<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: March 3, 1998
-------------
PLATINUM technology, inc.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19058 36-3509662
- ------------------------------ ----------- ------------------
(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1815 South Meyers Road, Oakbrook, Illinois 60181
------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (630) 620-5000
--------------
<PAGE>
Item 5. Other Events.
On February 10, 1998, PLATINUM technology, inc. (the "Company") issued the press
release attached as Exhibit 99.1 to announce its results of operations for the
fourth quarter of 1997 and the year ended December 31, 1997.
On February 18, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") dated as of February 18, 1998 among Mastering, Inc.
("Mastering"), PT Acquisition Corporation I, a wholly owned subsidiary of the
Company ("Sub"), and the Company, providing for the merger (the "Merger") of
Sub with and into Mastering, with Mastering being the surviving corporation in
the Merger. Pursuant to the Merger Agreement, and subject to the terms and
conditions thereof, each share of Mastering's common stock will be converted
into 0.448 shares of common stock of Platinum. On February 18, 1998, the
Company issued the press release attached as Exhibit 99.2 relating to the
Merger Agreement.
The information contained in the press releases and Merger Agreement are
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
99.1 Press Release dated February 10, 1998
99.2 Press Release dated February 18, 1998
99.3 Agreement and Plan of Merger, dated as of February 18, 1998,
among PLATINUM technology, inc., PT Acquisition Corporation
I and Mastering, Inc.
</TABLE>
2
<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.
PLATINUM technology, inc.
Dated: March 3, 1998 By: /s/ LARRY S. FREEDMAN
-------------------------------------------
Larry S. Freedman
Senior Vice President and General Counsel
3
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
99.1 Press Release dated February 10, 1998
99.2 Press Release dated February 18, 1998
99.3 Agreement and Plan of Merger, dated as of February 18, 1998,
among PLATINUM technology, inc., PT Acquisition Corporation
I and Mastering, Inc.
4
<PAGE>
EXHIBIT 99.1
PLATINUM
TECHNOLOGY
- ----------
PLATINUM technology, inc. Reports Record Revenue and Earnings
Net income increases 232 percent before charges over fourth quarter 1996 on 39
percent revenue increase
Oakbrook Terrace, IL, February 10, 1998--PLATINUM technology, inc. (Nasdaq:PLAT)
today announced that net income for the fourth quarter ended December 31, 1997,
excluding merger costs and acquired in-process technology charges, rose to $32.2
million, or $0.44 per diluted share, on record revenues of $211.2 million.
Fourth quarter 1997 revenues of $211.2 million represent a 39 percent increase
over fourth quarter 1996 revenues of $151.5 million. Net income for the fourth
quarter of 1996, excluding charges for acquired in-process technology, was $9.7
million, or $0.17 cents per diluted share. For the fourth quarter of 1997, the
net loss was $23.7 million, or $0.37 per share including after-tax charges of
$56.0 million, or $0.81 per share, for merger costs and acquired in-process
technology. The net loss for the fourth quarter of 1996, including after-tax
charges of $37.4 million, or $0.65 cents per share, for acquired in-process
technology, was $27.7 million, or $0.48 per share.
For the year ended December 31, 1997, revenues rose 33 percent to $623.5 million
from $468.1 million for 1996. Excluding restructuring and other one-time
charges, merger costs, and charges for acquired in-process technology, net
income for the year was $34.9 million, or $0.54 per diluted share, compared with
a net loss of $12.2 million, or $0.21 per share for 1996. Including after-tax
charges of $152.7 million, or $2.44 per share, the net loss for 1997 was $117.8
million, or $1.90 per share. In comparison, the net loss for 1996 was $64.9
million, or $1.14 per share, including after-tax charges of $52.8 million, or
$0.93 per share, for merger costs and acquired in-process technology.
"This was a tremendous year for PLATINUM," said Andrew J. (Flip) Filipowski.
"Sales were strong across all business units. We set aggressive goals and met
our financial objectives. We continue to deliver winning products, including
PLATINUM ProVision, the first integrated systems and database management
solution with our component-based integration architecture (POEMS). Within the
past six months, both Intel and Microsoft chose PLATINUM as a partner to extend
their reach into the enterprise. Most importantly, we continued to build and
leverage our most valuable asset: our tenured sales force and customer
relationships."
PLATINUM completed eight acquisition in 1997 while meeting its financial
targets. Filipowski noted that acquisitions will continue to play a critical
role in PLATINUM's future success and ability to deliver new solutions that meet
customers' ever-changing needs in a dynamic, growing industry.
"PLATINUM is one of the few organizations in the industry that has demonstrated
an ability to seamlessly integrate all acquired businesses into one cohesive
company, while reaching financial goals," said Filipowski. "We have minimized
the risks associated with conducting acquisitions, in fact we have made it a
normal business process. Our management team is strong and capable of balancing
the needs of all of our constituents: customers, employees, and stockholders."
Filipowski predicts strong growth in 1998, evidenced by key indicators:
. The increasing number of product and service deals generated by
PLATINUM's consulting group and the demand for IT professionals
. Continued customer demand for PLATINUM's repository technology,
following its 1997 Microsoft repository announcements
. Strong market acceptance of PLATINUM ProVision based on the growing
<PAGE>
Page 2 of 4
number of multi-million dollar database and systems management contracts
. Continued growth in Year 2000 conversions as the deadline approaches
Michael Cullinane, executive vice president and chief financial officer, said,
"We continued making major strides this quarter and throughout 1997 in improving
profitability. We see significant opportunities for improving margins in
1998."Cullinane also noted that the company's record of days sales outstanding
(DSO) has been reduced to 76 days for the fourth quarter of 1997, versus 89 days
for the fourth quarter of 1996.
