from others and plans to do so again in the future.
Current product development is focused toward:
- Improvement and enhancement of current products and new products, with
particular emphasis on parallel computer architecture, graphical desk top,
system administration, application partitioning, mobile capabilities and
support for complex data, such as audio, video, text and images of the
type often used in World Wide Web or other Internet-based applications.
- Improvements to Informix products to provide greater speed and support for
larger numbers of concurrent users.
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<PAGE>
- Adaptation of new products to the broad range of computer brands and
operating systems Informix currently supports and adaptation of current
products to new brands of computers and operating systems which represent
attractive market opportunities for Informix products.
There can be no assurance that Informix's product development efforts will
be successful or that any new products will achieve significant market
acceptance.
As of December 31, 1995, Informix had 644 regular employees engaged in
research and development.
COMPETITION
Informix faces intense competition in the market for RDBMS software
products. Companies in the RDBMS market compete primarily on the basis of
price/performance characteristics, name recognition, and technical support,
training and consulting services.
With respect to RDBMS performance, Informix believes that the principal
competitive factors include:
- Application development productivity (the speed with which applications
can be built).
- Database performance (the speed at which database storage and retrieval
functions are executed).
- The ability to support large warehouses of information.
- Reliability, availability and serviceability.
- The distribution of RDBMS software applications and data across networks
of computers from multiple suppliers.
- Increasingly, the ability to manage complex data and solve more complex
business problems based on such data.
Informix believes that the technical advantages of its products, its
approach to sales and marketing, its relations with application resellers, OEMs
and distributors and its customer service and support contribute to its ability
to compete favorably in this market.
The chief competition faced by Informix is currently provided by Oracle
Corporation, Sybase, Inc., CA Ingres (a subsidiary of Computer Associates
International, Inc.), IBM Corporation, Microsoft Corporation and Red Brick
Systems, Inc. and suppliers of third party tools such as Gupta Corporation,
Forte Software, Inc. and Dynasty Technologies, Inc. Informix believes that there
is a large market for RDBMS software which might attract additional competitors.
Additionally, some of Informix's current competitors and many potential
competitors have greater financial, technical and marketing resources than
Informix.
To the extent that market acceptance for personal computer oriented
technologies increases at the expense of UNIX or other non-PC platforms, this
could result in greater price pressure on certain of Informix's database
products and services. The availability and market acceptance of Microsoft
Corporation's Windows NT operating system may increase the competition faced by
the principal operating system platforms on which Informix's products operate
and may result in greater price pressure on certain of Informix's database
products and services. Also, new or enhanced products introduced by existing or
future competitors could have an adverse effect on Informix's business. Existing
and future competition or changes in Informix's product or services pricing
structure or product or service offerings could result in an immediate reduction
in the prices of Informix's products or services. If this were to result in
significant price declines, the effects of which were not offset by any
resulting increases in sales volume of Informix's products or services,
Informix's business, results of operations and financial condition would be
adversely affected.
B-6
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PRODUCT PROTECTION
Informix relies on a combination of trade secret, copyright and trademark
laws, license agreements and technical measures to protect its rights in its
software products. Like many software companies, Informix has no patents to
date, although it has applied for four software patents for core technology
present in Informix products, and is proceeding with applications for several
other software patents. Informix maintains trademark and service mark
registrations in the United States and numerous other foreign jurisdictions.
Informix's products are generally licensed to end-users on a "right-to-use"
basis pursuant to a license that restricts the use of the products to the
customer's internal business purposes either on a single computer at a single
site or to a specific number of users at a single site or enterprise wide.
Informix also relies on "shrink-wrap" licenses. Informix's "shrink-wrap" license
includes a prominently displayed notice informing the end-user that, by opening
the product packaging, the end-user agrees to be bound by Informix's license
agreement printed on the package. Copyright and trade secret protection for
source and object code version of software products may be unavailable in
certain foreign countries. In addition, "shrink-wrap" licenses may be wholly or
partially unenforceable under the laws of certain jurisdictions.
Informix protects the human readable, source code version of its products as
a trade secret and an unpublished copyrighted work. Informix has licensed the
source code of its products to certain customers under certain circumstances,
and for restricted uses. In addition, Informix has entered into source code
escrow agreements with a number of its customers that generally require release
of source code to the customer in the event there is a bankruptcy or similar
proceeding by or against Informix, Informix ceases to do business or Informix
ceases to support the product. In the event of a release of the source code to a
customer, the customer is required to maintain its confidentiality and, in
general, to use the source code solely for internal business purposes or for the
purpose of providing maintenance and support to its customers, and, in certain
circumstances, to embedding it in customer products.
Informix believes that, because of the rapid pace of technological change in
the computer software industry, patent, trade secret and copyright protection
are less significant than factors such as the knowledge, ability and experience
of Informix's personnel, new product introduction, frequent product enhancement,
name recognition and ongoing product maintenance.
EMPLOYEES
As of December 31, 1995, Informix and its subsidiaries had 3,219 regular
employees worldwide, including 2,074 in sales, marketing and support; 644 in
research and development; 90 in operations and 411 in administration and
finance.
Competition in recruiting personnel in the computer software industry is
intense. Informix believes that its future success will depend in part on its
continued ability to recruit and retain highly skilled management, marketing and
technical personnel.
None of Informix's U.S. employees are represented by a labor union. A small
number of employees located outside of the United States are represented by
labor unions. The degree of this representation varies from country to country.
Informix has experienced no work stoppages and believes that its employee
relations are excellent.
PROPERTIES
Informix's headquarters and its marketing, finance, Americas sales,
administration, customer service and research and development operations are
located in five modern buildings in a seven building office park in Menlo Park,
California, approximately 30 miles south of San Francisco. Informix leases
approximately 214,000 square feet of space in these buildings. The leases for
spaces in three of the buildings expire in March 1998. Informix has an option to
renew each lease for another five year term at 95% of the then fair rental
value. The remaining leases expire in September 2001.
Some of the research and development for Informix's tools products, a
portion of Informix's customer service organization, Informix's principal
manufacturing facility and Informix's
B-7
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telemarketing organization are located in two modern buildings aggregating
approximately 135,000 square feet in Lenexa, Kansas, a suburb of Kansas City.
The buildings are owned by a partnership, of which Informix Software, Inc. is a
50% partner, and leased by the partnership to Informix Software, Inc. under a
lease with an initial ten-year term that expires in March 1998. There are two
five-year renewal options. Rental under this lease remains fixed through 1998,
and then adjusts to prevailing rates for the renewal terms.
Informix also leases office space in approximately 45 facilities in the
United States and Canada and approximately 58 facilities internationally.
Informix believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate the expansion of Informix's operations.
B-8
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ANNEX C
INFORMIX MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- RECENT OPERATING RESULTS
On January 31, 1996, Informix announced financial results for its fourth
quarter and year ended December 31, 1995. Revenues for the quarter and the year
were $217,070,000 and $708,985,000, respectively, representing increases of
approximately 45% and 51%, respectively, of revenues over comparable periods in
1994. Informix also reported net income for the fourth quarter and the year of
$38,834,000 ($0.28 per share) and $105,333,000 ($0.76 per share), respectively,
compared to $23,836,000 ($0.18 per share) and $66,196,000 ($0.49 per share) for
the comparable periods in 1994.
RESULTS OF OPERATIONS -- NINE MONTH PERIOD COMPARISON
The following table sets forth operating results as a percentage of net
revenues for the periods ended October 1, 1995 and October 2, 1994,
respectively, and the percent change in the operating results for the nine month
period ended October 1, 1995, compared to the nine month period ended October 2,
1994.
<TABLE>
<CAPTION>
PERCENT OF NET REVENUES NINE
MONTHS ENDED
---------------------------- PERIOD TO PERIOD
OCTOBER 1, OCTOBER 2, PERCENT INCREASE
1995 1994 (DECREASE)
------------- ------------- -----------------
<S> <C> <C> <C>
Net revenues:
Licenses............................................................ 75% 77% 50%
Services............................................................ 25 23 69
--- --- ---
Total net revenues................................................ 100% 100% 54%
--- --- ---
--- --- ---
Costs and expenses:
Cost of software distribution....................................... 5% 5% 49%
Cost of services.................................................... 12 11 87
Sales and marketing................................................. 43 42 56
Research and development............................................ 12 14 31
General and administrative.......................................... 7 8 41
--- --- ---
Total operating expenses.......................................... 79% 80% 54%
--- --- ---
--- --- ---
Operating income...................................................... 21% 20% 56%
Interest income....................................................... 1 1 105
Interest expense...................................................... 0 0 153
Other expense, net.................................................... (0) (0) 96
--- --- ---
Income before income taxes............................................ 22 21 61
Income taxes.......................................................... 8 8 67
--- --- ---
Net income............................................................ 14% 13% 57%
--- --- ---
--- --- ---
</TABLE>
Informix's operating income in the first nine months of 1995 was 21 percent
of net revenues, compared to 20 percent in the corresponding period in 1994.
Although Informix's operating margins have exceeded or equaled 20 percent
over the last several quarters, Informix's expenses are relatively fixed in the
near term and unexpected variances in planned revenues, which are difficult to
forecast, can result in variations in operating margins and cost ratios.
Informix's quarterly operating margins have generally followed a pattern with
second half revenues and operating margins generally being higher than those of
the preceding first half; however, there is no assurance that this historical
pattern will be repeated.
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Informix derives revenues principally from licensing its software and
providing technical product support and updates to customers. License revenues
may involve the shipment of product by Informix or the granting of a license to
manufacture products. Informix's products are sold directly to end-user
customers or through resellers, including OEMs, system integrators,
distributors, or application vendors. Informix's revenues have been increasingly
derived from sales contracts directly with end-users and less from the
distributor or OEM sales channels. These end-user sales contracts can be
relatively large in size and are difficult to forecast both in timing and dollar
value. In addition, these revenue contracts have relatively lower associated
software distribution and selling costs. From time to time Informix has
recognized substantial net revenue from these large software license agreements.
These transactions, which are difficult to predict, have caused fluctuations in
net revenues and in net income because of the relatively high gross margin on
such revenues. Informix expects that transactions of this nature and the
resulting fluctuations will continue.
Throughout the remainder of 1995, Informix will continue to invest more in
customer services, marketing and research and development, and make personnel
additions to Informix's sales force worldwide. These additional expenses may
adversely affect Informix's operating margins in 1995 if there are no offsetting
increases in revenues or reductions in other operating expenses.
As the number of software products and software patents in the industry
increases, Informix believes that software developers may become increasingly
subject to infringement claims. There can be no assurance that a third party
will not assert that its patents or other proprietary rights are violated by
products offered by Informix. Any such claims, with or without merit, can be
time consuming and expensive to defend and could have an adverse effect on
Informix's business, results of operations, financial position and cash flows.
Informix's stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in revenue or earnings from
levels expected by securities analysts or others could have an immediate and
significant adverse effect on the trading price of Informix's common stock in
any given period. Additionally, as is common in the industry, a disproportionate
amount of Informix's license revenue is derived from transactions that close in
the last few weeks of a quarter that make quarterly revenues difficult to
forecast. Informix may not learn of, or be able to confirm, revenue or earnings
shortfalls until the end of each quarter, which could result in an even more
immediate and adverse effect on the trading price of Informix's common stock.
Finally, Informix participates in a highly dynamic industry, which often results
in significant volatility of Informix's common stock price.
NET REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
License fees.................................................................... $ 369.1 $ 246.0 50%
Percentage of net revenues.................................................... 75% 77%
Services........................................................................ $ 122.8 $ 72.6 69%
Percentage of net revenues.................................................... 25% 23%
Net revenues.................................................................... $ 491.9 $ 318.6 54%
</TABLE>
The increase in service revenue, which consists of customer support,
training and consulting, was primarily attributable to the continued growth of
the installed customer base, the renewal of maintenance contracts and increased
consulting revenue. Informix continues to emphasize support services as a source
of revenue.
The revenue growth in the first nine months of 1995 primarily reflects
continued strong worldwide acceptance for Informix's new and existing technology
and products. Although Informix expects revenues to grow in the remainder of
1995, there can be no assurance that such growth will be achieved or that growth
rates in the future will be comparable to those in the first nine months of
C-2
<PAGE>
1995. Informix's revenues, along with those of the RDBMS industry as a whole,
have shown substantial growth over the last several years. The industry has
benefited from trends to downsize from large proprietary computer systems and
market acceptance of UNIX and other open operating environments.
Informix has focused on the UNIX, open operating system market since 1980
and has broadened its open environments by releasing a Windows and Windows/NT
version of an Informix database server in 1994. Informix has also developed and
released connectivity products to allow access to other relational databases,
both proprietary and open, and access to this data through various protocols
such as IBM's DRDA and X/Open's XA. The industry movement to new open operating
systems like Windows/NT and access through low-end, desktop machines may cause
downward pressure on prices of database and related products. If such downward
pressure on prices were to occur, margins would be adversely affected.
The license revenue growth in the first nine months of 1995 reflects
continued strong demand for Informix's products, particularly for Informix's new
generation of database servers, INFORMIX-OnLine DynamicServer-TM-. Informix has
also started to see revenue growth in the tools area with the introduction of
INFORMIX-NewEra-TM-, a third-generation client/server application development
tool which became available in the second half of 1994. During the nine months
of 1995, Informix introduced, on a limited basis, INFORMIX-OnLine Extended
Parallel Server ("XPS"), a new high-performance, scalable database server based
on Informix's Dynamic Scalable Architecture ("DSA") and also introduced
INFORMIX-NewEra-TM- 2.X on the Windows platform.
Informix's ability to sustain growth depends in part on the timely release
of successful new and updated products, and the success of new and updated
products from its competitors. Informix has experienced product delays in the
past and may have delays in the future.
A key factor in determining the success of Informix will continue to be the
ability of Informix's products to interoperate and perform well with existing
and future leading, industry standard application software products intended to
be used in connection with RDBMS. Failure to meet existing or future
interoperability and performance requirements of certain independent vendors
marketing such applications in a timely manner could adversely affect the market
for Informix's products.
Over half of Informix's net revenues are derived from its international
operations. In Europe and Asia/Pacific, most revenues and expenses are now
denominated in local currencies. The U.S. dollar weakened in the first nine
months of 1995 against the major European and Asian/Pacific currencies, which
resulted in higher revenue and expenses recorded when translated into U.S.
dollars and compared with the prior year periods. Through 1994, most revenues
from Asia Pacific, Canada and Latin America were denominated in U.S. dollars.
Accordingly, the translation of the revenues for these regions was less impacted
by fluctuations in foreign exchange rates. Informix has increased its direct
sales presence in Asia/Pacific by opening offices and acquiring its primary
software distributors in Malaysia in 1994, and Japan and Korea in early 1995.
This increased the proportion of direct sales denominated in local currency in
these regions. Informix has also increased its direct presence in Latin America,
although a significant percentage of the revenue is still denominated in U.S.
dollars. In the future, Informix expects currency fluctuations in Mexico, and to
a lesser extent, other Latin American countries to continue. Informix's
operating and pricing strategies take into account changes in exchange rates
over time; however, Informix's results of operations may be significantly
affected in the short term by fluctuations in foreign currency exchange rates.
Informix has a hedging program in place to minimize foreign exchange gains
or losses, where possible, from recorded foreign denominated transactions
resulting from fluctuations in exchange rates. This program involves the use of
forward foreign exchange contracts in the primary European and Asian currencies.
Informix has limited unhedged transaction exposures in certain secondary
currencies in Latin America, Eastern Europe, and Asia/Pacific because there are
limited forward currency exchange markets in these currencies. Informix does not
attempt to hedge the translation to U.S. dollars of foreign denominated revenues
and expenses not yet incurred.
C-3
<PAGE>
Informix's distribution markets are organized into three general markets:
North America; Europe, the Middle East, and Africa; and Intercontinental,
consisting of Latin America and the Asia/ Pacific region. During the first nine
months of 1995, these organizations contributed 42 percent, 38 percent and 20
percent, respectively, of Informix's net revenues compared to 44 percent, 40
percent, and 16 percent, respectively, for the same period in 1994.