Cullinane added that, during the quarter, the company raised $145 million
through a private placement offering of convertible subordinated notes due in
2002. "We believe this will allow us to be more flexible in structuring
long-term financing arrangements with customers, which we anticipate should
ultimately decrease our cost of capital," he said.
Fourth Quarter Highlights:
Customer Wins
During the fourth quarter, PLATINUM secured 40 multi-million dollar license and
service agreements with high profile customers, as demonstrated by the following
business deals.
. IBM Global Services and Ameritech Information Services -- key DB2
tools for Ameritech's mainframe processors
. America Online--desktop management solution
. Norfolk Southern--PLATINUM Pro Vision for enterprise management
. Nassau County, NY -- Year 2000 tools and consulting
Strategic Partnerships
Intel:
Signed a broad development, licensing, sales and marketing agreement to advance
desktop and systems management. The collaboration will enhance customers'
ability to manage distributed resources across networks, reduce the total cost
of business computing, and improve information technology service levels.
Microsoft:
Reached the first milestone in the collaboration on development and delivery of
data warehouse extensions. PLATINUM is a primary contributor to the development
of the Microsoft data warehouse and OLAP extensions with a team of its
repository developers based at the Redmond campus.
Products
ProVision:
Delivered ProVision, a first-of-its-kind integrated systems and database
management suite, which builds upon the strength of PLATINUM's market-proven
tools to provide a cost-effective, flexible solution to streamlining IT
infrastructure management.
ADvantage:
Announced the availability of PLATINUM ADvantage, the first-end-to-end solution
for managing the application development infrastructure. ADvantage allows
developers to automate and improve their processes for building, managing and
delivering applications by integrating PLATINUM's tools for component modeling,
change and configuration management, along with its tools for decision support
and rules-based application development.
AutoSecure Single Sign On:
Released a new version of AutoSecure Single Sign On (SSO) security product that
is the first solution to offer directory-based user security administration,
which allows administrators to manage groups of users registered on multiple
distributed servers from a single point.
Safe Harbor Provision:
The statements contained in this release regarding PLATINUM's future operating
results and performance
<PAGE>
Page 3 of 4
and business prospects are "forward-looking statements" subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. Where
possible, the words "expect," "believe," "anticipate," "predict" and similar
expressions, as they relate to PLATINUM or its management, have been used to
identify such forward-looking statements. These statements reflect PLATINUM's
current beliefs and specific assumptions with respect to future business
decisions and are based on information currently available to PLATINUM.
Accordingly, the statements are subject to significant risks, uncertainties and
contingencies which could cause PLATINUM's actual operating results, performance
or business prospects to differ from those expressed in, or implied by, these
statements. These risks, uncertainties and contingencies include the maturation
and success of PLATINUM's software infrastructure strategy, risks inherent in
conducting international business, risks associated with conducting a
professional services business, changes in PLATINUM's product and service mix
and product and service pricing, the effectiveness of PLATINUM's efforts to
control operating expenses, general economic and business conditions in the
United States and other countries in which PLATINUM sells its products and
services, charges and costs related to acquisitions, and PLATINUM's ability to:
develop and market existing and acquired products for the software
infrastructure market; successfully integrate its acquired products, services
and businesses and continue its acquisition strategy; adjust to changes in
technology, customer preferences, enhanced competition and new competitors in
the software infrastructure and professional services markets; protect its
proprietary software rights from infringement or misappropriation; maintain or
enhance its relationships with relational database vendors; and attract and
retain key employees. PLATINUM is not obligated to update the information
contained in this press release.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------------------------------------
1997 1996* 1997 1996*
----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Software products $135,799 $91,863 $357,223 $243,938
Maintenance 33,619 27,671 125,245 102,364
Professional services 41,823 31,961 141,035 121,763
----------------------------------------------------
Total revenue 211,241 151,495 623,503 468,065
----------------------------------------------------
Cost and expenses:
Professional services 36,796 31,053 127,499 116,133
Product development and 48,345 42,401 187,383 155,277
support
Sales and marketing 70,554 54,587 228,387 182,597
General administrative 15,508 13,188 48,363 39,224
General administrative- - - 13,513 -
other one-time charges -
Restructuring charges - 57,319 -
Merger costs 5,221 8,927 5,782
Acquired in-process 50,740 37,361 67,904 48,456
technology ----------------------------------------------------
Total costs 227,164 178,590 739,295 547,469
and expenses ----------------------------------------------------
Operating loss (15,923) (27,095) (115,792) (79,404)
Other income 4,705 2,614 16,729 5,237
----------------------------------------------------
Loss before income taxes (11,218) (24,481) (99,063) (74,167)
Income taxes 12,524 3,179 13,651 (9,245)
Income taxes - one-time - - 5,070 -
adjustment of deferred taxes ----------------------------------------------------
Net loss $(23,742) $(27,660) $(117,784) $(64,922)
Net loss per share $(0.37) $(0.48) $(1.90) $(1.14)
----------------------------------------------------
Shares used in computing net 63,615 57,823 62,042 56,968
loss per share ----------------------------------------------------
</TABLE>
*Results for the three and twelve months ended December 31, 1996 are restated
for mergers accounted for using the pooling-of-interests method.
<PAGE>
Page 4 of 4
<TABLE>
<CAPTION>
CONDENSED BALANCED SHEETS December 31, December 31,
(in thousands) 1997 1996**
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $178,138 $140,783
Short-term investment securities 57,597 42,755
Trade accounts receivable 212,731 165,131
Installment accounts receivable 30,043 13,603
Other current assets 32,679 12,358
-----------------------------
Total current assets 511,188 374,630
-----------------------------
Non-current investment securities 25,553 2,135
Property and equipment 77,842 72,750
Purchased and developed software 116,717 82,438
Excess of cost over net assets acquired 52,759 37,382
Non-current installment receivables 21,912 21,665
Other assets 28,206 27,572
-----------------------------
Total assets $834,177 $618,572
-----------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Acquisition-related payables $ 15,717 $ 7,872
Accounts payable 16,091 15,436
Accrued restructuring costs 7,580 -
Other current liabilities 68,349 49,999
Deferred revenue 116,374 84,166
-----------------------------
Total current liabilities 224,111 157,473
-----------------------------
Acquisition-related payables 18,320 2,502
Deferred revenue 60,435 38,674
Deferred rent 6,197 8,360
Accrued restructuring costs 14,730 -
Long-term obligations 266,824 115,803
-----------------------------
Total liabilities 590,617 322,812
-----------------------------
Stockholders' equity 243,560 295,760
-----------------------------
Total liabilities & stockholders' equity $834,177 $618,572
-----------------------------
</TABLE>
**The balance sheet as of December 31, 1996 has been restated to give
retroactive effect to mergers accounted for using the pooling-of-interests
method.
<PAGE>
EXHIBIT 99.2
------------
PLATINUM TECHNOLOGY
- -------------------
PLATINUM technology to Join Forces with Mastering, Inc. to Train IT
Professionals and Address Resource Shortage
PLATINUM signs agreement to acquire leading provider of training solutions for
Windows NT, Windows 95, Internet/intranets, and other IT topics
Oakbrook Terrace, IL, February 18, 1998 -- PLATINUM technology, inc. (NASDAQ:
PLAT) today announced that it has signed an agreement to acquire the training
expert, Mastering, Inc. (NASDAQ: MASC) and its subsidiary, Mastering Computers,
to help organizations address the costly and critical shortage of skilled IT
personnel. This transaction will enable PLATINUM to deliver effective
certification courses and training solutions for high-demand topics such as
Windows NT, Windows 95, and Internet/intranet technologies, thus reinforcing
PLATINUM's position as a leading provider of products and services to help
manage and improve IT infrastructure. Mastering will become a part of PLATINUM
technology Solutions, PLATINUM's education and consulting division.
Under terms of the acquisition, Mastering Computers will become a wholly-owned
subsidiary of PLATINUM. PLATINUM will exchange 0.448 shares of PLATINUM common
stock for each share of Mastering, Inc. common stock. Based on PLATINUM's
closing price of $26.375 on February 17, 1998, the implied purchase price for
Mastering is approximately $138.7 million, net of cash and option proceeds and
before transaction expenses. The acquisition is subject to the filing of a
registration statement with the Securities and Exchange Commission, the approval
of shareholders of Mastering, and to other legal and regulatory conditions
customary in such agreements. It is expected that the acquisition -- anticipated
to be completed in the second quarter of 1998 -- will qualify as a tax-free
reorganization and be accounted for as a pooling of interests.
"Last month the Information Technology Association of America (ITAA) and
Virginia Tech released a report estimating that there are currently 346,000
vacant IT positions in the US alone. We have seen demand for expertise with
Microsoft NT and other technologies far exceeds the supply of trained
professionals," said John Shackleton, president and COO of PLATINUM technology
Solutions. "Because there is such a severe shortage of qualified staff, IT
training is now more important than ever. Mastering, which boasts more than
250,000 alumni, will add high-quality instructor-led workshops, 300 computer-
based training courses, and a staff of 450 to PLATINUM, and will allow us to
meet a broader range of training needs."
"PLATINUM offers industry-leading consulting and training services, and is a
natural complement to our organization," said Terry Graunke, chairman and CEO of
Mastering, Inc. "PLATINUM's established customer relationships worldwide will
help us push forward in our plans to establish national account relationships
with large corporate customers and in our international expansion, two growth
opportunities we've targeted for 1998."
Mastering and PLATINUM offer each other a number of synergies that the combined
organization plans to leverage, including:
. Strong financial position: Mastering has experienced 82 percent
compounded annual growth since 1994, and it has increased its
penetration of the IT training market. The company recently reported
1997 revenues of $41 million and earnings per share of $0.25.
Mastering has approximately $48 million in cash and no long-term debt.
<PAGE>
Page 2 of 3
. Direct sales group: PLATINUM technology has an extensive field sales
force and a strong customer base within the Fortune 1000. PLATINUM's
direct sales force would look to expand its current long-term
contracts by offering multi-year training and support provided by
Mastering for Microsoft operating systems, related client/server
applications, and PLATINUM's own enterprise products.
. Presence in key international markets: Mastering is currently in the
process of expanding its training distribution internationally.
PLATINUM already has a strong presence in the countries Mastering is
targeting.
. Telesales: PLATINUM will be able to supplement its current sales force
with Mastering's telesales group, a unit of highly-trained staff that
has generated over $40 million in revenue in 1997 and has successfully
doubled Mastering's sales in each of the past two years.
. CBT development: Mastering's in-house CBT development team offers
PLATINUM experts in multimedia development for PLATINUM's own products
and applications.
. Windows 98 and NT 5.0 product introductions: Mastering and PLATINUM
anticipate significant training growth potential when Microsoft
introduces these new products later this year.
Mastering's courses prepare attendees to pass stringent certification exams,
including the entire series of Microsoft Certified Professional (MCP) exams
required to achieve Microsoft Certified Systems Engineer (MCSE) status.
Mastering's fine-tuned courseware development process can generate content-rich
courses more rapidly than most education courseware providers. The Mastering
process has become so successful that it is able to guarantee certification for
students enrolled in Mastering courses. Using the resources supplied by
Mastering as the cornerstone of a courseware development effort, PLATINUM
intends to offer an extensive curriculum of certification programs, including
training for Java and other emerging technologies.