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Manufactured cost of software distribution....................................... $ 16.5 $ 11.3 46%
Percentage of license revenue.................................................. 5% 5%
Amortization of capitalized software............................................. $ 8.5 $ 5.4 56%
Percentage of license revenue.................................................. 2% 2%
Cost of software distribution.................................................... $ 25.0 $ 16.7 49%
Percentage of licenses revenue................................................. 7% 7%
</TABLE>
Software distribution costs consist primarily of: 1) manufacturing and
related costs such as media, documentation, product assembly and purchasing
costs, customs, freight and third party royalties; and 2) amortization of
previously capitalized software development costs.
The increase in the amortization of capitalized software in absolute dollars
in the first nine months of 1995 compared to the same period in 1994 was due to
the release of several products in the latter half of 1994 and the first half of
1995. Informix expects that amortization of capitalized software in absolute
dollars will continue to increase in the future as new products are released.
Manufactured cost of software distribution in the first nine months of 1995,
as a percentage of license revenues, remained flat compared to the same period
in 1994. The cost of software distribution as a percentage of license revenues
may vary depending upon whether the product is reproduced by Informix or by its
customers.
COST OF SERVICES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cost of Services................................................................. $ 62.0 $ 33.1 87%
Percentage of service revenues................................................. 51% 46%
</TABLE>
Cost of services consists primarily of maintenance, consulting and training
expenses. The increase in cost of services in the first nine months of 1995 in
absolute dollars and as a percentage of net revenues compared to the
corresponding prior year period is primarily due to Informix's increased
expenditures in developing consulting and support services. In the future,
Informix expects that cost of services as a percentage of net revenues will
approximate the rate in the first nine months of 1995.
SALES AND MARKETING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Sales and marketing expenses.................................................... $ 210.8 $ 134.8 56%
Percentage of net revenues.................................................... 43% 42%
</TABLE>
The increase in sales and marketing expenses in the first nine months of
1995 in absolute dollars compared to the same period in 1994 was a result of
increased sales headcount worldwide, new sales offices and increased marketing
programs associated with new product introductions.
C-4
<PAGE>
With the continuing expansion throughout 1995 of worldwide operations, as
well as increased sales and marketing expenditures in 1995 aimed at positioning
Informix and its new and existing products in the marketplace, Informix expects
that sales and marketing expenses for the remainder of 1995, as a percentage of
net revenues, will be similar to those of the first nine months of 1995.
RESEARCH AND DEVELOPMENT EXPENSES
Informix accounts for its product development costs in accordance with
Statements of Financial Accounting Standards No. 86 (FAS 86). This statement
requires that once technological feasibility of a developing product has been
established, all subsequent costs incurred in developing that product to a
commercially acceptable level be capitalized and amortized ratably over the
revenue life of the product. Informix's research and development expenses
exclude capitalized software costs of $12.7 million and $9.7 million in the
first nine months of 1995 and 1994, respectively, and exclude amortization costs
of previously capitalized software. The following table summarizes research and
product development costs for the periods ended October 1, 1995 and October 2,
1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Incurred product development costs............................................... $ 70.4 $ 53.6 31%
Expenditures capitalized......................................................... (12.7) (9.7) 31%
----- -----
Research and development expenses................................................ $ 57.7 $ 43.9 31%
Expenditures capitalized as a % of incurred...................................... 18% 18% n/a
</TABLE>
The increase in research and development expenditures in absolute dollars in
the first nine months of 1995 compared to the corresponding period in 1994
resulted from an increase in staff working on new products and product
extensions.
The higher capitalization in absolute dollars of product development
expenditures in the first nine months of 1995 compared to the same period in
1994 resulted from an increase in the work involved in projects reaching
technological feasibility as they neared their release dates. Informix expects
the proportion of work on capitalized projects to remain relatively stable
throughout the remainder of 1995.
Major new programs currently under development include the expansion of the
DSA family of servers and connectivity products and subsequent versions of
Informix's graphical object-oriented tool INFORMIX-NewEra-TM-. Informix believes
that research and development expenditures are essential to maintaining its
competitive position in its primary markets and expects the expenditure levels
to increase in absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994 CHANGE
------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
General and administrative expenses.............................................. $ 35.0 $ 24.8 41%
Percentage of net revenue...................................................... 7% 8%
</TABLE>
General and administrative expenses for the first nine months of 1995
remained relatively flat as a percentage of net revenues compared to the
corresponding period in 1994. Informix expects that general and administrative
expenses as a percentage of net revenues for the remainder of 1995 will be
consistent with those of the first nine months of 1995.
C-5
<PAGE>
PROVISION FOR INCOME TAXES
Informix's effective tax rate increased to 37.5 percent of pretax income in
the first nine months of 1995 from 36.0 percent in the same period in 1994. The
higher effective tax rate for the first nine months of 1995 was primarily due to
the expiration of the U.S. federal research and development tax credit in 1995.
Informix anticipates its fiscal 1995 effective tax rate to be approximately
37.5 percent; however, this rate could change based on a change in the
geographic mix of Informix's earnings and the amount of permanent reinvestment
offshore of a portion of the 1995 earnings of Informix's lower-taxed Irish
operations and the potential reinstatement of the U.S. federal research and
development tax credit.
IMPACT OF INFLATION
The effect of inflation on Informix's financial position has not been
significant.
C-6
<PAGE>
RESULTS OF OPERATIONS -- FISCAL YEAR COMPARISON
Selected elements of Informix's financial statements are shown below for the
last three years as a percentage of net revenues and as a percentage change from
year to year.
In 1991, Informix was selected to provide the database component of a
decision-support system for the Army National Guard and Army Reserves. In 1992,
Informix received $26.8 million as part of this Reserve Component Automation
System ("RCAS") contract and recorded $21.8 million as license revenue and
incurred $3.2 million in related operating expenses. The remaining $5.0 million
of service revenue is being recognized over the support period. In 1992,
Informix also recorded a $10.5 million charge due to a settlement of a
securities class action lawsuit (see Litigation Settlement). In providing
comparative information, corresponding tables are presented with Table 1 showing
1992 amounts as reported and Table 2 showing 1992 pro forma amounts excluding
the RCAS license revenue and related expenses and the litigation settlement
charge. Informix believes that year-to-year comparisons of financial results are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
% INCREASE
PERCENT OF NET REVENUES (DECREASE)
YEARS ENDED DECEMBER 31, 1994
------------------------------------- COMPARED
TABLE 1 (AS REPORTED) 1994 1993 1992 TO 1993
- --------------------------------------------------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Net revenues................................................... 100% 100% 100% 33%
Costs and Expenses:
Cost of software distribution................................ 5 6 8 23
Cost of services............................................. 10 9 9 40
Sales and marketing.......................................... 43 39 36 46
Research and development..................................... 13 12 10 39
General and administrative................................... 7 10 11 4
--
--- --- ---
Total costs and expenses................................... 78 76 74 37
--
--- --- ---
Operating income............................................... 22 24 26 20
--
--- --- ---
Net income..................................................... 14 16 17 18
<CAPTION>
1993
COMPARED
TABLE 1 (AS REPORTED) TO 1992
- --------------------------------------------------------------- ---------------
<S> <C>
Net revenues................................................... 24%
Costs and Expenses:
Cost of software distribution................................ (7)
Cost of services............................................. 23
Sales and marketing.......................................... 37
Research and development..................................... 51
General and administrative................................... 3
--
Total costs and expenses................................... 28
--
Operating income............................................... 16
--
Net income..................................................... 17
</TABLE>
<TABLE>
<CAPTION>
% INCREASE
PERCENT OF NET REVENUES (DECREASE)
YEARS ENDED DECEMBER 31, 1994
------------------------------------- COMPARED
TABLE 2 (PRO FORMA) 1994 1993 1992 TO 1993
- --------------------------------------------------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Net revenues................................................... 100% 100% 100% 33%
Costs and Expenses:
Cost of software distribution................................ 5 6 8 23
Cost of services............................................. 10 9 10 40
Sales and marketing.......................................... 43 39 38 46
Research and development..................................... 13 12 11 39
General and administrative................................... 7 10 12 4
--
--- --- ---
Total costs and expenses................................... 78 76 79 37
--
--- --- ---
Operating income............................................... 22 24 21 20
--
--- --- ---
Net income................................................... 14 16 16 18
<CAPTION>
1993
COMPARED
TABLE 2 (PRO FORMA) TO 1992
- --------------------------------------------------------------- ---------------
<S> <C>
Net revenues................................................... 35%
Costs and Expenses:
Cost of software distribution................................ (6)
Cost of services............................................. 23
Sales and marketing.......................................... 41
Research and development..................................... 53
General and administrative................................... 4
--
Total costs and expenses................................... 30
--
Operating income............................................... 54
--
Net income................................................... 31
</TABLE>
Informix's operating income in 1994 was 22 percent of net revenues compared
to 24 percent in 1993 and 26 percent in 1992. Excluding the revenue from the
RCAS contract and associated expenses, 1992 operating income was 21 percent. The
decrease in operating margin in 1994 compared to 1993 was primarily due to
extensive investment in customer services, marketing and research and
development expenditures and personnel additions to Informix's sales force
worldwide.
C-7
<PAGE>
NET REVENUES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
TABLE 3 (AS REPORTED) (DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
License fees....................................... $ 363.8 28% $ 284.3 20% $ 237.4
Percentage of net revenues....................... 78% 81% 84%
Services........................................... $ 104.9 53% $ 68.6 48% $ 46.2
Percentage of net revenues....................... 22% 19% 16%
Net revenues....................................... $ 468.7 33% $ 352.9 24% $ 283.6
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
TABLE 4 (PRO FORMA)* (DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Licensee fees...................................... $ 363.8 28% $ 284.3 32% $ 215.6
Percentage of net revenues....................... 78% 81% 82%
Services........................................... $ 104.9 53% $ 68.6 48% $ 46.2
Percentage of net revenues....................... 22% 19% 18%
Net revenues....................................... $ 468.7 33% $ 352.9 35% $ 261.8
</TABLE>
- ------------------------
* Excludes RCAS license revenue in 1992.
Service revenue, consisting of customer support, training, and consulting,
increased in each of the years presented. These increases were primarily
attributable to the continued growth of the installed customer base and the
renewal of maintenance contracts. Informix continues to emphasize support
services as a source of revenue.
The revenue growth in 1994 primarily reflects continued strong worldwide
acceptance for Informix's new and existing technology. The growth in 1993
reflects Informix's continued emphasis on increasing license volume for its
database servers and connectivity products. Informix's revenues, along with
those of the RDBMS industry as a whole, have shown substantial growth over the
last several years. The industry has benefitted from trends to downsize from
large, proprietary computer systems and market acceptance of UNIX" and other
open operating environments.
The license revenue growth in 1994 reflects continued strong demand
particularly for Informix's new generation of database servers and connectivity
products. In 1994, Informix released INFORMIX-OnLine Dynamic Server 7.1 on
eleven symmetric multiprocessing platforms. Informix also introduced
INFORMIX-NewEra-TM- in 1994, a second-generation client/server application
development tool, and anticipates tools revenue to increase in absolute dollars
in 1995. However, there is significant competition in the tools market from
other companies and their product offerings: graphical, character-based, and
object-oriented. Many of these tools products are "open," meaning they will
access data stored on virtually any relational database, including Informix.
Over half of Informix's net revenues are derived from its international
operations (see Note 7 of Notes to Consolidated Financial Statements). In
Europe, most revenues and expenses are denominated in local currencies. In 1994
and 1992, the U.S. dollar weakened against the major European currencies, which
resulted in higher revenue and expenses recorded when translated into U.S.
dollars and compared with the corresponding prior years. In 1993, the U.S.
dollar strengthened significantly against the major European currencies, which
resulted in lower revenue and expenses recorded when translated into U.S.
dollars and compared with the prior year. Through 1994, most revenues from
Asia/Pacific, Canada, and Latin America were denominated in U.S. dollars. The
translations of the revenues for these regions were less influenced by
fluctuations in foreign exchange rates. Informix incurred approximately $0.4
million in foreign exchange loss in Mexico in the fourth quarter of 1994 due to
the instability of the economic climate in this country. In the future, Informix
expects these currency fluctuations in Mexico and, to a lesser extent, other
Latin America countries to continue.
C-8
<PAGE>
Approximately 55 percent, 58 percent, and 53 percent of Informix's net
revenues were derived from sales to foreign customers for 1994, 1993, and 1992,
respectively. The increase in foreign revenues in absolute dollars is primarily
attributable to the establishment of new subsidiaries and sales offices in
Europe, Asia/Pacific, and Latin America, and continued international acceptance
for Informix's new and existing technology. Excluding the RCAS contract, foreign
revenue represented 58 percent of net revenues in 1992.
Informix's distribution markets were reorganized into three general markets
at the beginning of the second quarter of 1994: North America, Europe, Middle
East, and Africa; and the Intercontinental Group, consisting of Latin America,
Japan, and the Asia/Pacific region. These organizations contributed 46 percent,
38 percent, and 16 percent of Informix's net revenues, respectively, in 1994,
compared to 43 percent, 41 percent and 16 percent, respectively, in 1993, and 43
percent, 42 percent and 15 percent, respectively in 1992 (excluding the RCAS
revenue in North America).
COST OF SOFTWARE DISTRIBUTION
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Manufactured cost of software distribution......... $ 16.9 13% $ 14.9 (6)% $ 15.8
Percentage of license revenue.................... 5% 5% 7%
Amortization of capitalized software............... $ 7.8 50% $ 5.2 (8)% $ 5.7
Percentage of license revenue.................... 2% 2% 2%
-- --
----- ----- -----
Cost of software distribution...................... $ 24.7 23% $ 20.1 (7)% $ 21.5
Percentage of license revenue.................... 7% 7% 9%
</TABLE>
Excluding amortization of previously capitalized software development costs,
costs of software distribution as a percentage of license revenue declined to 5
percent in 1994 and in 1993 from 7 percent in 1992. The decreases as a
percentage of license revenue are the result of the recording of several large
contracts which have low associated costs of software distribution since these
customers generally manufacture the software themselves, as well as cost
reduction programs implemented by Informix in 1992 and 1993.
The increase in amortization of capitalized software in 1994 resulted from
the release of several products in the second half of 1994. The decrease of
amortization of capitalized software in absolute dollars in 1993 was due to
several projects being fully amortized in early 1992.
COST OF SERVICES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cost of services................................... $ 46.0 40% $ 32.9 23% $ 26.8
Percentage of service revenue.................... 44% 48% 58%
</TABLE>
The decreases in cost of services as a percentage of service revenue in both
1994 and 1993, compared to their corresponding prior year periods, are primarily
due to higher growth in maintenance revenues, derived from product update rights
and technical support, than in maintenance expenses, primarily related to
technical customer support.
SALES AND MARKETING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Sales and marketing................................ $ 200.5 46% $ 137.7 37% $ 100.4
Percentage of net revenue........................ 43% 39% 36%
</TABLE>
C-9
<PAGE>
The increase in sales and marketing expenses, in absolute dollars and as a
percentage of net revenues, in 1994 and 1993 compared to their corresponding
prior year periods, was a result of increased sales personnel worldwide as
Informix expanded its investment in the worldwide direct sales organizations,
opening of new subsidiaries, acquisition of several foreign distributors, higher
commission expense associated with the increase in revenues, and increased
marketing programs associated with new product launches. Excluding RCAS revenue
and associated expenses in 1992, sales and marketing expenses were 37 percent of
net revenues.
RESEARCH AND DEVELOPMENT EXPENSES
In accordance with FAS 86, Informix's research and development expenses
exclude capitalized software costs of $13.6 million in 1994, $8.6 million in
1993, and $5.0 million in 1992, and exclude amortization costs of previously
capitalized software (see Note 1 of Notes to Consolidated Financial Statements).
The following table summarizes research and development costs for the prior
three years:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Incurred product development costs................. $ 74.0 42% $ 52.2 54% $ 33.5
Expenditures capitalized........................... (13.6) 58% (8.6) 70% (5.0)
----- ----- -----
Research and development expenses.................. $ 60.4 39% 43.6 51% $ 28.5
Percentage of net revenues....................... 13% 12% 11%*
Expenditures capitalized as % of incurred.......... 18% n/a 17% n/a 15%
</TABLE>
- ------------------------
* Excludes RCAS license revenue in 1992.
The increase in research and development expenditures in absolute dollars
and as a percentage of net revenues from year to year was attributed to
increased personnel and consultants working on new products and product
extensions.