About Mastering
Mastering, Inc. is a leading provider of information technology training to
Fortune 1000 companies, universities, and large government agencies. Since 1988,
Mastering Computers, the company's IT training subsidiary, has trained over
250,000 information technology professionals in its instructor-led one-day
FastTrack workshops, two-day MasterTrack workshops and three-day and four-day
Microsoft CertTrack training on topics including Windows NT, Windows 95,
Exchange Server, TCP/IP, Internet/intranet technology, and other client server
applications. Mastering Computers also offers one of the world's largest
multimedia computer-based training (CBT) libraries, including both IT
professional and end-user training courses focused on products from Microsoft,
Netscape, Lotus Notes, and Novell that can be delivered on CD-ROM, LAN/WAN, and
corporate intranets.
About PLATINUM technology Solutions
PLATINUM technology Solutions provides instructor-led and computer-based
training for IT topics including: database administration for DB2 and Oracle;
administration and use of open systems environments (including AIX, HP-UX,
SunOS, and Sun Solaris); data warehouse construction, administration and use;
application development (including courses on C, C++, PowerBuilder, and
PLATINUM tools); and systems management. PLATINUM technology Solutions also
provides a full range of consulting services for disciplines including:
application development, information management (including data warehousing),
online services (including Web site design and electronic commerce integration),
systems management, and Year 2000 conversions.
About PLATINUM technology
PLATINUM technology, headquartered in Oakbrook Terrace, Illinois, provides
software and services that help IT organizations manage and improve the IT
infrastructure. Solutions include database and systems management, data
warehousing and decision support, application infrastructure management, and
Year 2000 reengineering.
Andrew J. (Flip) Filipowski, the president and CEO and a director of PLATINUM,
is a director of Mastering. Filipowski excused himself from deliberations of the
Mastering board regarding this transaction. Filipowski holds options to purchase
34,800 shares of Mastering common stock, which were granted to him in his
capacity as a director of
<PAGE>
Page 3 of 3
Mastering. Also, through two investment partnerships of which he is a principal,
Filipowski indirectly owns more than 22,000 shares of Mastering common stock.
James E. Cowie, another director of PLATINUM, is also a director of Mastering
and holds options to purchase 34,800 shares of Mastering common stock. He serves
as a general partner of the Frontenac Company, which indirectly owns a total of
approximately 3,000,000 shares of Mastering common stock. Cowie excused himself
from the deliberations of PLATINUM's board with respect to PLATINUM's
acquisition of Mastering. A special committee of the PLATINUM board, including
neither Cowie nor Filipowski, approved this transaction. PLATINUM Venture
Partners owns a total of approximately 335,000 shares of Mastering.
Additionally, certain other executive officers and directors of PLATINUM
indirectly own an aggregate of more than 20,000 shares of Mastering common
stock.
The statements in this press release regarding PLATINUM technology's plans,
intentions, and expectations are forward-looking statements that involve
transactions that may not occur and risks and uncertainties that could cause
actual results to differ materially from those anticipated, including, but not
limited to, quarterly fluctuations in the results, the management of growth, the
competitive environment, and risks as detailed from time to time in the
company's Securities and Exchange Commission filings, including the company's
quarterly report on Form 10-Q for the quarter ended September 30, 1997.
<PAGE>
Exhibit 99.3
AGREEMENT AND PLAN OF MERGER
among
PLATINUM technology, inc.,
PT ACQUISITION CORPORATION I
and
MASTERING, INC.
Dated as of February 18, 1998
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
1. THE MERGER.................................................. 1
1.1 The Merger............................................ 1
1.2 Effective Time........................................ 1
1.3 Effect of the Merger.................................. 2
1.4 Name; Certificate of Incorporation; Bylaws............ 2
1.5 Directors and Officers................................ 2
1.6 Effect on Capital Stock............................... 2
1.7 No Dissenters' Rights................................. 3
1.8 Surrender of Certificates............................. 4
1.9 No Further Ownership Rights in Company Capital Stock.. 5
1.10 Lost, Stolen or Destroyed Certificates................ 5
1.11 Tax and Accounting Consequences....................... 6
1.12 Taking of Necessary Action; Further Action............ 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 6
2.1 Organization of the Company........................... 6
2.2 Company Capital Structure............................. 6
2.3 Obligations With Respect to Capital Stock............. 7
2.4 Authority; No Conflicts............................... 8
2.5 SEC Filings; Company Financial Statements............. 9
2.6 Absence of Certain Changes of Events.................. 10
2.7 Liabilities........................................... 10
2.8 Taxes................................................. 10
2.9 Restrictions on Business Activities................... 12
2.10 Absence of Liens and Encumbrances..................... 13
2.11 Intellectual Property................................. 13
2.12 Agreements, Contracts and Commitments................. 15
2.13 No Default............................................ 16
2.14 Governmental Authorization............................ 17
2.15 Litigation............................................ 17
2.16 Insurance............................................. 17
2.17 Labor Matters......................................... 17
2.18 Employee Benefits..................................... 18
2.19 Relationships with Related Persons.................... 20
2.20 State "Anti-Takeover" Statutes........................ 20
2.21 Pooling of Interests.................................. 20
2.22 Change of Control Payments............................ 20
2.23 Registration Statements; Proxy Statements/Prospectus.. 20
2.24 Board Approval........................................ 21
2.25 Fairness Opinion...................................... 21
2.26 Brokers' and Finders' Fees............................ 21
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB........................................................... 21
3.1 Organization of Parent......................................... 21
3.2 Absence of Certain Changes of Events........................... 22
3.3 Capital Structure.............................................. 22
3.4 Authority; No Conflict......................................... 24
3.5 SEC Filings; Parent Financial Statements....................... 25
3.6 Pooling of Interests........................................... 25
3.7 Registration Statement; Proxy Statement/Prospectus............. 26
3.8 Board Approval................................................. 26
3.9 Fairness Opinion............................................... 26
3.10 Brokers' and Finders' Fees..................................... 26
3.12 Employee Benefits.............................................. 26
3.14 Taxes.......................................................... 27
3.15 Intellectual Property.......................................... 28
3.16 Governmental Authorization..................................... 28
3.17 Litigation..................................................... 28
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.................................. 29
4.1 Conduct of Business of the Company............................. 29
4.2 Conduct by Parent.............................................. 31
5. ADDITIONAL AGREEMENTS................................................ 32
5.1 Proxy Statement/Prospectus; Registration Statement............. 32
5.2 Meeting of Stockholders........................................ 32
5.3 Access to Information; Confidentiality......................... 32
5.4 No Solicitation................................................ 32
5.5 Expenses....................................................... 34
5.6 Break-Up Fee................................................... 34
5.7 Public Disclosure.............................................. 35
5.8 Pooling Accounting............................................. 35
5.9 Auditors' Letters.............................................. 35
5.10 Affiliate Agreements........................................... 36
5.11 Legal Requirements............................................. 36
5.12 Blue Sky Laws.................................................. 36
5.13 Reasonable Commercial Efforts and Further Assurances........... 37
5.14 Certain Benefit Plans.......................................... 37
5.15 Tax-Free Reorganization........................................ 38
5.16 Nasdaq Listing................................................. 38
5.17 Indemnification................................................ 38
5.18 Notification................................................... 38
5.19 Company Stock Options; Employee Stock Purchase Plan............ 38
6. CONDITIONS TO THE MERGER............................................. 39
6.1 Conditions to Obligations of Each Party to Effect the Merger... 39
6.2 Additional Conditions to Obligations of The Company............ 40
6.3 Additional Conditions to Obligations of Parent and Merger Sub.. 42
</TABLE>
(ii)
<PAGE>
7. TERMINATION, AMENDMENT AND WAIVER................................ 46
7.1 Termination................................................ 46
7.2 Effect of Termination...................................... 47
7.3 Notice of Termination...................................... 48
7.4 Amendment.................................................. 48
7.5 Extension; Waiver.......................................... 48
8. GENERAL PROVISIONS............................................... 48
8.1 Non-Survival of Representations and Warranties............. 48
8.2 Notices.................................................... 48
8.3 Interpretation............................................. 49
8.4 Counterparts............................................... 50
8.5 Entire Agreement........................................... 50
8.6 Severability............................................... 50
8.7 Other Remedies............................................. 50
8.8 Governing Law.............................................. 50
8.9 Rules of Construction...................................... 50
8.10 Assignment................................................. 50
(iii)
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
"Acquiring Persons".............................................. Section 2.2
"Acquisition Proposal"........................................... Section 5.4
"Affiliates".....................................................Section 5.10
"Agreement"......................................................Introduction
"Certificate of Merger".......................................... Section 1.2
"Certificates"................................................... Section 1.8
"Clarification Agreements"....................................... Section 6.3
"Closing"........................................................ Section 1.2
"Closing Date"................................................... Section 1.2
"Code"........................................................... Recital D
"Commercial Software"............................................Section 2.11
"Company"........................................................Introduction
"Company Affiliate Agreement"....................................Section 5.10
"Company Affiliate Agreements"...................................Section 5.10
"Company Balance Sheet".......................................... Section 2.5
"Company Capital Stock".......................................... Section 1.6
"Company Employees"..............................................Section 5.14
"Company Ex-U.S. Pension Plan"...................................Section 2.18
"Company Financials"............................................. Section 2.5
"Company Intellectual Property Rights"...........................Section 2.11
"Company Permits"................................................Section 2.14
"Company Plan"...................................................Section 2.18
</TABLE>
(iv)
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
"Company Preferred Stock"......................................... Section 2.2
"Company Right"................................................... Section 2.2
"Company Rights Agreement"........................................ Section 2.2
"Company Schedules"................................................. Section 2
"Company SEC Reports"............................................. Section 2.5
"Company Stock Option"........................................... Section 5.19
"Company Stock Option Plan"...................................... Section 5.19
"Company Stockholders' Meeting".................................. Section 2.23
"Confidentiality Agreements"...................................... Section 5.3
"Conversion Shares"............................................... Section 1.6
"Company December 31st Financials"................................ Section 2.5
"Delaware Law".................................................... Section 1.1
"Effective Time".................................................. Section 1.2
"End-User Licenses".............................................. Section 2.11
"ERISA".......................................................... Section 2.18
"ERISA Affiliate"................................................ Section 2.18
"Exchange Act".................................................... Section 2.4
"Exchange Agent".................................................. Section 1.8
"Exchange Ratio".................................................. Section 1.6
"Expenses"........................................................ Section 5.5
"Family"......................................................... Section 2.19
"Governmental Entity"............................................. Section 2.4
"HSR Act"......................................................... Section 2.4
</TABLE>
(v)
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
"Material Adverse Effect"................................ Sections 2.6 and 3.2
"Material Contract"............................................... Section 2.12
"Merger"............................................................. Recital A
"Merger Sub"...................................................... Introduction
"Millennial Dates"................................................ Section 2.11
"Notes"............................................................ Section 3.3
"Parent".......................................................... Introduction
"Parent Affiliate Agreement"...................................... Section 5.10
"Parent Balance Sheet"............................................. Section 3.5
"Parent Common Stock".............................................. Section 1.6
"Parent December 31st Financials".................................. Section 3.5
"Parent Financials"................................................ Section 3.5
"Parent Intellectual Property Rights"............................. Section 3.15
"Parent Permits".................................................. Section 3.16
"Parent Plan"..................................................... Section 3.12
"Parent-Provided Plans"........................................... Section 5.14
"Parent Rights".................................................... Section 3.3
"Parent Rights Agreement".......................................... Section 3.3
"Parent Schedules"................................................... Section 3
"Parent SEC Reports"............................................... Section 3.5
"Piper Engagement Letter"......................................... Section 2.26
"Proxy Statement"................................................. Section 2.23
"Qualifying Subsequent Parent Acquisition"......................... Section 6.2
</TABLE>
(vi)
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
"Registration Statement"........................................ Section 3.7
"Related Persons"............................................... Section 2.19
"Returns"........................................................ Section 2.8
"Rule 145"...................................................... Section 5.10
"Securities Act"................................................. Section 2.4
"Series B Stock"................................................. Section 2.2
"Severance Obligations".......................................... Section 6.3
"Share Value".................................................... Section 1.6
"Significant Tax Agreement"...................................... Section 2.8
"Stock Option Plans"............................................ Section 5.19
"Substitute Option"............................................. Section 5.19
"Superior Proposal".............................................. Section 5.4
"Surviving Corporation".......................................... Section 1.1
"Tax"............................................................ Section 2.8
</TABLE>
(vii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of February 18, 1998 among PLATINUM technology, inc., a Delaware
corporation ("Parent"), PT Acquisition Corporation I, a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), and Mastering, Inc., a
Delaware corporation (the "Company").