The proportion of capitalized expenditures as a percentage of total incurred
expenses increased from year to year as several major projects in development
had reached technological feasibility. Informix expects the proportion of work
on capitalized projects in 1995 as a percentage of net revenues to remain
relatively stable compared to 1994 as other major new products reach
technological feasibility in 1995, and capitalization of the related software
development costs begins.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
General and administrative expenses................ $ 34.5 4% $ 33.2 3% $ 32.2
Percentage of net revenues....................... 7% 10.0% 11%
</TABLE>
General and administrative expenses in 1994 remained relatively flat with
1993 and 1992 in absolute dollars. Excluding the RCAS contract, general and
administrative expenses were 12 percent of net revenues in 1992. The slight
increase in absolute dollars from year to year was primarily due to an increase
in the costs of supporting Informix's international operations as new
subsidiaries and branch offices were established and existing subsidiaries were
expanded.
LITIGATION SETTLEMENT
In 1992, a charge of $10.5 million was taken for the settlement of the
securities class action lawsuit filed against Informix and certain of its
officers and directors in 1988. The settlement, which was completed in May 1993,
does not constitute an admission of liability or wrongdoing on the part of
C-10
<PAGE>
Informix or on the part of any of its current or former officers and directors.
The settlement represents a decision by Informix's Board of Directors that a
settlement at the time was in the best interest of Informix and its
stockholders.
INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Interest income.................................... $ 3.8 (2)% $ 3.9 95% $ 2.0
Percentage of net revenues....................... 1% 1% 1%
</TABLE>
Interest income in 1994 remained flat compared with 1993 despite higher cash
and investments as Informix invested a large percentage of its cash and
investments in tax-exempt securities. The increase in absolute dollars from 1992
to 1993 resulted from higher balances of cash and cash equivalents and
short-term investments.
INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- --------------- ------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Interest expense................................... $ 0.4 2% $ 0.4 (84)% $ 2.3
Percentage of net revenues......................... 0% 0% 1%
</TABLE>
Interest expense in 1994 and 1993 consists principally of interest expense
on capital leases of certain computer and office equipment. Interest expense in
1992 consists primarily of interest expense on convertible debentures and
capital leases of certain computer and office equipment. The decrease from 1992
to 1993 resulted primarily from the call for redemption of the convertible
debentures in the fourth quarter of 1992.
OTHER EXPENSE, NET
Informix recognized net other expense of $2.6 million, $1.3 million, and
$1.4 million in 1994, 1993 and 1992, respectively. In 1994, net other expense
primarily consisted of foreign exchange losses, net, and expenses related to
Informix's financing programs for accounts receivable. In 1993, net other
expense primarily consisted of foreign exchange losses, net, partially offset by
a reversal of a liability which was determined to be no longer necessary,
related to a real estate partnership. In 1992, net other expense consisted of
foreign exchange losses, net, partially offset by a gain on a sale of an
investment.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN MILLIONS) 1994 CHANGE 1993 CHANGE 1992
- --------------------------------------------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Provision for income taxes......................... $ 37.2 18% $ 31.6 127% $ 13.9
Effective tax rate................................. 36.0% 36.0% 22.6%
</TABLE>
Informix's effective tax rate increased to 36.0 percent of pretax income in
1994 and 1993 from 22.6 percent in 1992. This increase resulted from net
operating loss and tax credit carryovers which were substantially utilized in
1992 and the 1.0 percent increase in the U.S. federal income tax rate in 1993.
Informix's effective tax rate for fiscal years 1994 and 1993 is less than the
combined federal and state statutory rate primarily due to the federal research
and development credit and the permanent reinvestment offshore of a portion of
the earnings of Informix's lower-taxed Irish operations. The amount considered
permanently invested in the Irish operations may very from year to year and may
affect Informix's effective tax rate.
C-11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
NINE MONTHS ENDED YEAR ENDED
------------------------ ----------------------------
OCTOBER 1, OCTOBER 2, DECEMBER 31, DECEMBER 31,
1995 1994 1994 1993
----------- ----------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents and investments.......... $ 220.8 $ 162.5 $ 196.0 $ 143.5
Working capital.................................... 196.0 160.3 194.5 156.0
Cash provided by operations........................ 103.5 72.4 114.5 64.8
Cash used in investment activities, excluding
investments of excess cash........................ 99.3 38.9 51.4 36.7
Cash provided by (used in) financing activities.... 16.3 (15.7) (10.8) (3.5)
</TABLE>
Cash generated by operations provided sufficient resources to fund
Informix's headcount growth and capital asset needs in all periods presented.
The increase in net cash and cash equivalents provided by operations in the
first nine months of 1995 compared with the same period in 1994 was primarily
attributable to higher income before depreciation and amortization charges.
The increase in cash and cash equivalents provided by operations in 1994
compared with 1993 was due mainly to higher income before depreciation and
amortization charges, increased accounts payable and accrued expenses, and the
litigation settlement payment in 1993, partially offset by an increase in
accounts receivable.
Accounts receivable increased by $23.2 million in 1994 and by $45.4 million
in 1993, principally as a result of increased sales. Days sales outstanding
decreased to 79 days in the fourth quarter of 1994 from approximately 97 days in
the fourth quarter of 1993.
Net accounts receivable increased by $40.3 million in the first nine months
of 1995 as compared to the fourth quarter of 1994, principally as a result of
higher sales partially offset by strong collections and the use of third party
financing programs. Days sales outstanding was 86 at October 1, 1995 compared
with 79 at December 31, 1994. Commencing in late 1993, Informix instituted
programs to have third-party financial institutions provide financing for
extended credit terms instead of such terms being provided by Informix. The days
sales outstanding ratio is dependent on many factors, including the mix of
contract-based revenue with significant OEMs and large corporate and government
end-users versus revenue recognized on shipments to application vendors and
distributors and the success of Informix's financing programs. Although a large
portion of Informix's revenues are derived from resellers, Informix's revenues
since 1993, particularly in Europe, have shifted substantially from distributors
to direct end-users. These end-user sales contracts frequently bear extended
payment terms which result in an increase in days sales outstanding ratios
unless the contracts are financed. The aforementioned shift in distributor
channels is likely to continue as products and markets mature. Informix is using
a variety of activities to reduce the days sales outstanding ratio. In the
future, Informix expects this ratio to vary within the range which prevailed in
the last nine months; however, there is no assurance that it will do so.
Excluding investments of excess cash, net cash and cash equivalents used in
investing activities increased in 1994 compared to 1993 and also increased in
the first nine months of 1995 in the first nine months of 1995 and 1994,
respectively. During the years ended Informix acquired $36.0 million and $19.7
million, respectively, of capital equipment consisting primarily of computer
equipment, computer software and office equipment and in 1994 and 1993, Informix
acquired $25.2 million and $22.1 million, respectively of capital equipment. The
increase of capital equipment purchases in the first nine months of 1995
resulted from Informix's growing employee headcount, the replacement of
C-12
<PAGE>
obsolete equipment and investment in new technology. In the future, Informix
anticipates the actual level of capital spending will be dependent on a variety
of factors, including Informix's business requirements and general economic
conditions.
In January 1995, Informix acquired a 90 percent interest in the database
division of ASCII Corporation, a distributor of its products in Japan. Informix
will acquired the remaining 10 percent interest in January 1996. Informix
accounted for the acquisition as a purchase. The purchase price of ASCII's
database division was approximately $46.0 million, of which $34.8 million has
been allocated to intangible assets acquired.
In April 1995, Informix acquired an 80 percent interest in the database
division of Daou Corporation, a distributor of its products in Korea. Informix
will acquire the remaining 20 percent by January 1997. The acquisition was
recorded as a purchase. The purchase price of this business was approximately
$4.3 million, of which approximately $4.0 million has been allocated to
intangible assets acquired.
In October 1995, Informix acquired Stanford Technology Group ("STG"), a
U.S.-based company that provides on-line analytical processing technology, in
exchange for approximately 570,000 shares of its common stock. The transaction
will be accounted for as a pooling of interests.
Net cash and cash equivalents provided by or used in, financing activities
in 1994 and 1993 included payments on capital leases and the repurchase of
Informix's common stock offset by proceeds from the sale of Informix's common
stock to employees.
Net cash and cash equivalents provided by financing activities in the first
nine months of 1995 consisted primarily of proceeds from the sale of Informix's
common stock to employees, partially offset by payments on capital leases. Net
cash and cash equivalents used in financing activities in the first nine months
of 1994 included repurchases of Informix's common stock and payments on capital
leases, partially offset by proceeds from the sale of Informix's common stock to
employees.
In June 1995, the Board of Directors authorized a two-for-one stock split of
Informix's common stock, effected in the form of a stock dividend. Through
December 31, 1994, Informix had repurchased 3,580,000 shares with an aggregate
cost of approximately $32.1 million on the open market under a plan authorized
by the Board of Directors in 1994. No repurchases have been made in 1995.
Informix expects that current balances of cash, cash equivalents and
short-term investments will be sufficient to fund anticipated levels of
operations at least through 1996 and may be used for investments and
acquisitions to supplement internal revenue growth and for other corporate
purposes.
C-13
<PAGE>
ANNEX D
INFORMIX MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The executive officers and directors of Informix and their ages as of
January 1, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------
<S> <C> <C>
Phillip E. White 53 Chairman of the Board of Directors,
President and Chief Executive Officer
Mike Saranga 58 Senior Vice President, Product Management
and Development
Howard H. Graham 48 Senior Vice President, Finance and Chief
Financial Officer
D. Kenneth Coulter 51 Senior Vice President, International
Edwin C. Winder 46 Senior Vice President, Japan Operations
Ronald M. Alvarez 46 Vice President, Americas Sales
Richard C. Blass 41 Vice President, Corporate Controller
Margaret R. Brauns 41 Vice President and Treasurer
Ira H. Dorf 55 Vice President, Human Resources
James F. Hendrickson, Jr. 56 Vice President, Customer Services and
Lenexa Site Manager
Stephen E. Hill 37 Vice President, Advanced Technology
Jeffrey V. Hudson 43 Vice President, Business Development
Steven R. Sommer 40 Vice President, Marketing
David H. Stanley 49 Vice President, Legal and Corporate
Services, General Counsel and Secretary
Albert F. Knorp, Jr. 60 Director
James L. Koch 51 Director
Thomas A. McDonnell 50 Director
Cyril J. Yansouni 53 Director
</TABLE>
Phillip E. White, 53, has been Informix's Chief Executive Officer and a
director since January 1989. He has held the additional office of President
since August 1990 and of Chairman since December 1992. Mr. White also serves as
a director of Adaptec, Inc., a computer input/output technology company, and of
Legato Systems, a manufacturer and developer of network storage management
software products.
Mike Saranga, 58, joined Informix as Senior Vice President, Product
Management and Development in May 1993. Prior to joining Informix, Mr. Saranga
was employed by IBM for 30 years, most recently as Assistant General Manager of
Programming Systems, where Mr. Saranga developed IBM's technical and business
strategies for key technologies including client/server, distributed systems and
multimedia.
Howard H. Graham, 48, joined Informix in February 1990 as Vice President,
Finance and Chief Financial Officer and became Senior Vice President, Finance
and Chief Financial Officer in March 1991.
D-1
<PAGE>
D. Kenneth Coulter, 51, joined Informix in February 1988 as Managing
Director, UK. He became Senior Vice President, Europe, Middle East and Africa,
in April 1992. From January 1990 to April 1992, Mr. Coulter was Vice President,
Europe of Informix. He was named Senior Vice President, International in January
1996.
Edwin C. Winder, 46, joined Informix in February 1990. Since joining
Informix, Mr. Winder has held a variety of executive positions in sales,
marketing and customer service. He is currently Informix's Senior Vice
President, Japan Operations.
Ronald M. Alvarez, 46, rejoined Informix in December 1991 as Director of
Latin America Operations. He was promoted to Executive Director, Latin America
Operations in March 1993, and to Vice President, Latin America in May 1995. He
was appointed to his current position of Vice President, Americas Sales in
January 1996. From August 1991 to December 1991, Mr. Alvarez occupied a sales
position at MarketMax, a provider of software and data feeds for the financial
community. From May 1988 to August 1991, Mr. Alvarez was a District Manager in
the Informix U.S. sales organization.
Richard C. Blass, 41, joined Informix in February 1985 as Controller and
became Vice President, Corporate Controller in February 1988.
Margaret R. Brauns, 41, became Vice President and Treasurer of Informix in
November 1992. Ms. Brauns joined Informix as Treasurer in May 1990. From
February 1988 to May 1990, she served as Treasurer at Wyse Technology
Incorporated.
Ira H. Dorf, 55, joined Informix as Vice President, Human Resources in
October 1989.
James F. Hendrickson, Jr., 56, joined Informix as Vice President, Customer
Services in July 1992. In February 1995, Mr. Hendrickson assumed the additional
responsibility of Lenexa Site Manager. Prior to joining Informix, Mr.
Hendrickson was Senior Vice President of Marketing at Image Business Systems
from 1991. From 1988 to 1990, Mr. Hendrickson worked as Executive Vice President
of Development at International Customer Solutions, Inc.
Stephen E. Hill, 37, joined Informix in December 1985, and has served the
Company in a variety of strategic planning, development and marketing positions.
Mr. Hill currently serves as Vice President, Advanced Technology.
Jeffrey V. Hudson, 43, joined Informix in June 1995 as Vice President,
Business Development. From December 1993 to January 1995, Mr. Hudson was
President and Chief Executive Officer of Visioneer Communications, Inc. From
June 1989 to December 1993, he was Vice President, Sales, Marketing and Service
for Netframe Systems, Inc.
Steven R. Sommer, 40, joined Informix as Vice President, Marketing in May
1993. Mr. Sommer was employed by Cognos, Inc., an application development tools
software company, from February 1990 to March 1993. At Cognos, Inc., Mr. Sommer
had responsibility for world-wide marketing as Vice President of Corporate
Marketing and Vice President of Marketing Operations.
David H. Stanley, 49, joined Informix as Vice President, Legal, General
Counsel and Assistant Secretary in July 1988. In August 1990, Mr. Stanley was
elected to the additional office of Secretary. In March 1995, Mr. Stanley
assumed the additional responsibility for corporate services and became Vice
President, Legal and Corporate Services, General Counsel and Secretary.
Albert F. Knorp, Jr., 60, became a director of Informix in 1984, and has
served as Assistant Secretary of Informix since 1985. Mr. Knorp has been of
counsel to the law firm of Gray Cary Ware & Freidenrich since November 1994. He
had previously been a partner in the law firm of Lewis, Knorp, Walsh & Kavalaris
since its formation in November 1990. Mr. Knorp serves as Chairman of the
Nominating Committee and as a member of the Audit and Compensation Committees.
James L. Koch, 51, became a director of Informix in July 1991. Mr. Koch has
served as Dean of the Leavey School of Business & Administration at Santa Clara
University since July 1990. He served as
D-2
<PAGE>
Manager of the Organization Planning and Development Department of Pacific Gas
and Electric Company, a public utility, in San Francisco from January 1981 to
July 1990. Mr. Koch serves as a member of the Audit and Compensation Committees.
Thomas A. McDonnell, 50, became a director of Informix in February 1988. He
has served as Chief Executive Officer of DST Systems, Inc. ("DST"), a transfer
agent for mutual funds, stocks and bonds, since October 1984 and as a director
of DST since 1971. He has served as President of DST from 1973 until October
1984 and from March 1987 to the present, and was its Treasurer from 1973 to
September 1995. Mr. McDonnell was Executive Vice President of Kansas City
Southern Industries, Inc. ("KCSI"), a holding company and parent of DST, from
August 1983 to November 1995 and was a director of KCSI from August 1983 to
November 1995. Mr. McDonnell is also director of BHA Group, Inc., a manufacturer
of pollution control devices, The Continuum Company, a software provider to the
insurance industry, First of Michigan Capital Corporation, a broker/dealer, and
Nellcor-Puritan-Bennett Corporation, a medical device company. Mr. McDonnell
serves as Chairman of the Audit Committee and as a member of the Compensation
Committee and the Nominating Committee.