RECITALS
A. The Board of Directors of each of the Company, Parent and Merger Sub
believes that it is in the best interests of each company and their respective
stockholders that the Company and Merger Sub combine into a single company
through the 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, the outstanding shares of
Common Stock of the Company shall be converted into shares of Common Stock of
Parent at the rate determined herein.
C. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
E. The parties intend that the Merger shall be recorded for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. 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 General Corporation Law of the State of Delaware
("Delaware Law"), Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger of Merger Sub and the Company substantially in the form of
Exhibit A attached hereto (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, in accordance with the relevant provisions
<PAGE>
of Delaware Law (the time of such filing being the "Effective Time") as soon as
practicable on or after the Closing Date (as herein defined). The closing of the
Merger (the "Closing") shall take place at the offices of Parent at a time and
date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver (if permissible) of the conditions
set forth in Article VI, or at such other time, date and location as the parties
hereto agree (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of 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 Name; Certificate of Incorporation; Bylaws.
(a) The name of the Surviving Corporation will be Mastering, Inc.
(b) At the Effective Time, the Certificate of Incorporation of the
Company shall be restated in its entirety and shall read substantially in
the form set forth on Exhibit A to the Certificate of Merger.
(c) 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 directors of Merger Sub shall be the
initial directors of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified. The officers of Merger
Sub shall be the initial officers of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
(a) Conversion of Company Capital Stock. Subject to the provisions of
subsections (d) and (e) of this Section 1.6, each share of Common Stock,
par value $.001 per share, of the Company (the "Company Capital Stock")
issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Capital Stock to be canceled pursuant to Section
1.6(b)) will be converted automatically into .448 shares (the "Conversion
Shares") of Common Stock, par value $0.001 per share, of Parent (the
"Parent Common Stock"). All shares of Company Capital Stock, when
converted, shall no longer be outstanding and shall automatically be
canceled and retired and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive (a) any dividends and other
2
<PAGE>
distributions in accordance with Section 1.8(d), (b) certificates
representing the shares of Parent Common Stock into which such shares are
converted and (c) any cash, without interest, in lieu of fractional shares
to be issued or paid in consideration therefor upon the surrender of such
certificates in accordance with Section 1.6(e). The ratio of Conversion
Shares per share of Company Capital Stock is sometimes hereinafter referred
to as the "Exchange Ratio."
(b) Cancellation of Parent-Owned Stock. Each share of Company Capital
Stock owned by the Company, Merger Sub, Parent, or any direct or indirect
subsidiary of Parent or the Company, including without limitation, any
shares of Company Capital Stock held as treasury stock of the Company or
any direct or indirect subsidiary of the Company, immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Capital Stock of Merger Sub. Each share of Common Stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
(1) validly issued, fully paid and nonassessable share of Common Stock, par
value $.01 per share, of the Surviving Corporation. Each stock certificate
of Merger Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) Adjustments to the Exchange Ratio. In the event of any
reclassification, stock split or stock dividend with respect to Parent
Common Stock, any change or conversion of Parent Common Stock into other
securities or any other dividend or distribution with respect to Parent
Common Stock (or if a record date with respect to any of the foregoing
should occur) prior to the Effective Time, appropriate and proportionate
adjustments, if any, shall be made to the Exchange Ratio, and all
references to the Exchange Ratio in this Agreement shall be deemed to be to
the Exchange Ratio as so adjusted.
(e) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, 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 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
Share Value as of the Effective Time. For purposes of this Agreement, the
"Share Value" means, as of any date of determination, the average of the
closing (last) prices for a share of Parent Common Stock, as reported on
the Nasdaq National Market (as reported in The Wall Street Journal, Midwest
Edition), for the most recent ten (10) days that the shares of Parent
Common Stock have traded ending on the trading day immediately prior to
such date of determination.
1.7 No Dissenters' Rights. Holders of shares of Company Capital Stock who
dissent from the Merger are not entitled to rights of appraisal under Section
262 of the Delaware Law by virtue of Sections 262(b)(1) and (2) of the Delaware
Law.