Cyril J. Yansouni, 53, became a director of Informix in 1991. Mr. Yansouni
is the Chief Executive Officer and Chairman of Read-Rite Corporation, a
manufacturer of thin film magnetic recording heads. Prior to joining Read-Rite
Corporation in March 1991, Mr. Yansouni was with Unisys Corporation, a
world-wide electronics-based information systems company, from December 1988 as
its Executive Vice President and President of the Computer Systems Product
Group. Mr. Yansouni is also a director of PeopleSoft, Inc., a software company,
and Raychem Corporation, an international manufacturer and marketer of products
for electronics, industrial and telecommunications applications. Mr. Yansouni
serves as Chairman of the Compensation Committee and as a member of the Audit
Committee.
There is no family relationship between any director or executive officer of
Informix.
D-3
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by
Informix's Chief Executive Officer and Informix's four other most highly
compensated executive officers for services rendered to Informix during the
fiscal years ended December 31, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#)(1) ($)
- --------------------------------- --------- --------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Phillip E. White 1995 421,667 400,000 250,000 4,256(2)
Chairman, President and 1994 387,000 300,000 100,000 3,000
Chief Executive Officer 1993 363,666 315,000 190,000 2,500
Howard H. Graham 1995 244,333 200,000 120,000 3,363(3)
Sr. Vice President, Finance 1994 226,667 130,000 50,000 2,406
and Chief Financial 1993 210,500 152,800 60,000 1,870
Officer
D. Kenneth Coulter (4) 1995 227,100 194,102 60,000 3,226(5)
Sr. Vice President, 1994 210,082 128,622 35,000 25,494
International 1993 171,592 166,227 50,000 22,686
Mike Saranga (6) 1995 229,333 168,000 130,000 5,525(7)
Sr. Vice President, 1994 212,000 150,000 40,000 3,844
Product Management and 1993 127,308 193,000 160,000 1,406
Development
Edwin C. Winder 1995 206,667 145,725 50,000 3,363(8)
Sr. Vice President, 1994 193,750 126,142 30,000 2,406
Japan Operations 1993 172,449 154,188 40,000 1,531
</TABLE>
- ------------------------
(1)
Adjusted to give effect to the two-for-one stock split effected in the form
of a stock dividend in June 1995.
(2)
Includes $2,256 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
(3)
Includes $1,363 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
(4)
Adjusted to US dollar equivalents based on foreign exchange rates on
December 31, 1995, 1994 and 1993, respectively.
(5)
Includes $969 for group paid life insurance paid by Informix and $2,257
paid into a pension plan for Mr. Coulter.
(6)
Mr. Saranga became an employee and an executive officer of Informix in May
1993.
(7)
Includes $3,525 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
(8)
Includes $1,363 for group paid life insurance paid by Informix and $2,000
for a 401K Plan corporate matching contribution.
D-4
<PAGE>
EMPLOYEE STOCK PLANS
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE TERM (3)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($)
- ---------------------------- -------------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Phillip E. White (4) 250,000 6.6122 18.25 4/18/2005 2,869,332 7,271,450
Howard H. Graham (4) 120,000 3.1738 18.25 4/18/2005 1,377,279 3,490,296
D. Kenneth Coulter 60,000 1.5869 18.25 4/18/2005 688,640 1,745,148
Mike Saranga 130,000 3.4383 18.25 4/18/2005 1,492,053 3,781,154
Edwin C. Winder 50,000 1.3224 18.25 4/18/2005 573,866 1,454,290
</TABLE>
- ------------------------
(1) Options granted in 1995 are exercisable starting 12 months after the grant
date, with 25% of the shares becoming exercisable at that time and with an
additional 25% of the option shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date. Under the terms of the option plan, the Compensation Committee retains
discretion, subject to plan limits, to modify the terms of outstanding
options. The options were granted for a term of ten years, subject to
earlier termination in certain events related to termination of employment.
The number of shares shown has been adjusted to give effect to the
two-for-one stock split effected in the form of a stock dividend in June
1995.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(3) The 5% and the 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent Informix's
estimate or projection of the future Common Stock price. Of course, the
actual realizable value of the stock options will depend on the appreciation
of the stock price and the executive officer's continued employment with
Informix through the applicable vesting periods of the stock options.
(4) The terms of the stock options granted to Messrs. White and Graham in 1995
and prior years provide that such stock options shall become fully vested
and immediately exercisable in the event of a change in control of Informix.
A change in control of Informix is defined as a sale or exchange of
securities by the stockholders of Informix, a merger involving Informix or a
sale of all or substantially all of the assets of Informix, wherein the
stockholders of Informix immediately before the sale or exchange, merger or
sale of assets do not retain, directly or indirectly, at least a majority of
the beneficial interests in the voting securities of (i) Informix, in the
event of a sale or exchange, (ii) the resultant corporation, in the event of
a merger, or (iii) the transferee corporation or corporations, in the event
of a sale of assets.
D-5
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR
SHARES YEAR-END (#) END ($)(1)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE (#)(2) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- -------------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Phillip E. White 266,000 5,597,868 770,000 790,000 19,181,536 15,654,990
Howard H. Graham 175,000 3,019,621 50,000 305,000 1,175,625 5,700,310
D. Kenneth Coulter 117,500 2,592,981 150,000 212,500 3,641,012 4,275,310
Mike Saranga 120,000 2,180,308 0 350,000 0 6,112,492
Edwin C. Winder 50,000 1,107,410 195,000 165,000 5,300,618 3,247,186
</TABLE>
- ------------------------
(1) Market value of the underlying securities at exercise date or year-end, as
the case may be, minus the exercise price.
(2) The number of shares shown has been adjusted to give effect to the
two-for-one stock split effected in the form of a stock dividend in June
1995.
COMPENSATION OF DIRECTORS
For the fiscal year ended December 31, 1995, Informix paid all outside
directors as follows: $1,000 for each Board meeting attended; $500 for each
meeting of the Audit and Compensation Committees attended; and $2,000 per
quarter. For the fiscal year ending December 31, 1996, the outside directors
will continue to receive the same compensation as they received in 1995.
Informix reimburses directors for travel expenses associated with attending
board meetings. From time to time, Informix may invite the directors' spouses to
accompany the directors to a board meeting. When invited, Informix also pays the
travel expenses incurred by the spouses. In 1995, these spousal travel expenses
were less than $5,000 per director. In addition, the outside directors receive
options to acquire shares of Informix's Common Stock under the Informix 1989
Outside Directors Stock Option Plan (see the "Outside Directors Stock Option
Plan"). Employee directors did not in 1995, and will not in 1996, receive any
additional compensation for serving as a director.
OUTSIDE DIRECTORS STOCK OPTION PLAN
At the 1990 Annual Meeting of Stockholders, the stockholders approved the
adoption of the Informix 1989 Outside Directors Stock Option Plan (the
"Directors Option Plan"). Only directors who are not employees of Informix or
any Informix or subsidiary corporations of Informix are eligible to be granted
options under the Directors Option Plan. The Directors Option Plan is
administered by a committee appointed by the Board of Directors of Informix,
which currently is all of the members of the Board. Options for 15,000 shares of
stock are granted automatically upon election or re-election to the Board of
Directors.
Options granted under the Directors Option Plan are evidenced by written
agreements specifying the number of shares of stock covered thereby and the
option price, which price shall be the fair market value of the shares as of the
date of grant of the option. No option may be exercised after the expiration of
ten years from the date the option is granted. All options must be granted, if
at all, no later than May 2009. A total of 1,600,000 shares of Common Stock of
Informix (subject to adjustment in the event of certain changes in the capital
structure of Informix) may be issued under the Directors Option Plan.
In 1995, Messrs. Koch and McDonnell were each granted an option for 30,000
shares upon re-election to the Board which vests pro-rata over a three year
period from the date of grant. The number of shares included in such grants has
been adjusted to give effect to the two-for-one stock split effected in the form
of a stock dividend in June 1995. Options issued to terminated directors lapse
30 days after termination as a director and unexercised shares subject to those
options are returned to the share reserve and become available for future stock
option grants.
D-6
<PAGE>
Options may be exercised by payment of the option price in cash, check or
cash equivalent. All options granted under the Directors Option Plan shall be
nonqualified stock options, that is options which do not meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended. Options are
non-assignable and non-transferable and may be exercised only by the optionee.
In the event of a transfer of control or the dissolution of Informix, the
optionee shall have 30 days within which to exercise the options to the extent
of all or any part of the shares subject to such options.
The Board may terminate or amend the Directors Option Plan at any time, but
without the approval of stockholders, the Board may not amend the Directors
Option Plan to increase the number of shares subject thereto or to change the
class of persons eligible to receive options thereunder.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following individuals served as members of the Compensation Committee of
the Informix Board of Directors: Albert F. Knorp, Jr., James L. Koch, Thomas A.
McDonnell and Cyril J. Yansouni. Mr. Knorp also served as an Assistant Secretary
of Informix during the fiscal year ended December 31, 1995 and continues to
serve in such capacity. Mr. Knorp is of counsel to the law firm of Gray Cary
Ware & Freidenrich, which provided legal services to Informix in 1995 in
connection with corporate and licensing matters. Thomas A. McDonnell is the
President, Chief Executive Officer and a director of DST Systems, Inc. ("DST").
Affiliates of DST paid approximately $500,000 to Informix in 1995 for products
and services.
CERTAIN TRANSACTIONS
In June 1993, Informix made a loan in the principal amount of $150,000 to
Mr. Saranga, Senior Vice President, Product Management and Development, in
connection with his accepting employment by Informix. The loan is secured by a
second deed of trust on property acquired by Mr. Saranga in California and was
originally due and payable in full on the earliest of June 2, 1995, the date Mr.
Saranga sold his Connecticut property or the date Mr. Saranga's employment with
Informix was terminated. In June 1995, Mr. Saranga and Informix amended the loan
to increase the interest rate of 3.56% per annum to 6.55% per annum and to
provide that $30,000 of principal, and accrued interest, will be forgiven on
June 2, 1996 and each anniversary thereafter provided Mr. Saranga remains an
employee of Informix. The loan continues to provide that the full amount of
unpaid principal and accrued interest will become immediately due and payable on
the date Mr. Saranga's employment with Informix is terminated for any reason.
Mr. Knorp, a director of Informix, is of counsel to the law firm of Gray
Cary Ware & Freidenrich, which provided legal services to Informix in 1995 in
connection with corporate and licensing matters.
Thomas A. McDonnell, a director of Informix, is the President, Chief
Executive Officer and a director of DST. Affiliates of DST paid approximately
$500,000 to Informix in 1995 for products and services.
D-7
<PAGE>
ANNEX E
INFORMIX STOCK INFORMATION
INFORMIX PRINCIPAL STOCKHOLDERS
The following table contains information regarding the ownership of the
Common Stock of Informix as of December 31, 1995, by all persons who, to the
knowledge of Informix, were the beneficial owners of 5% or more of the
outstanding shares of Common Stock of Informix, each director of Informix, the
Chief Executive Officer and each of the four other most highly compensated
executive officers, and all current directors and executive officers of Informix
as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE APPROXIMATE PERCENT
BENEFICIAL OF COMMON STOCK
NAME OWNERSHIP (1) OUTSTANDING
- ----------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
D. Kenneth Coulter (2)..................................... 157,738 *
Howard H. Graham (3)....................................... 54,222 *
Albert F. Knorp, Jr........................................ 133,180 *
James L. Koch (4).......................................... 78,000 *
Thomas A. McDonnell (5).................................... 120,000 *
Mike Saranga............................................... 899 *
Phillip E. White (6)....................................... 781,157 *
Edwin C. Winder (7)........................................ 207,316 *
Cyril J. Yansouni (8)...................................... 20,000 *
All current directors and executive officers as a group (18
persons) (9).............................................. 2,257,708 1.7%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares.
(1)
To Informix's knowledge, the persons named in the table under "Directors
and Executive Officers" have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them, subject
to community property laws where applicable.
(2)
Includes 150,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(3)
Includes 50,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(4)
Includes 76,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(5)
Includes 80,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(6)
Includes 770,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(7)
Includes 195,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(8)
Includes 20,000 shares subject to options currently exercisable or
exercisable within 60 days of December 31, 1995.
(9)
See footnotes 2-8. Also includes, 672,528 shares subject to options held by
executive officers and currently exercisable or exercisable within 60 days
of December 31, 1995.
E-1
<PAGE>
INFORMIX STOCK PRICE AND DIVIDEND INFORMATION
Informix Common Stock has been traded on Nasdaq under the symbol "IFMX"
since Informix's initial public offering on September 24, 1986. The following
table sets forth the range of high and low closing prices for the Informix
Common Stock as reported on Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1994*
First Quarter.................................................................... $ 12.06 $ 8.00
Second Quarter................................................................... 11.06 7.25
Third Quarter.................................................................... 13.88 7.94
Fourth Quarter................................................................... 16.06 11.88
Fiscal 1995*
First Quarter.................................................................... 19.63 14.63
Second Quarter................................................................... 25.94 17.06
Third Quarter.................................................................... 34.00 25.25
Fourth Quarter................................................................... 33.00 24.13
Fiscal 1996
First Quarter (through February 5, 1996)......................................... 33.38 26.88
</TABLE>
- ------------------------
* The prices shown prior to June 26, 1995 reflect a two-for-one stock split
effected in the form of a stock dividend as of that date.
Informix has not paid any dividends since its inception and does not intend
to pay any dividends in the foreseeable future.
At December 31, 1995, there were approximately 1,763 stockholders of record.
E-2
<PAGE>
ANNEX F
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Combined Condensed Financial Statements
assume a business combination between Informix and Illustra accounted for on a
pooling-of-interests basis and are based on Informix's historical consolidated
financial statements and notes thereto, not included herein, and Illustra's
historical consolidated financial statements and notes thereto, not included
herein. The Pro Forma Combined Condensed Balance Sheet combines Informix's
consolidated condensed balance sheet as of October 1, 1995 with Illustra's
consolidated condensed balance sheet as of September 30, 1995, giving effect to
the Merger as if it had occurred on October 1, 1995. The unaudited Pro Forma
Combined Condensed Statements of Income combine Informix's historical results
for the nine months ended October 1, 1995 and October 2, 1994 and the years
ended December 31, 1994 and 1993 with Illustra's historical results for the nine
months ended September 30, 1995 and 1994, the twelve months ended December 31,
1994 and the period from July 31, 1992 (inception) to June 30, 1993,
respectively, giving effect to the Merger as if it had occurred at the beginning
of the earliest period presented. Since Illustra's inception date was during its
fiscal year ended June 30, 1993, the unaudited Pro Forma Combined Condensed
Statement of Income for the year ended December 31, 1992 is the same as
Informix's historical results for such period.
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
earliest period presented, nor is it necessarily indicative of future operating
results or financial position.
These Pro Forma Combined Condensed Financial Statements should be read in
conjunction with Informix's historical consolidated financial statements and
notes thereto, not included herein, and Illustra's historical consolidated
financial statements and notes thereto, not included herein.
F-1
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
ILLUSTRA
INFORMIX INFORMATION PRO FORMA
CORPORATION TECHNOLOGIES, COMBINED
OCTOBER 1, INC. SEPTEMBER OCTOBER 1,
1995 30, 1995 1995
----------- ---------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 123,291 $ 3,340 $ 126,631
Short-term investments............................................. 87,848 -- 87,848
Accounts receivable, net........................................... 171,807 2,395 174,202
Deferred taxes..................................................... 9,978 -- 17,969
Other current assets............................................... 20,933 215 21,148
----------- -------- -----------
Total current assets............................................. 413,857 5,950 427,798
Property and equipment, net.......................................... 67,189 2,793 69,982
Software costs, net.................................................. 34,815 -- 34,815
Deferred taxes....................................................... 7,651 -- 7,651
Long-term investments................................................ 9,702 -- 9,702
Intangible assets.................................................... 42,317 -- 42,317
Other assets......................................................... 18,615 89 18,704
----------- -------- -----------
Total assets..................................................... $ 594,146 $ 8,832 $ 610,969
----------- -------- -----------
----------- -------- -----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Accounts payable..................................... $ 24,187 $ 541 $ 24,728
Accrued expenses..................................... 30,416 348 36,764
Accrued employees compensation....................... 41,830 682 42,512
Income taxes payable................................. 47,275 -- 47,275
Deferred taxes....................................... 1,612 -- 1,612
Deferred revenue..................................... 61,568 4,622 66,190
Other current liabilities............................ 10,946 362 11,308
----------- ------------- ---------
Total current liabilities.......................... 217,834 6,555 230,389
Deferred taxes......................................... 14,595 -- 14,595
Other liabilities...................................... 1,330 484 1,814
Stockholders' equity:
Preferred stock...................................... -- 1 --
Common stock and additional paid-in capital.......... 157,948 21,178 179,127
Retained earnings (deficit).......................... 202,524 (19,384) 185,131
Unrealized gain on available-for-sale securities, net
of tax.............................................. 4,636 -- 4,636
Foreign currency translation adjustment.............. (4,721) (2) (4,723)
----------- ------------- ---------
Total stockholders' equity......................... 360,387 1,793 364,171
----------- ------------- ---------
Total liabilities and stockholders' equity....... $ 594,146 $ 8,832 $ 610,969
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
F-2
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ILLUSTRA
INFORMIX INFORMATION
CORPORATION NINE TECHNOLOGIES, INC. PRO FORMA COMBINED
MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 1, 1995 SEPTEMBER 30, 1995 OCTOBER 1, 1995
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenues:
Licenses........................................ $ 369,120 $ 2,279 $ 371,399
Services........................................ 122,795 612 123,407
---------- -------- ----------
491,915 2,891 494,806
Costs and expenses:
Cost of software distribution................... 24,975 172 25,147
Cost of services................................ 61,996 1,545 63,541
Sales and marketing............................. 210,824 4,450 215,274
Research and development........................ 57,717 4,315 62,032
General and administrative...................... 34,975 1,053 36,028
---------- -------- ----------
390,487 11,535 402,022
---------- -------- ----------
Operating income (loss)......................... 101,428 (8,644) 92,784
Interest income................................... 5,563 185 5,748
Interest expense.................................. (538) (66) (604)
Other expense, net................................ (56) -- (56)
---------- -------- ----------
Income (loss) before income taxes............... 106,397 (8,525) 97,872
Income taxes...................................... 39,898 -- 36,146
---------- -------- ----------
Net income (loss)................................. $ 66,499 $ (8,525) $ 61,726
---------- -------- ----------
---------- -------- ----------
Net income (loss) per share....................... $ 0.48 $ (0.65) $ 0.41
---------- -------- ----------
---------- -------- ----------
Weighted average number of common and common
equivalent shares outstanding.................... 138,238 13,142 150,041
---------- -------- ----------
---------- -------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
F-3
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ILLUSTRA
INFORMIX INFORMATION
CORPORATION NINE TECHNOLOGIES, INC. PRO FORMA COMBINED
MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 2, 1994 SEPTEMBER 30, 1994 OCTOBER 2, 1994
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenues:
Licenses........................................ $ 245,996 $ 474 $ 246,470
Services........................................ 72,633 434 73,067
---------- ------- ----------
318,629 908 319,537
Costs and expenses:
Cost of software distribution................... 16,741 55 16,796
Cost of services................................ 33,118 533 33,651
Sales and marketing............................. 134,807 2,455 137,262
Research and development........................ 43,897 2,807 46,704
General and administrative...................... 24,847 621 25,468
---------- ------- ----------
253,410 6,471 259,881
---------- ------- ----------
Operating income (loss)......................... 65,219 (5,563) 59,656
Interest income................................... 2,720 92 2,812
Interest expense.................................. (213) (47) (260)
Other expense, net................................ (1,539) -- (1,539)
---------- ------- ----------
Income (loss) before income taxes............... 66,187 (5,518) 60,669
Income taxes...................................... 23,827 -- 21,473
---------- ------- ----------
Net income (loss)................................. $ 42,360 $ (5,518) $ 39,196
---------- ------- ----------
---------- ------- ----------
Net income (loss) per share....................... $ 0.32 $ (0.62) $ 0.28
---------- ------- ----------
---------- ------- ----------
Weighted average number of common and common
equivalent shares outstanding.................... 134,188 8,859 141,772
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
F-4
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFORMIX ILLUSTRA INFORMATION
CORPORATION TECHNOLOGIES, INC. PRO FORMA COMBINED
YEAR ENDED TWELVE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994
------------------- -------------------- --------------------
<S> <C> <C> <C>
Net revenues:
Licenses...................................... $ 363,756 $ 905 $ 364,661
Services...................................... 104,941 510 105,451
---------- ------- ----------
468,697 1,415 470,112
Costs and expenses:
Cost of software distribution................. 24,669 104 24,773
Cost of services.............................. 45,986 813 46,799
Sales and marketing........................... 200,538 3,278 203,816
Research and development...................... 60,417 3,846 64,263
General and administrative.................... 34,526 844 35,370
---------- ------- ----------
366,136 8,885 375,021
---------- ------- ----------
Operating income (loss)....................... 102,561 (7,470) 95,091
Interest income................................. 3,847 123 3,970
Interest expense................................ (380) (61) (441)
Other expense, net.............................. (2,598) -- (2,598)
---------- ------- ----------
Income (loss) before income taxes............. 103,430 (7,408) 96,022
Income taxes.................................... 37,234 -- 34,074
---------- ------- ----------
Net income (loss)............................... $ 66,196 $ (7,408) $ 61,948
---------- ------- ----------
---------- ------- ----------
Net income (loss) per share..................... $ 0.49 $ (0.78) $ 0.43
---------- ------- ----------
---------- ------- ----------
Weighted average number of common and common
equivalent shares outstanding.................. 134,610 9,507 142,782
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
F-5
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ILLUSTRA
INFORMATION
TECHNOLOGIES, INC.
INFORMIX PERIOD FROM JULY
CORPORATION 31, 1992 PRO FORMA COMBINED
YEAR ENDED (INCEPTION) TO YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31,
1993 1993 1993
------------------- ------------------ --------------------
<S> <C> <C> <C>
Net revenues:
Licenses........................................ $ 284,338 $ -- $ 284,338
Services........................................ 68,577 200 68,777
---------- ------- ----------
352,915 200 353,115
Costs and expenses:
Cost of software distribution................... 20,077 -- 20,077
Cost of services................................ 32,944 150 33,094
Sales and marketing............................. 137,698 74 137,772
Research and development........................ 43,619 884 44,503
General and administrative...................... 33,188 556 33,744
---------- ------- ----------
267,526 1,664 269,190
---------- ------- ----------
Operating income (loss)......................... 85,389 (1,464) 83,925
Interest income................................... 3,943 24 3,967
Interest expense.................................. (371) -- (371)
Other expense, net................................ (1,282) -- (1,282)
---------- ------- ----------
Income (loss) before income taxes............... 87,679 (1,440) 86,239
Income taxes...................................... 31,564 -- 31,250
---------- ------- ----------
Net income (loss)................................. $ 56,115 $ (1,440) $ 54,989
---------- ------- ----------
---------- ------- ----------
Net income (loss) per share....................... $ 0.42 $ (0.46) $ 0.40
---------- ------- ----------
---------- ------- ----------
Weighted average number of common and common
equivalent shares outstanding.................... 135,202 3,101 137,827
---------- ------- ----------
---------- ------- ----------
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
F-6
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PERIODS COMBINED
The unaudited Pro Forma Combined Condensed Statements of Income combine the
historical statements of income of Informix for the nine months ended October 1,
1995 and October 2, 1994 and the fiscal years ended December 31, 1994 and 1993
with the historical statements of operations of Illustra for the nine months
ended September 30, 1995 and 1994, the twelve months ended December 31, 1994 and
the period from July 31, 1992 (inception) to June 30, 1993, respectively. Since
Illustra's inception date was during its fiscal year ended June 30, 1993, the
unaudited Pro Forma Combined Statement of Income for the year ended December 31,
1992 is the same as Informix's historical results for such period. Due to the
periods combined as described above, Illustra's net revenues of $152,000 and net
loss of $2,011,000 for the period July 1, 1993 to December 31, 1993 are not
included in the Pro Forma Combined Condensed Statements of Income.
NOTE 2. BASIS OF PRESENTATION
PRO FORMA OUTSTANDING INFORMIX COMMON STOCK
The maximum number of shares of Informix Common Stock to be issued in the
Merger (including Informix Common Stock to be reserved for issuance upon
exercise of Illustra's options and warrants to be assumed by Informix) in
exchange for the acquisition by Informix of all outstanding Illustra Capital
Stock and all outstanding options and warrants to acquire Illustra Capital Stock
will be 15,000,000 shares. Consequently, the Common Exchange Ratio will depend
on the capitalization of Illustra at the Effective Time. Assuming that all
shares of Illustra Preferred Stock are converted to shares of Illustra Common
Stock prior to the Effective Time, and further assuming that the capitalization
of Illustra at the Effective Time is in all other respects identical to the
capitalization as of September 30, 1995, the Common Exchange Ratio would be
0.82685 of a share of Informix Common Stock for each outstanding share of
Illustra Common Stock. Such Common Exchange Ratio was used in preparing the pro
forma combined financial data and the following table which provides the pro
forma share issuance in connection with the Merger:
<TABLE>
<S> <C>
Illustra Common Stock outstanding at September 30, 1995 (assuming
conversion of all outstanding Illustra Preferred Stock).............. 14,344,299
Common Exchange Ratio................................................. 0.82685
-----------
Number of shares of Informix Common Stock exchanged for Illustra
Common Stock......................................................... 11,860,603
Number of shares of Informix Common Stock exchanged for rights of
Series C Preferred Stock of Illustra................................. 174,557
-----------
Total number of shares of Informix Common Stock exchanged............. 12,035,160
Number of shares of Informix Common Stock outstanding as of October 1,
1995................................................................. 134,520,180
-----------
Number of shares of Informix Common Stock outstanding after completion
of the Merger........................................................ 146,555,340
-----------
-----------
</TABLE>
The actual number of shares of Informix Common Stock to be exchanged for all
of the outstanding Illustra Common Stock will be determined at the Effective
Time based on the capitalization of Illustra at the Effective Time.
MERGER-RELATED EXPENSES
Informix and Illustra estimate that they will incur Merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other
F-7
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
related charges, of approximately $6.0 million. This estimate is preliminary and
is therefore subject to change. These nonrecurring expenses will be charged to
operations in the fiscal quarter in which the Merger is consummated.
The Pro Forma Condensed Combined Balance Sheet gives effect to such expenses
as if they had been incurred as of October 1, 1995, but the Pro Forma Combined
Condensed Statements of Income do not give effect to such expenses.
PRO FORMA ADJUSTMENTS
Since Informix plans to file consolidated tax returns which will include
Illustra's operations subsequent to the Effective Time, pro forma adjustments
were made to reduce the valuation allowances previously provided by Illustra for
Illustra's net deferred tax assets related primarily to loss carryforwards
generated since its inception in July 1992. Informix has determined that
estimated combined future taxable income is sufficient to conclude that it is
more likely than not that such net deferred tax assets could be realized. As a
result, the Pro Forma Combined Condensed Financial Statements include pro forma
adjustments which reduced income tax expense by $3,752,000, $2,354,000,
$3,160,000 and $314,000 for the the nine months ended October 1, 1995 and
October 2, 1994 and the years ended December 31, 1994 and 1993, respectively,
and increased net deferred tax assets by $7,991,000 at October 1, 1995. Other
than for the Merger-related expenses as described above, there were no other pro
forma adjustments.
CONFORMING ADJUSTMENTS
No adjustments were required to conform the accounting policies of Illustra
and Informix. Certain amounts for Illustra have been reclassified to conform to
Informix's financial statements presentation.
NOTE 3. PRO FORMA NET INCOME PER SHARE
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive common stock equivalent shares of
Informix Common Stock and Illustra Common Stock and assumes conversion of all
outstanding Illustra Preferred Stock at the beginning of the earliest period
presented and further assumes a Common Exchange Ratio as of September 30, 1995
of 0.82685 of a share of Informix Common Stock for each outstanding share of
Illustra Common Stock and the issuance of 174,557 shares of Informix Common
Stock in satisfaction of certain rights retained by the former holders of Series
C Preferred Stock upon conversion of Series C Preferred Stock to Illustra Common
Stock. The actual number of shares of Informix Common Stock to be exchanged for
all of the outstanding Illustra Common Stock will be determined at the Effective
Time based on the capitalization of Illustra at the Effective Time.
Share and per share information applicable to prior periods for Informix has
been restated to reflect a two-for-one stock split (effected in the form of a
stock dividend) which was effective on June 26, 1995.
F-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INFORMIX CORPORATION
Dated: February 6, 1996 By: /s/ RICHARD C. BLASS
-----------------------------------
Richard C. Blass
VICE PRESIDENT, CORPORATE
CONTROLLER AND
CHIEF ACCOUNTING OFFICER
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFORMIX CORPORATION
INFORMIX DELAWARE, INC.
AND
ILLUSTRA INFORMATION TECHNOLOGIES, INC.
DATED AS OF DECEMBER 20, 1995
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of December 20, 1995 among Informix Corporation, a Delaware
corporation ("PARENT"), Informix Delaware, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Illustra Information
Technologies, Inc., a Delaware corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("COMPANY CAPITAL STOCK") and all outstanding
options, warrants and other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive shares of Common
Stock of Parent ("PARENT COMMON STOCK").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW")
and the California General Corporation Law ("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 and
as a wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION".
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California, unless another place or time is agreed to by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"CLOSING DATE". On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing a Certificate of Merger (or like instrument) with
the Secretary of State of the State of Delaware (the "CERTIFICATE OF MERGER"),
in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of Delaware of such filing being referred
to herein as the "EFFECTIVE TIME"). The parties currently intend that the
Closing Date will occur on or prior to February 29, 1996.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and
1
<PAGE>
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.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Certificate of Incorporation of Merger Sub shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
Illustra Information Technologies, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 MAXIMUM SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for issuance upon exercise of any of the Company's options
and warrants to be assumed by Parent) in exchange for the acquisition by Parent
of all outstanding Company Capital Stock and all unexpired and unexercised
options and warrants to acquire Company Capital Stock shall be 15,000,000 (the
"AGGREGATE SHARE NUMBER"). No adjustment shall be made in the number of shares
of Parent Common Stock issued in the Merger as a result of any cash proceeds
received by the Company from the date hereof to the Closing Date pursuant to the
exercise of options or warrants to acquire Company Capital Stock. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of the Company Capital Stock, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock of
the Company ("COMPANY COMMON STOCK") issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Common Stock
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled and
extinguished and be converted automatically into the right to receive that
number of shares of Parent Common Stock equal to the Common Exchange Ratio
(as defined in paragraph (i) below), upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.8, including, with respect to each whole share of Parent Common
Stock to be received, the right to receive one preferred share purchase
right (a "RIGHT") under Parent's Amended and Restated Preferred Shares
Rights Agreement dated as of September 12, 1991 and amended and restated as
of May 15, 1992 and July 25, 1995.
(b) CONVERSION OF COMPANY PREFERRED STOCK; TREATMENT OF CONVERTED SERIES
C PREFERRED STOCK.
(i) SERIES A PREFERRED STOCK. Each share of Series A Preferred
Stock of the Company ("SERIES A PREFERRED") issued and outstanding
immediately prior to the Effective Time (other than any shares of Series
A Preferred that are converted into shares of Company Common Stock
immediately prior to the Effective Time, any shares of Series A Preferred
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and be converted automatically into the right to receive
that number of shares of Parent Common Stock equal to the Series A
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Exchange Ratio (as defined in paragraph (i) below), upon surrender of the
certificate representing such share of Series A Preferred in the manner
provided in Section 1.8, including, with respect to each whole share of
Parent Common Stock to be received, one Right.
(ii) SERIES B PREFERRED STOCK. Each share of Series B Preferred
Stock of the Company ("SERIES B PREFERRED") issued and outstanding
immediately prior to the Effective Time (other than any shares of Series
B Preferred that are converted into shares of Company Common Stock
immediately prior to the Effective Time, any shares of Series B Preferred
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and be converted automatically into the right to receive
that number of shares of Parent Common Stock equal to the Series B
Exchange Ratio (as defined in paragraph (i) below), upon surrender of the
certificate representing such share of Series B Preferred in the manner
provided in Section 1.8, including, with respect to each whole share of
Parent Common Stock to be received, one Right.
(iii) SERIES C PREFERRED STOCK; TREATMENT OF CONVERTED SERIES C
PREFERRED STOCK.