3
<PAGE>
1.8 Surrender of Certificates.
(a) Exchange Agent. The Harris Trust and Savings Bank, or another
similar institution selected by Parent and reasonably acceptable to the
Company, shall act as the 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, through such reasonable procedures as
Parent may adopt, the shares of Parent Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Capital Stock,
and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(e).
(c) Exchange Procedures. Promptly after the Effective Time, the
Exchange Agent 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 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 customary 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 into which the shares represented by the surrendered
Certificate shall have been converted at the Effective Time pursuant to
this Article I, payment in lieu of fractional shares which such holder has
the right to receive pursuant to Section 1.6 and certain dividends and
other distributions in accordance with Section 1.8(d), and the Certificate
so surrendered shall forthwith be canceled. Until so surrendered, each
outstanding certificate that, prior to the Effective Time, represented a
share of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends or
other distributions, 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 date of this Agreement 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
4
<PAGE>
Common Stock issued in exchange therefor, without interest: (i) at the time
of such surrender or as promptly as practicable thereafter, the amount of
any dividends or other distributions theretofore paid with respect to the
shares of Parent Common Stock represented by such new certificate and
having a record date on or after the Effective Time and a payment date
prior to such surrender; (ii) at the appropriate payment date or as
promptly as practicable thereafter, the amount of any dividends or other
distributions payable with respect to such shares of Parent Common Stock
and having a record date on or after the Effective Time but prior to such
surrender and a payment date on or subsequent to such surrender; and (iii)
at the time of such surrender or as promptly as practicable thereafter, the
amount of any cash payable with respect to a fractional share of Parent
Common Stock to which such holder is entitled pursuant to Section 1.6(e).
(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 (i) 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
(ii) 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 Capital 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, cash for fractional
shares, if any, as may be required pursuant to Section 1.6 and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 1.8(d); 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 customary bond in such sum as it
may reasonably direct as indemnity against any claim that may be made
5
<PAGE>
against Parent, the Surviving Corporation 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 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 further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Surviving Corporation are fully authorized in the name of and on behalf of the
Company and Merger Sub to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions disclosed in writing in the disclosure letter supplied by the
Company to Parent (the "Company Schedules") which identifies the Section numbers
hereof to which the disclosures pertain and which is dated as of the date
hereof, as set forth below.
2.1 Organization of the Company. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own, lease and operate its property and to
carry on its business as now being conducted, and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which such qualification is required by virtue of the nature of the activities
conducted by it, except to the extent that the failure to be so qualified and in
good standing could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company (as hereinafter defined).
The Company Schedules contain a true and complete list of all of the Company's
subsidiaries as of the date hereof and the jurisdiction of incorporation of each
subsidiary. The Company owns, directly or indirectly through one or more
subsidiaries, 100% of the capital stock of each of its subsidiaries and there
are no securities exchangeable into or exercisable for any capital stock of any
such subsidiary issued, reserved for issuance or outstanding. Except as set
forth in the Company Schedules, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any interest in, any corporation, partnership,
joint venture or other business association or entity. The Company has delivered
or made available to Parent a true and correct copy of the Certificate of
Incorporation and Bylaws of the Company and similar governing instruments of
each of its subsidiaries, each as amended to the date hereof.
2.2 Company Capital Structure. The authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock, $.001 par value, of which
there were 13,738,832 shares issued and outstanding as of the date hereof plus
any shares issued on the date hereof upon exercise of options outstanding on the
date hereof and 2,000,000 shares of Preferred Stock, $.001 par value ("Company
Preferred Stock"), of which 300,000 shares have been
6
<PAGE>
designated as Series B Participating Preferred Stock ("Series B Stock"). No
shares of the Company Preferred Stock are issued and outstanding as of the date
hereof and there will be no such shares outstanding as of the Effective Time.
The registered holders of Company Capital Stock have the right (a "Company
Right") to purchase from the Company shares of Series B Stock. The description
and terms of the Company Rights are set forth in a Rights Agreement (the
"Company Rights Agreement") between the Company and Harris Trust and Savings
Bank, as Rights Agent, a true and correct copy of which has been delivered to
Parent. On or prior to the date hereof, the Board of Directors of the Company
amended the Company Rights Agreement to provide that the Parent and Merger Sub
are not "Acquiring Persons" as defined in the Company Rights Agreement with
respect to their rights to acquire Company Capital Stock pursuant to this
Agreement. All outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of the
Company or any agreement or document to which the Company is a party or by which
it is bound. As of the date hereof, the Company had reserved 5,515,624 shares of
Company Capital Stock, net of exercises, for issuance to employees pursuant to
the Company Stock Option Plans, under which options are outstanding for
4,783,397 shares of Company Capital Stock minus any options exercised on the
date hereof. All shares of Company Capital Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. The Company Schedules include a
list for each outstanding option as of the date hereof, of the following: (i)
the name of the holder of such option, (ii) the number of shares subject to such
option, and (iii) the exercise price of such option. No repricing of options has
taken place since December 31, 1995. For the offering period ending March 31,
1998 if all current participants continue to contribute at current levels
(assuming the purchase price of such shares to be 85% of the fair market value
of the Company Capital Stock on the first day of the current offering period),
there would be an aggregate of approximately 10,055 shares issuable pursuant to
the Stock Purchase Plan and no more than 11,000 shares are issuable for such
offering period. Since December 31, 1996, there have been no changes in the
capital structure of the Company other than issuances of Company Capital Stock
(i) upon the exercise of options granted under the Company Stock Option Plans
and (ii) pursuant to the Stock Purchase Plan.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2 hereof, there are no equity securities of any class of the Company,
or any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. Except for securities the Company
owns, directly or indirectly through one or more subsidiaries, there are no
equity securities of any class of any subsidiary of the Company, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in Section 2.2 hereof, except
for the vesting of options under the Company Stock Option Plans in connection
with a change in control, except for rights to purchase shares of Series B
Preferred Stock pursuant to the Company Rights Agreement all of which rights
shall expire at the Effective Time, and except for obligations of the Company
under the Stock Purchase Plan, there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
the Company or any of its subsidiaries is a party or by which it is bound
obligating the Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to grant,
7
<PAGE>
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. To the knowledge of the Company,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of the Company. No existing rights with
respect to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of shares of Company Capital Stock, including, but not
limited to, demand rights or piggy-back registration rights, shall apply with
respect to any shares of Parent Common Stock issuable in connection with the
Merger.