(a) Each share of Series C Preferred Stock of the Company
("SERIES C PREFERRED") issued and outstanding immediately prior to
the Effective Time (other than any shares of Series C Preferred that
are converted into shares of Company Common Stock immediately prior
to the Effective Time, any shares of Series C Preferred to be
canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be
canceled and extinguished and be converted automatically into the
right to receive that number of shares of Parent Common Stock equal
to the Series C Exchange Ratio (as defined in paragraph (i) below),
upon surrender of the certificate representing such share of Series C
Preferred in the manner provided in Section 1.8, including, with
respect to each whole share of Parent Common Stock to be received,
one Right.
(b) The Certificate of Incorporation of the Company currently
provides that if and to the extent shares of Series C Preferred are
converted into shares of Company Common Stock prior to the date which
is ten business days after the Company first receives copies of its
audited financial statements for the 1996 fiscal year (the
"CONVERSION CALCULATION DATE"), the number of shares of Company
Common Stock that shall be deliverable upon conversion of a share of
Series C Preferred provisionally shall be deemed to be a fixed amount
(the "CONVERSION AMOUNT"), and the Conversion Amount shall be subject
to increase based on events that would be determinable on the
Conversion Calculation Date (the Company Common Stock that would
constitute an increase to the Conversion Amount per share of Series C
Preferred is hereinafter referred to as the "SERIES C ADDITIONAL
CONVERSION SHARE", and thus one right to receive a Series C
Additional Conversion Share would be outstanding for each share of
Series C Preferred that is converted into Company Common Stock prior
to the Conversion Calculation Date). Based on the foregoing, in the
event that the Effective Time occurs prior to the Conversion
Calculation Date, then by virtue of the Merger, each outstanding
right to receive a Series C Additional Conversion Share immediately
prior to the Effective Time will be canceled and extinguished and be
converted automatically into the right to receive that number of
shares of Parent Common Stock equal to the Additional Conversion
Share Exchange Ratio (as defined in paragraph (i) below), upon
surrender of a certificate (or other evidence reasonably satisfactory
to Parent or the Exchange Agent) representing such Series C
Additional Conversion Share in the manner provided in Section 1.8,
including, with respect to each whole share of Parent Common Stock to
be received, one Right.
(iv) SERIES D PREFERRED STOCK. Each share of Series D Preferred
Stock of the Company ("SERIES D PREFERRED; together with the Series A
Preferred, Series B Preferred and Series C
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Preferred, the "COMPANY PREFERRED STOCK") issued and outstanding
immediately prior to the Effective Time (other than any shares of Series
D Preferred that are converted into shares of Company Common Stock
immediately prior to the Effective Time, any shares of Series D Preferred
to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and be converted automatically into the right to receive
that number of shares of Parent Common Stock equal to the Series D
Exchange Ratio (as defined in paragraph (i) below), upon surrender of the
certificate representing such share of Series D Preferred in the manner
provided in Section 1.8, including, with respect to each whole share of
Parent Common Stock to be received, one Right.
(c) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each share of
Company Capital Stock owned by Merger Sub, Parent, the Company or any
direct or indirect wholly-owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(d) STOCK OPTIONS. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1992 Equity
Incentive Plan (the "OPTION PLAN"), or otherwise, shall be assumed by Parent
in accordance with provisions described below.
(i) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock (each a "COMPANY OPTION") under the Option Plan
or otherwise, whether vested or unvested, shall be, in connection with
the Merger, 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 Option Plan and/or as provided in
the respective option agreements governing such Company Option
immediately prior to the Effective Time, except that (A) such Company
Option shall be exercisable for that number of whole shares of Parent
Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Common Exchange
Ratio, rounded down (in the case of Company Options granted under the
Option Plan) to the nearest whole number of shares of Parent Common Stock
and (B) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Company Option shall 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 Common Exchange Ratio,
rounded up to the nearest whole cent.
(ii) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent the Company
Options qualified as incentive stock options immediately prior to the
Effective Time.
(iii) Promptly following the Effective Time, Parent will issue to each
holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(e) WARRANTS. Each warrant to purchase shares of Company Preferred
Stock outstanding at the Effective Time shall be, in connection with the
Merger, assumed by Parent. Each warrant so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the respective warrant agreements governing such
warrant immediately prior to the Effective Time, except that each such
warrant shall, following the Effective Time, be exercisable only for shares
of Parent Common Stock, in such number, and at such exercise price as is
determined by applying the appropriate Exchange Ratio in accordance with the
terms of the applicable warrant agreement.
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(f) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock 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 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.
(g) ADJUSTMENTS TO EXCHANGE RATIOS. The Exchange Ratios 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 Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time.
(h) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall be entitled to 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 closing
price of a share of Parent Common Stock for the five (5) consecutive trading
days ending on the trading day immediately prior to the Closing Date, as
reported on the Nasdaq National Market.
(i) DEFINITIONS.
(a) ADDITIONAL CONVERSION SHARE EXCHANGE RATIO. The "Additional
Conversion Share Exchange Ratio" shall mean the product of 0.25
multiplied by the Common Exchange Ratio.
(b) AGGREGATE ADDITIONAL CONVERSION SHARE NUMBER. The "Aggregate
Additional Conversion Share Number" shall mean the product of 0.25
multiplied by the aggregate number of shares of Series C Preferred that
shall have been converted into shares of Company Common Stock up to and
including immediately prior to the Effective Time.
(c) AGGREGATE PREFERRED NUMBER. The "Aggregate Preferred Number" shall
mean the sum of (w) the product obtained by multiplying the Outstanding
Series A Amount by the Series A Exchange Ratio, plus (x) the product
obtained by multiplying the Outstanding Series B Amount by the Series B
Exchange Ratio, plus (y) the product obtained by multiplying the Outstanding
Series C Amount by the Series C Exchange Ratio, plus (z) the product
obtained by multiplying the Outstanding Series D Amount by the Series D
Exchange Ratio.
(d) AGGREGATE SHARE NUMBER. The "Aggregate Share Number" shall be a
number of shares of Parent Common Stock equal to 15,000,000 shares (as
appropriately adjusted to reflect the effect of any stock split, stock
dividend, reorganization, recapitalization or the like with respect to the
Parent Common Stock occurring after the date hereof and prior to the
Effective Time).
(e) COMMON EXCHANGE RATIO. The "Common Exchange Ratio" shall mean the
quotient obtained by dividing (x) the Aggregate Share Number minus the
Aggregate Preferred Number, by (y) the sum of (A) the Outstanding Common
Amount plus (B) the Outstanding Option Amount plus (C) the Aggregate
Additional Conversion Share Number.
(f) ESCROW AMOUNT. The "Escrow Amount" shall be a number of shares of
Parent Common Stock obtained by multiplying (x) the Aggregate Share
Number minus the Outstanding Option Amount by (y) 0.10.
(g) EXCHANGE RATIOS. The "Exchange Ratios" shall mean the Common
Exchange Ratio, the Series A Exchange Ratio, the Series B Exchange Ratio,
the Series C Exchange Ratio, the Series D Exchange Ratio or the Additional
Conversion Share Exchange Ratio, as applicable.
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(h) OUTSTANDING COMMON AMOUNT. The "Outstanding Common Amount" shall
mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (taking into account all shares of
Company Preferred Stock that shall be converted into Company Common Stock as
of such time).
(i) OUTSTANDING OPTION AMOUNT. The "Outstanding Option Amount" shall
mean (i) the aggregate number of shares of Company Common Stock issuable
upon the exercise of all outstanding options and warrants to acquire shares
of Company Common Stock immediately prior to the Effective Time.
(j) OUTSTANDING SERIES A AMOUNT. The "Outstanding Series A Amount"
shall mean the aggregate number of shares of Series A Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series A Preferred issuable upon exercise of any options or
warrants to acquire shares of Series A Preferred then outstanding.
(k) OUTSTANDING SERIES B AMOUNT. The "Outstanding Series B Amount"
shall mean the aggregate number of shares of Series B Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series B Preferred issuable upon exercise of any options or
warrants to acquire shares of Series B Preferred then outstanding.
(l) OUTSTANDING SERIES C AMOUNT. The "Outstanding Series C Amount"
shall mean the aggregate number of shares of Series C Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series C Preferred issuable upon exercise of any options or
warrants to acquire shares of Series C Preferred then outstanding.
(m) OUTSTANDING SERIES D AMOUNT. The "Outstanding Series D Amount"
shall mean the aggregate number of shares of Series D Preferred
outstanding immediately prior to the Effective Time, together with all
shares of Series D Preferred issuable upon exercise of any options or
warrants to acquire shares of Series D Preferred then outstanding.
(n) PARENT PRICE. The "Parent Price" shall mean the closing sale price
on the Nasdaq National Market of Parent Common Stock as of the date of
this Agreement.
(o) SERIES A EXCHANGE RATIO. The "Series A Exchange Ratio" shall mean
the quotient obtained by dividing 0.96 by the Parent Price.
(p) SERIES B EXCHANGE RATIO. The "Series B Exchange Ratio" shall mean
the quotient obtained by dividing 1.50 by the Parent Price.
(q) SERIES C EXCHANGE RATIO. The "Series C Exchange Ratio" shall mean
the quotient obtained by dividing 2.25 by the Parent Price..
(r) SERIES D EXCHANGE RATIO. The "Series D Exchange Ratio" shall mean
the quotient obtained by dividing 3.00 by the Parent Price.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with Delaware Law
and California Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal or dissenters' rights ("DISSENTING SHARES"),
shall not be converted into or represent a right to receive Parent Common Stock
pursuant to Section 1.6, but the holder thereof shall only be entitled to such
rights as are granted by Delaware Law and California Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law or California Law shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such event, such holder's shares
shall automatically be
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converted into and represent only the right to receive Parent Common Stock and
fractional shares as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demands
for appraisal of any shares of Company Capital Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law or California
Law and received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law and California Law. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisal of capital stock of the Company or offer to settle or
settle any such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall designate a
bank or trust company reasonably acceptable to the Company to act as exchange
agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the aggregate number of shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Capital Stock; provided that, on behalf of the holders of Company Capital Stock,
Parent shall deposit into an escrow account a number of shares of Parent Common
Stock equal to the Escrow Amount out of the aggregate number of shares of Parent
Common Stock otherwise issuable pursuant to Section 1.6. The portion of the
Escrow Amount contributed on behalf of each holder of Company Capital Stock
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled to receive under Section 1.6 by
virtue of ownership of outstanding shares of Company Capital Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "CERTIFICATES") which immediately prior to the Effective
Time represented outstanding shares of Company Capital Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common Stock,
if any, to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VII hereof), plus cash in lieu of fractional shares in accordance with
Section 1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount which shall
be registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the
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payment of dividends, to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Capital Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock 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 Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock 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.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
evidencing shares of Company Capital Stock 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 Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.6; 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.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE") and
(ii) qualify for accounting treatment as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. 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,
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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, subject
to such exceptions as are clearly disclosed in the disclosure letter supplied by
the Company to Parent (the "COMPANY SCHEDULES") and dated as of the date hereof,
as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations of the Company (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of authorized Common Stock, of which 4,008,263 shares are issued and
outstanding and 13,000,000 shares of authorized Preferred Stock. The authorized
Preferred Stock consists of 1,300,000 shares of authorized Series A Preferred
Stock, of 1,083,334 shares are issued and outstanding, 7,760,000 shares of
authorized Series B Preferred Stock, of which 7,048,505 shares are issued and
outstanding, 844,444 shares of authorized Series C Preferred Stock, of which
844,444 shares are issued and outstanding, and 2,600,000 shares of authorized
Series D Preferred Stock, of which 2,510,583 shares are issued and outstanding.
The Company Capital Stock is held of record by the persons, with the addresses
of record and in the amounts set forth on Schedule 2.2(a). All outstanding
shares of Company Capital Common Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound.
(b) The Company has reserved 4,161,971 shares of Common Stock for issuance
to employees and consultants pursuant to the Option Plan, of which 3,230,664
shares are subject to outstanding, unexercised options and 931,307 shares remain
available for future grant. The Company has reserved 247,800 shares of Common
Stock for issuance upon exercise of outstanding Company Options granted outside
the Option Plan. Schedule 2.2(b) sets forth for each outstanding Company Option
the name of the holder of such option, the domicile address of such holder, the
number of shares of Common Stock subject to such option, the exercise price of
such option and the vesting schedule for such option, including the extent
vested to date and whether the exercisability of such option will be accelerated
and become exercisable by the transactions contemplated by this Agreement. The
Company has reserved 94,557 shares of Series B Preferred Stock (and such number
of shares of Common Stock into which such Series B Preferred Stock is
convertible) for issuance upon exercise of outstanding warrants. Schedule 2.2(b)
sets forth for each of the Warrants the name of the holder and exercise price of
such warrants. Except for the Company Options and warrants described in Schedule
2.2(b), there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Company is a party or by which
it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company. Except for the Company Options and
warrants described in Schedule 2.2(b), there are no Options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such
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option, warrant, call, right, commitment or agreement. The holders of Company
Options and warrants have been or will be given, or shall have properly waived,
any required notice prior to the Merger and all such rights will be terminated
at or prior to the Effective Time. As a result of the Merger, Parent will be the
record and sole beneficial owner of all Company Capital Stock and rights to
acquire or receive Company Capital Stock.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company's
stockholders to duly approve the Merger and this Agreement is that number of
shares as would constitute a majority of the outstanding shares of (a) the
Common Stock and Preferred Stock, voting together as a single class, and (b) the
Preferred Stock voting separately as a single class (in each case with each
share of Preferred Stock being entitled to a number of votes equal to the number
of whole shares of Common Stock into which such share of Preferred Stock could
be converted on the record date for the vote). The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject only to the approval of the Merger by the Company's
stockholders. The Company's Board of Directors has unanimously approved the
Merger and this Agreement. This Agreement has been duly executed and delivered
by the Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms. Except as set forth on Schedule 2.4,
subject only to the approval of the Merger and this Agreement by the Company's
stockholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, county, local or foreign governmental authority, instrumentality, agency
or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger
any Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Delaware Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iii)
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. Schedule 2.5 sets forth the Company's
audited balance sheet as of June 30, 1995 and the related audited statements of
operations and cash flows for the twelve-month period then ended and the
Company's unaudited balance sheet as of September 30, 1995 (the "BALANCE SHEET")
and the related unaudited statements of operations and cash flows for the
three-month period then ended (collectively, the "COMPANY FINANCIALS"). The
Company Financials are correct in all material respects and have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a basis consistent throughout the periods indicated and
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consistent with each other. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject, in the case of the unaudited financial
statements, to normal year-end adjustments, which will not be material in amount
or significance.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type. whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of the
Company's business since September 30, 1995, consistent with past practices.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since September 30,
1995, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business
as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company of $100,000 in any
individual case or $250,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
of its capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any
kind for the payment, by the Company, of a bonus or other additional salary
or compensation to any such person except as otherwise contemplated by this
Agreement;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others except for advances to
employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(m) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(n) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company or its affairs;
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(o) notice of any claim of ownership by a third party of the Company's
Intellectual Property (as defined in Section 2.11 below) or of infringement
by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or
of any other of its securities;
(q) change in pricing or royalties set or charged by the Company to its
customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or reasonably would be
expected to have a Material Adverse Effect on the Company; or
(s) agreement by the Company or any officer or employees thereof to do
any of the things described in the preceding clauses (a) through (r) (other
than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared and filed
all required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any and all
Taxes concerning or attributable to the Company or its operations and, to
the Company's knowledge, such Returns have been completed in accordance
with applicable law.
(ii) The Company as of the Effective Time. (A) will have paid or accrued
all Taxes it is required to pay or accrue and (B) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, proposed or assessed against the
Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company does not have any liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis for
the assertion of any such liability attributable to the Company, its assets
or operations.
(vi) The Company has provided to Parent copies of all federal and state
income and all state sales and use Tax Returns for all periods since the
date of Company's incorporation.
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(vii) There are (and as of immediately following the Closing there will
be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("LIENS") on the assets of the Company relating to
or attributable to Taxes, other than Liens for Taxes not yet due and
payable.
(viii) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(ix) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G or 162 of the Code.
(x) The Company has not filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xi) The Company is not a party to a tax sharing or allocation agreement
nor does the Company owe any amount under any such agreement.
(xii) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete
or otherwise), judgment, injunction, order or decree to which the Company is a
party or otherwise binding upon the Company which has or reasonably would be
expected to have the effect of prohibiting or impairing any business practice of
the Company, any acquisition of property (tangible or intangible) by the Company
or the conduct of business by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor and the date of the lease and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.10(b) and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) 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 in the business of the Company as currently conducted
or as proposed to be conducted by the Company (the "COMPANY INTELLECTUAL
PROPERTY RIGHTS").
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(b) Schedule 2.11(a) sets forth a complete list of all patents, registered
and material unregistered trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, 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. Schedule 2.11(b) sets forth a complete list of
all licenses, sublicenses and other agreements to which the Company is a party
and pursuant to which the Company or any other person is authorized to use any
Company Intellectual Property Right (excluding object code end-user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the same
("END-USER LICENSES")) or trade secret of the Company, and includes the identity
of all parties thereto. The execution and delivery of this Agreement by the
Company, and the consummation of the transactions contemplated hereby, will
neither cause the Company to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is
the sole and exclusive owner or licensee of, with all right, title and interest
in and to (free and clear of any liens or encumbrances), the Company
Intellectual Property Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which the Company Intellectual Property
Rights are being used.
(c) No claims with respect to the Company Intellectual Property Rights have
been asserted or are, to the Company's knowledge, threatened by any person, nor
are there any valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any of the products of the Company
infringes on any copyright, patent, trade mark, service mark, trade secret or
other proprietary right, (ii) against the use by the Company of any trademarks,
service marks, trade names, trade secrets, copyrights, maskworks, patents,
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, or (iii) challenging the ownership by the Company, validity or
effectiveness of any of the Company Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by the Company are valid and
subsisting. The business of the Company as currently conducted or as proposed to
be conducted by the Company has not and does not infringe on any proprietary
right of any third party. To the Company's knowledge, there is no material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by the Company. Each employee of and consultant to the Company has
executed a proprietary information and confidentiality agreement substantially
in the Company's standard forms.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement, under
which a firm or other organization provides services to the Company,
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(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $100,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement containing any covenant limiting the freedom of the
Company to engage in any line of business or to compete with any person,
(x) any agreement relating to capital expenditures and involving future
payments in excess of $100,000,
(xi) any agreement relating to the disposition or acquisition of assets
or any interest in any business enterprise outside the ordinary course of
the Company's business,
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw materials
involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or may grant
in the future, to any party a source-code license or option or other right
to use or acquire source-code, or
(xvii) any other agreement that involves $100,000 or more or is not
cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time, giving
of notice, or both, as are all noted in Schedule 2.12(b), the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.12(a) or Schedule
2.11(b) (any such agreement, contract or commitment, a "CONTRACT"). Each
Contract is in full force and effect and, except as otherwise disclosed in
Schedule 2.12(b), is not subject to any default thereunder of which the Company
has knowledge by any party obligated to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13,
to the Company's knowledge, no officer, director or affiliate (as defined under
Regulation C under the Securities Act of 1933, as amended) 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
economic interest), has or has had, directly or indirectly, (i) an economic
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,
or (ii) an economic 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 contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b);
provided, that (x) ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation and no more than ten percent (10%)
of the outstanding equity of any other entity shall not be deemed an "economic
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interest in any entity" for purposes of this Section 2.13 and (y) this provision
shall only apply if the terms and conditions applicable to the subject
relationship are materially less favorable to the Company than the terms and
conditions that could be obtained in an arms-length relationship.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or to the Company's knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
schedule 2.15, to the Company's knowledge, there is no investigation pending or
threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No governmental entity has at any
time challenged or questioned the legal right of the Company to manufacture,
offer or sell any of its products in the present manner or style thereof.
2.16 INSURANCE. With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any underground
storage tanks at any property that the Company has at any time owned, operated,
occupied or leased; or (ii) illegally released any material amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"),
but excluding office and janitorial supplies properly and safely maintained. No
Hazardous Materials are present, as a result of the deliberate actions of the
Company, or, to the Company's knowledge, as a result of any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company disposed of, transported, sold, or
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manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS")
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth
on Schedule 2.19, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the principal terms and conditions
of any agreement, written or oral, with respect to such fees. Schedule 2.19 sets
forth the Company's current reasonable estimate of all Third Party Expenses (as
defined in Section 5.4) expected to be incurred by the Company in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate" set
forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant
to which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired employee,
officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa, work
permit or similar agreement or contract between the Company or any Affiliate
and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
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(viii) "PENSION PLAN" shall refer to each Company Employee Plan which is
an "employee pension benefit plan", within the meaning of Section 3(2) of
ERISA.
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete list of
each Company Employee Plan and each Employee Agreement, together with a schedule
of all liabilities, whether or not accrued, under each such Company Employee
Plan or Employee Agreement. The Company does not have any stated plan or
commitment to establish any new Company Employee Plan or Employee Agreement, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent (i) correct and complete
copies of all documents embodying or relating to each Company Employee Plan and
each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination letters and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (viii) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 2.20(d), (i)
the Company has performed in all material respects all obligations required to
be performed by it under each Company Employee Plan and each Company Employee
Plan has been established and maintained in all material respects in accordance
with its terms and in compliance with all applicable laws, statutes, orders,
rules and regulations, including but not limited to ERISA or the Code; (ii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; and (iv) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to the Company, Parent or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event); (v)
there are no inquiries or proceedings pending or, to the knowledge of the
Company or any affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) neither the Company nor any Affiliate is subject
to any penalty or tax with respect to any Company Employee Plan under Section
402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) PENSION PLANS. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee
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benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this Agreement or as set forth on
Schedule 2.20(h)(i), the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment or benefit
which will or may be made by the Company or Parent or any of their respective
affiliates with respect to any Employee will be characterized as an "excess
parachute payment", within the meaning of Section 280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. The Company (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against the Company is pending
or, to the best knowledge of the Company, threatened. Except as set forth in
Schedule 2.20(j), the Company is not involved in or, to the knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a liability to the Company. Except as set forth
in Schedule 2.20(j), the Company is not presently, nor has it been in the past,
a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
2.21 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with soliciting their consent
to this Agreement and the Merger, contains or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 350,000,000 shares of Common
Stock, of which 134,566,906 shares were issued and outstanding as of October 27,
1995, and 5,000,000 shares of Preferred Stock, none of which is issued or
outstanding. The authorized capital stock of Merger Sub consists of 1,000 shares
of Common Stock, 1,000 shares of which, as of the date hereof, are issued and
outstanding and are held by Parent. All such shares have been duly authorized,
and all such issued and outstanding shares have been validly issued, are fully
paid and nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, non-assessable.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934 (the "EXCHANGE
ACT") for all periods subsequent to January 1, 1993, all in the form so filed
(all of the foregoing being collectively referred to as the "SEC DOCUMENTS"). As
of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed document
with the SEC. The financial statements of Parent, including the notes thereto,
included in the SEC Documents (the "PARENT FINANCIAL STATEMENTS") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
present fairly the consolidated financial position of Parent at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
There has been no change in Parent accounting policies except as described in
the notes to the Parent Financial Statements.
3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-Q or Form 10-K,
Parent has conducted its business in the ordinary course and there has not
occurred: (a) any material adverse change in the financial condition,
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liabilities, assets or business of Parent; (b) any amendment or change in the
Certificate of Incorporation or Bylaws of Parent; or (c) any damage to,
destruction or loss of any assets of the Parent, (whether or not covered by
insurance) that materially and adversely affects the financial condition or
business of Parent.
3.6 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any materially negative event related to the Company
or its business. Except as expressly contemplated by this Agreement or disclosed
in Schedule 4.1, the Company shall not, without the prior written consent of
Parent:
(a) Enter into any commitment or transaction not in the ordinary course
of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in
the ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any other party
is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock (or options, warrants or other rights exercisable
therefor);
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options, warrants or
Company Preferred Stock, or the grant of stock options to new employees
pursuant to outstanding written offers of employment, issue, grant, deliver
or sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating
it to issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
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(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities 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 in an amount in excess of $100,000 in the case of a single
transaction or in excess of $200,000 in the aggregate in any 30-day period;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
(m) Subject to the provisions of Section 4.5 below, adopt or amend any
employee benefit plan, or enter into any employment contract, extend
employment offers, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its employees, except as consistent with the ordinary course of the
Company consistent with past practice (provided that the price per share of
any equity participation in the Company shall be agreed in advance by
Parent);
(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $100,000 (in
any one case) or $250,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the Company Financial Statements (or the notes thereto) or that arose in the
ordinary course of business subsequent to September 30, 1995 or expenses
consistent with the provisions of this Agreement incurred in connection with
any transaction contemplated hereby;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (p) above, or any other action that
would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time and the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets, (b) provide information with respect to it to
any person, other than Parent, relating to the possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its or their capital stock or assets,
(c) enter into an agreement with any person, other than Parent, providing for
the acquisition of the Company (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise) or any material portion of its or their
capital stock or assets or (d) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of the Company or any of
its subsidiaries (whether
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by way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its or their capital stock or assets by any person,
other than by Parent. In addition to the foregoing, if the Company receives
prior to the Effective Time or the termination of this Agreement any offer or
proposal relating to any of the above, the Company shall promptly notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request.
4.3 STRATEGIC AGREEMENTS. The Company agrees that it will not enter into
any strategic alliance, joint development or joint marketing agreement during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement and the Effective Time unless it has first
consulted with the Vice President, Business Development of Parent.
4.4 EMPLOYEE TERMINATION. Parent agrees that for a period of one year
following the Effective Time, it will not terminate the employment of any
employee who (i) is an employee of the Company on the execution date of this
Agreement, (ii) holds Company Common Stock or stock options to purchase Company
Common Stock and (iii) elects to become an employee of Parent or any affiliate
of Parent upon completion of the Merger ("Company Employee") without the prior
agreement of Richard H. Williams (or his designee if Mr. Williams shall no
longer serve as an employee of Parent); and provided further that Parent shall
not be obligated to consult with Mr. Williams with respect to terminations that
result from voluntary resignation by a Company Employee or termination of the
employment of a Company Employee for cause in accordance with Parent's customary
policies.
4.5 EMPLOYEE HIRING. As soon as practicable after the date of this
Agreement and in any event not later than twenty-one (21) days after such date,
the Chief Executive Officers of Parent and the Company will agree upon the
guidelines within which the Company will proceed with recruitment, compensation
and equity participation of new and existing employees. Such agreement will be
summarized in writing and, upon approval by the parties, deemed a part of this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT; STOCKHOLDER MEETINGS.
(i) As promptly as practicable after the execution of this Agreement, Parent
shall prepare, and the Company shall assist in preparing, a registration
statement on Form S-4 (the "Registration Statement") pertaining to the offer and
sale of shares of Parent Common Stock to be issued by virtue of the Merger. The
Registration Statement shall include therein a Proxy Statement (the "PROXY
STATEMENT") relating to the solicitation of the consent of the stockholders of
the Company to the Merger. Parent shall file with the SEC the Registration
Statement as soon as is reasonably practicable following preparation thereof.
The Company shall provide to Parent and its counsel for inclusion in the Proxy
Statement, in form and substance reasonably satisfactory to Parent and its
counsel, such information concerning the Company, its operations,
capitalization, technology, share ownership and other material as Parent or its
counsel may reasonably request. Each of Parent and the Company shall use its
reasonable efforts to respond to any comments of the SEC, to have the
Registration Statement declared effective under the Securities Act of 1933 (the
"SECURITIES ACT") as promptly as practicable after such filing and to cause the
Proxy Statement to be mailed to the Company's stockholders at the earliest
practicable time. Each party will notify the other parties hereto promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Registration Statement or
the Proxy Statement or for additional information and will supply the other
party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff, on the other hand,
with respect to the Registration Statement or the Proxy Statement. Whenever any
event occurs which should be set forth
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in an amendment or supplement to the Proxy Statement and the Registration
Statement, Parent or the Company, as the case may be, shall promptly inform the
other company of such occurrence and cooperate in filing with the SEC or its
staff.
(ii) As promptly as practicable after the execution of this Agreement and at
such time as Parent may request so as not to interfere with the S-4 registration
process, the Company shall submit this Agreement and the transactions
contemplated hereby to its stockholders for approval and adoption as provided by
applicable law. The Company shall use its best efforts to solicit and obtain the
consent of its stockholders sufficient to approve the Merger and this Agreement
and to enable the Closing to occur as promptly as practicable. The materials
submitted to the Company's stockholders shall be subject to review and approval
by Parent and include information regarding the Company, the terms of the Merger
and this Agreement and the unanimous recommendation of the Board of Directors of
the Company in favor of the Merger and this Agreement.
5.2 ACCESS TO INFORMATION. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its best efforts to
cause to be waived) each party shall afford the others and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of the Mutual Nondisclosure Agreement between
Parent and the Company dated as of December 9, 1995.
5.4 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses; provided, however,
that Parent and the Company shall share equally all fees and expenses, other
than attorneys, accountants and financial advisors fees, incurred in connection
with the printing and filing of the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, securities laws) or, as to Parent, by the rules and
regulations of the National Association of Securities Dealers, Inc., prior to
the Effective Time, no disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld.
5.6 CONSENTS. The Company shall use its reasonable efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of, and benefits to the
Company thereunder.
5.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all
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necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement; provided that Parent
shall not be required to agree to any divestiture by Parent or the Company or
any of Parent's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Parent or its subsidiaries or affiliates or the
Company or its affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets, properties and stock.
5.9 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 is likely to cause any representation or warranty of the Company and
Parent or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time except as
contemplated by their Agreement (including the Company Schedules) and (ii) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
in any material respect 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 5.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.10 POOLING ACCOUNTING. Parent and the Company shall each use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of Parent and the
Company shall use its reasonable efforts to cause its respective employees,
directors, stockholders and affiliates not to take any action that would
adversely affect the ability of Parent to account for the business combination
to be effected by the Merger as a pooling of interests. Neither Parent nor the
Company shall take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of the
capital stock of the Company, which reasonably would be expected to (i)
interfere with Parent's ability to account for the Merger as a pooling of
interests or (ii) jeopardize the tax-free nature of the reorganization
hereunder.
5.11 AFFILIATE AGREEMENTS. Schedule 5.12 sets forth those persons who, in
the Company's reasonable judgment, are "affiliates" of the Company within the
meaning of Rule 145 (each such person an "Affiliate") promulgated under the
Securities Act ("Rule 145"). The Company shall provide Parent such information
and documents as Parent shall reasonably request for purposes of reviewing such
list. Each of Parent and the Company has delivered or shall cause to be
delivered to the other, concurrently with the execution of this Agreement, from
each of their respective Affiliates, an executed Affiliate Agreement in the form
attached hereto as EXHIBIT A or EXHIBIT B. Parent and Merger Sub shall be
entitled to place appropriate legends on the certificates evidencing any Parent
Common Stock to be received by Affiliates of the Company pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
5.12 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.13 FORM S-8. Parent shall file a registration statement on Form S-8 for
the shares of Parent Common Stock issuable with respect to assumed Company
Options no later than ten business days after the Closing Date.
5.14 NMS LISTING. Parent shall authorize for listing on the Nasdaq Stock
Market the shares of Parent Common Stock issuable, and those required to be
reserved for issuance, in connection with the Merger, upon official notice of
issuance.
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5.15 VOTING AGREEMENTS. Concurrently with the execution of this Agreement,
the Company will cause the persons and entities listed in the preamble to
EXHIBIT C hereto to execute Voting Agreements in the form attached hereto as
EXHIBIT C (the "VOTING AGREEMENTS"), agreeing, among other things, to vote in
favor of the Merger and against any competing proposals.
5.16 BLUE SKY LAWS. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
5.17 INDEMNIFICATION. Parent shall either (i) cause the Company to
continue to indemnify or (ii) directly indemnify the persons who are currently
officers and directors of the Company substantially in accordance with the
Bylaws of the Company as they are currently in effect for action or inaction by
such person prior to the Merger.
5.18 PARENT REGISTRATIONS. Parent will not file a registration statement
with the SEC covering the issuance of any new shares of the capital stock of
Parent until Parent has publicly announced financial results covering a period
of combined operations of Parent and the Company of at least thirty (30) days,
provided, however, that the foregoing restriction shall not apply to (i)
registrations covering any employee benefit plans, (ii) the Registration
Statement as contemplated herein, and (iii) any registrations which the Company
is required to file pursuant to any demand registration rights or other
contractual rights, and provided further that with respect to such required
registrations, Parent shall be permitted to include in any such registration
statement enough primary issue shares to cover the expenses of the required
registration and to allow the registration expenses to be capitalized on its
balance sheet rather than expensed on its profit and loss statement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the stockholders of the Company by the requisite
vote under applicable law and the Company's Certificate of Incorporation.
(b) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding in
respect of the Proxy Statement, shall have been initiated or threatened in
writing by the SEC; and all requests for additional information on the part
of the SEC shall have been complied with to the reasonable satisfaction of
the parties hereto.
(c) 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 or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) TAX OPINIONS. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, and Cooley Godward
Castro Huddleson & Tatum, respectively, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization
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within the meaning of Section 368(a) of the Code. The parties to this
Agreement agree to make reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
(e) OPINION OF ACCOUNTANTS. Each of Parent and the Company shall have
received letters from Ernst & Young LLP, and KPMG Peat Marwick LLP,
respectively reaffirming those firms' written concurrence, delivered
concurrently with the execution of this Agreement, with Parent management's
and the Company management's conclusions, respectively, as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if consummated in accordance
with this Agreement.
(f) NASDAQ LISTING. The shares of Parent Common Stock issuable to
stockholders of the Company pursuant to this Agreement and such other
shares required to be reserved for issuance in connection with the Merger
shall have been authorized for listing on the Nasdaq Stock Market upon
official notice of issuance.
(g) AFFILIATE AGREEMENTS. Each of the parties identified by the Company
or Parent as being one of their respective Affiliates shall have
delivered an executed Affiliate Agreement which shall be in full force and
effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(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 Closing, 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 omissions of such representations
and warranties which have neither had nor reasonably would be expected to
have a Material Adverse Effect on Parent; and the Company shall have
received a certificate to such effect signed on behalf of Parent by a duly
authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject
to Parent's or Merger Sub's ability to cure as provided in Section 8.1(e)
below) 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 a duly authorized officer of Parent.
(c) THIRD PARTY CONSENTS. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a legal opinion from
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to
Parent, in substantially the form attached hereto as Exhibit D.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material
adverse change in the business, assets (including intangible assets),
financial condition or results of operations of Parent since September 30,
1995. For purposes of this condition, a reduction in the trading price of
Parent's Common Stock, whether occurring at any time or from time to time,
as reported by Nasdaq or any other automated quotation system or exchange
shall not constitute a material adverse change.
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6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(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 (including the Company Schedules) 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 omissions of
such representations and warranties which have neither had nor reasonably
would be expected to have a Material Adverse Effect on the Company or
Parent; and Parent and Merger Sub shall have received a certificate to such
effect signed on behalf of the Company by a duly authorized officer of the
Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied (which performance or compliance shall be subject to the
Company's ability to cure as provided in Section 8.1(d) below) 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 a duly authorized officer of the Company;
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) LEGAL OPINION. Parent shall have received a legal opinion from
Cooley Godward Castro Huddleson & Tatum, legal counsel to the Company, in
substantially the form attached hereto as EXHIBIT E.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material
adverse change in the business, assets (including intangible assets)
financial condition or results of operations of the Company since September
30, 1995. For purposes of this condition, none of the following,
individually or in the aggregate, shall be deemed to constitute such a
material adverse change: (i) any failure of the Company to record revenue or
deferred revenue at any particular level subsequent to September 30, 1995;
(ii) the lack of success of the Company in hiring new employees; or (iii)
the lack of success of the Company in retaining existing employees, other
than those employees who in the aggregate are material to the Company's
ability to commercialize its technology.
(f) CONVERSION OF PREFERRED STOCK. All shares of the Series A, Series B
and Series D Preferred Stock of the Company shall have converted into
Company Common Stock in accordance with the Company's Certificate of
Incorporation, and the holder of the Company's Series C Preferred Stock
shall have delivered to Parent an irrevocable election to convert such
Preferred Stock into Company Common Stock as contemplated in Section 1.6(b)
above, subject to and effective upon the consummation of the Merger.
(g) NONCOMPETITION AGREEMENTS. Each person listed in the preamble to
EXHIBIT F shall have executed and delivered to Parent a Noncompetition
Agreement in substantially the form of EXHIBIT F and all of the
Noncompetition Agreements shall be in full force and effect.
(h) DISSENTERS' RIGHTS. Holders of more than 5% of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they
have any continued right to exercise, appraisal, dissenters' or similar
rights under applicable law with respect to their shares by virtue of the
Merger.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the earlier
of the date which is the date of the auditor's report for the first audit of
Parent's financial statements after the Closing Date or the date which is one
year following the Closing Date (the "Expiration Date").
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time the Company's stockholders will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time) without any act of any stockholder. As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any stockholder, will be
deposited with First Trust of California National Association Global Escrow
D.S., (or other institution acceptable to Parent and the Securityholder Agent
(as defined in Section 7.2(g) below)) as Escrow Agent (the "ESCROW AGENT"), such
deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by the
terms set forth herein and at Parent's cost and expense. The portion of the
Escrow Amount contributed on behalf of each stockholder of the Company shall be
in proportion to the aggregate Parent Common Stock which such holder would
otherwise be entitled under Section 1.6(a). No portion of the Escrow Amount
shall be contributed in respect of any Company Options or warrants. The Escrow
Fund shall be available to compensate Parent and its affiliates for any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defense (hereinafter individually a "LOSS" and collectively "LOSSES") incurred
by Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of the Company or any contained in Article II herein
(as modified by the Company Schedules), or any failure by the Company to perform
or comply with any covenant contained herein. Parent and the Company each
acknowledge that such Losses, if any, would relate to unresolved contingencies
existing at the Effective Time, which if resolved at the Effective Time would
have led to a reduction in the aggregate Merger consideration. Subject to
Section 8.3 below, nothing herein shall limit the liability of the Company for
any breach of any representation, warranty or covenant if the Merger does not
close. Parent may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in paragraph (d) below) identifying Losses,
the aggregate amount of which exceed $500,000, have been delivered to the Escrow
Agent as provided in paragraph (e); in such case, Parent may recover from the
Escrow Fund its Losses in excess of the first $500,000.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., California time, on the Expiration Date (the "ESCROW PERIOD"); provided
that the Escrow Period shall not terminate with respect to such amount (or some
portion thereof), that together with the aggregate amount remaining in the
Escrow Fund is necessary in the reasonable judgment of Parent, subject to the
objection of the Securityholder Agent and the subsequent arbitration of the
matter in the manner provided in Section 7.2(f) hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the stockholders of the Company the remaining portion of the Escrow Fund and not
required to satisfy such claims. Deliveries of Escrow Amounts to the
stockholders of the Company pursuant to this Section 7.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund.
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(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities issued or
distributed by Parent (including shares issued upon a stock split) ("NEW
SHARES") in respect of Parent Common Stock in the Escrow Fund which have not
been released from the Escrow Fund shall be added to the Escrow Fund and become
a part thereof. New Shares issued in respect of shares of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof. Cash dividends on
Parent Common Stock shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof.
(iii) Each stockholder shall have voting rights with respect to the shares of
Parent Common Stock contributed to the Escrow Fund by such stockholder (and on
any voting securities added to the Escrow Fund in respect of such shares of
Parent Common Stock).
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or before the last day
of the Escrow Period of a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or properly accrued
or reasonably anticipates that it will have to pay or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 7.2(e) hereof, deliver to Parent out
of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock
held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of Parent Common
Stock to be delivered to Parent out of the Escrow Fund pursuant to Section
7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at the
average of the closing prices of Parent's Common Stock on the principal
securities exchange on which Parent's Common Stock is then traded, or if not so
traded, the National Market System of the National Association of Securities
Dealers Automated Quotation system, in either case as reported in THE WALL
STREET JOURNAL for the five (5) consecutive trading days ending on the date that
is two (2) trading days prior to the Closing Date. Parent and the Securityholder
Agent shall certify such fair market value in a certificate signed by both
Parent and the Securityholder Agent, and shall deliver such certificate to the
Escrow Agent.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make delivery
of shares of Parent Common Stock from the Escrow Fund in accordance with Section
7.2(d) hereof, provided that no such payment or delivery may be made if the
Securityholder Agent shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in writing to any claim
or claims made in any Officer's Certificate, the Securityholder Agent and Parent
shall attempt in good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Securityholder Agent and Parent
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by
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both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and distribute shares of Parent
Common Stock from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Securityholder Agent may demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by three arbitrators.
Parent and the Securityholder Agent shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator, each of which
arbitrators shall be independent and have at least ten years relevant
experience. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys
fees and costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction. Any such arbitration shall be held in San Mateo
or Santa Clara Counties, California under the rules then in effect of the
Judicial Arbitration and Mediation Services, Inc. For purposes of this Section
7.2(f), in any arbitration hereunder in which any claim or the amount thereof
stated in the Officer's Certificate is at issue, Parent shall be deemed to be
the Non-Prevailing Party in the event that the arbitrators award Parent less
than the sum of one-half (1/2) of the disputed amount plus any amounts not in
dispute; otherwise, the stockholders of the Company as represented by the
Securityholder Agent shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration, and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
(g) SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective upon such vote, and
without further act of any stockholder, Gary J. Morgenthaler shall be appointed
as agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for each stockholder
of the Company (except such stockholders, if any, as shall have perfected their
appraisal or dissenters' rights under Delaware Law or California Law), for and
on behalf of stockholders of the Company, to give and receive notices and
communications, to authorize delivery to Parent of shares of Parent Common Stock
from the Escrow Fund in satisfaction of claims by Parent, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the stockholders of the Company
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided that the Securityholder Agent may not be removed unless holders
of a two-thirds interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. Any vacancy in the position of Securityholder
Agent may be filled by approval of the holders of a majority in interest of
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the Escrow Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent shall constitute
notice to or from each of the stockholders of the Company.
(ii) The Securityholder Agent shall not be liable for any act done or
omitted hereunder as Securityholder Agent while acting in good faith and in the
exercise of reasonable judgment. The stockholders of the Company on whose behalf
the Escrow Amount was contributed to the Escrow Fund shall severally indemnify
the Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Securityholder Agent as being
the decision, act, consent or instruction of each every such stockholder of the
Company. The Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement and
acknowledged that the claim is a valid claim against the Escrow Fund, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by Parent against the
Escrow Fund with respect to such settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any additional
written escrow instructions which the Escrow Agent may receive after the date of
this Agreement which are signed by an officer of Parent and the Securityholder
Agent, and may rely and shall be protected in relying or refraining from acting
on any instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
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(iv) The Escrow Agent shall not be liable for the expiration of any rights
under any statute of limitations with respect to this Agreement or any documents
deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent shall not
be liable to any party for damages, losses, or expenses, except for gross
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this Agreement, or with
any other party, concerning the subject matter of this Agreement, its terms or
conditions, the Escrow Agent will not be required to determine the controversy
or to take any action regarding it. The Escrow Agent may hold all documents and
shares of Parent Common Stock and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may be required, despite what may be
set forth elsewhere in this Agreement. In such event, the Escrow Agent will not
be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and shares of Parent Common Stock held in escrow, except
all cost, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
(vii) The parties and their respective successors and assigns agree jointly
and severally to indemnify and hold Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, and disbursements that may be imposed on Escrow
Agent or incurred by Escrow Agent in connection with the performance of his/her
duties under this Agreement, including but not limited to any litigation arising
from this Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at least thirty
(30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any
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litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred
by May 15, 1996 (provided that the right to terminate this Agreement under
this clause 8.1(b)(i) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date); (ii) there shall be a final nonappealable order of a federal or state
court in effect preventing consummation of the Merger; or (iii) there shall
be any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any governmental entity that would make
consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's
or the Company's ownership or operation of any portion of the business of
the Company or (ii) compel Parent or the Company to dispose of or hold
separate, as a result of the Merger, any portion of the business or assets
of the Company or Parent; in either case, the unavailability of which assets
or business would have a Material Adverse Effect on Parent or would
reasonably be expected to have a Material Adverse Effect on Parent's ability
to realize the benefits expected from the Merger.
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Company
and as a result of such breach the conditions set forth in Section 6.3(a) or
6.3(b), as the case may be, would not then be satisfied; provided, however,
that if such breach is curable by the Company within thirty (30) days
through the exercise of its reasonable best efforts, then for so long as the
Company continues to exercise such reasonable best efforts Parent may not
terminate this Agreement under this Section 8.1(d) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a
breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and as a result of such breach the conditions set forth
in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or
Merger Sub within thirty (30) days through the exercise of its reasonable
best efforts, then for so long as Parent or Merger Sub continues to exercise
such reasonable best efforts the Company may not terminate this Agreement
under this Section 8.1(e) unless such breach is not cured within thirty (30)
days (but no cure period shall be required for a breach which by its nature
cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
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8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and,
except as set forth in Section 8.3, there shall be no liability or obligation on
the part of Parent, Merger Sub or the Company, or their respective officers,
directors or stockholders, provided that each party shall remain liable for any
breaches of this Agreement prior to its termination to the extent provided in
Section 8.3; and provided further that, the provisions of Sections 5.3 and 5.4
and Article VIII of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 BREAKUP FEE.
(a) In the event that this Agreement is terminated by Parent pursuant to
Section 8.1(d) hereof, other than as a result of a knowing or willful breach by
the Company of any representation, warranty, covenant or agreement contained in
this Agreement on the part of the Company, then, within two business days
following such termination by Parent, the Company shall pay to Parent by wire
transfer of immediately available funds the sum of $12 million as liquidated
damages for the breach giving rise to such termination. Nothing herein shall
limit the liability of the Company for any knowing or willful breaches of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company.
(b) In the event that this Agreement is terminated by the Company pursuant
to Section 8.1(e) hereof, other than as a result of a knowing or willful breach
by Parent of any representation, warranty, covenant or agreement contained in
this Agreement on the part of Parent or Merger Sub, then, within two business
days following such termination by the Company, Parent shall pay to the Company
by wire transfer of immediately available funds the sum of $12 million as
liquidated damages for the breach giving rise to such termination. Nothing
herein shall limit the liability of Parent for any knowing or willful breaches
of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent.
8.4 AMENDMENT. Except as is otherwise required by applicable law after the
stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.5 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent and
Merger Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Informix Corporation
4100 Bohannon Drive
Menlo Park, California 94025
Attention: General Counsel
Telephone No.: (415) 926-6300
Facsimile No.: (415) 926-6564
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with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Larry W. Sonsini, Esq. and Douglas H. Collom, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Illustra Information Technologies, Inc.
1111 Broadway, Suite 2000
Oakland, California 94607
Attention: Chief Executive Officer
Telephone No.: (510) 652-8000
Facsimile No.: (510) 652-6399
with a copy to:
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attention: Kenneth L. Guernsey, Esq.
Telephone No.: (415) 693-2000
Facsimile No.: (415) 951-3699
(c) if to the Securityholder Agent:
Gary J. Morgenthaler
Morgenthaler Ventures
2730 Sand Hill Road, Suite 280
Menlo Park, California 94025
Telephone No.: (415) 233-7600
Facsimile No.: (415) 233-7606
(d) if to the Escrow Agent:
First Trust of California
National Association of Global Escrow D.S.
One Embarcadero, 20th Floor
San Francisco, CA 94111
Attention: Barbara Wise
Telephone No.: (415) 953-5710
Facsimile No.: (415) 622-3778
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 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
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company the Securityholder Agent
(as to Article VII only) and the Escrow Agent (as to matters set forth in
Article VII only) have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
<TABLE>
<S> <C>
ILLUSTRA INFORMATION INFORMIX CORPORATION
TECHNOLOGIES, INC.
By ----------------------------------------- BY -----------------------------------------
Richard H. Williams Phillip E. White
PRESIDENT AND CHIEF EXECUTIVE OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECURITYHOLDER AGENT: INFORMIX DELAWARE, INC.
By ----------------------------------------- By -----------------------------------------
Gary J. Morgenthaler Phillip E. White
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ESCROW AGENT
By -----------------------------------------
Name:
Title:
</TABLE>
***REORGANIZATION AGREEMENT***
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