2.4 Authority; No Conflicts.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to obtaining requisite stockholder
approval, 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 the Company, subject only to the approval of the
Merger by the vote of the holders of at least a majority of the Company
Capital Stock voting together as one class. 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 enforceability may be limited by bankruptcy and other similar laws and
general principles of equity.
(b) Except as set forth in the Company Schedules, the execution and
delivery of this Agreement by the Company does not, and 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 (i) any
provision of the Certificate of Incorporation, as amended, or Bylaws, as
amended, of the Company or similar governing instruments of any of its
subsidiaries or (ii) any mortgage, indenture, lease, contract or other
agreement to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or the assets of the Company
or any of its subsidiaries is bound, except for any such conflict,
violation, default, right or loss which could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company, or (iii) any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
the Company, any of its subsidiaries or their respective properties or
assets, except for any such conflict, violation, default, right or loss
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(c) Except as set forth in the Company Schedules, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity"), is required by or
with respect to the Company or any of its subsidiaries in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except (i) in connection, or in
compliance, with the provisions of the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended ("HSR Act"), the Securities Act and the
Securities Exchange Act of 1934, as amended
8
<PAGE>
(the "Exchange Act"), (ii) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company or any of its subsidiaries
is qualified to do business, (iii) applicable requirements, if any, of The
Nasdaq National Market and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations and filings, the failure of
which to be obtained or made could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
2.5 SEC Filings; Company Financial Statements.
(a) The Company has filed all forms, reports and documents required
to be filed with the SEC since March 31, 1996. All such required forms,
reports and documents are referred to herein as the "Company SEC Reports."
As of their respective dates, the Company SEC Reports (i) complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Reports, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
None of the Company's subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Except as set forth in the Company Schedules, each of the
consolidated financial statements (including, in each case, any related
notes thereto) contained in the Company SEC Reports (the "Company
Financials"), including any Company SEC Reports filed after the date hereof
until the Closing, and the consolidated unaudited balance sheet of the
Company and its subsidiaries as of December 31, 1997 and the consolidated
unaudited statement of operations for the twelve month period then ended,
true and correct copies of which were delivered to the Parent prior to the
date hereof (the "Company December 31st Financials"), (x) complies or
complied, as the case may be, as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (y) was
prepared (or will be prepared, as the case may be) in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated therein or in
the notes thereto) and (z) fairly presented (or will fairly present, as the
case may be) in all material respects the consolidated financial position
of the Company and its subsidiaries as at the respective dates thereof and
the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited financial statements do not include
footnote disclosure of the type associated with audited financial
statements and (other than the Company December 31st Financials) were or
are subject to normal and recurring year-end adjustments and to any other
adjustments described therein. The consolidated unaudited balance sheet of
the Company and its subsidiaries included in the Company December 31st
Financials is hereinafter referred to as the "Company Balance Sheet."
(c) As of the date hereof, there are no material amendments or
modifications to agreements, documents or other instruments which
previously had been filed by the
9
<PAGE>
Company with the SEC pursuant to the Securities Act or the Exchange Act,
which have not yet been filed with the SEC but which are required to be
filed.
2.6 Absence of Certain Changes of Events. Except as described in the
Company SEC Reports filed prior to the date hereof or the Company Schedules,
since the date of the Company Balance Sheet, except with respect to the actions
contemplated by this Agreement, each of the Company and its subsidiaries has
conducted its business only in the ordinary course and in a manner consistent
with past practice and, since such date, there has not been (i) any Material
Adverse Effect on the Company or any development that could reasonably be
expected to have a Material Adverse Effect on the Company; (ii) any damage,
destruction or loss (whether or not covered by insurance) on the Company or any
of its subsidiaries that has had or could reasonably be expected to have a
Material Adverse Effect on the Company; (iii) any material change by the Company
or any of its subsidiaries in its accounting methods, principles or practices;
(iv) any material revaluation by the Company or any of its subsidiaries of any
of its assets, including, without limitation, writing down the value of
capitalized software or inventory or deferred tax assets or writing off notes or
accounts receivable other than in the ordinary course of business; (v) any labor
dispute or charge of unfair labor practice, which could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company, or, to the knowledge of the Company, any activity or proceeding by a
labor union or representative thereof to organize any employee of the Company or
any of its subsidiaries or any campaign being conducted to solicit authorization
from employees to be represented by such labor union; (vi) any waiver by the
Company or any of its subsidiaries of any rights of material value; or (vii) any
other action or event that would have required the consent of the Parent
pursuant to Section 4.1 had such action or event occurred after the date of this
Agreement. In this Agreement, the term "Material Adverse Effect" used in
reference to the Company or any of its subsidiaries means any event, change or
effect materially adverse to the financial condition, assets, liabilities,
results of operations or business of the Company and its subsidiaries, taken as
a whole, other than changes resulting solely from changes in general economic or
computer industry conditions.
2.7 Liabilities. Except (a) for liabilities incurred in the ordinary
course of business consistent with past practice, (b) for transaction expenses
incurred in connection with this Agreement, (c) for liabilities set forth on the
balance sheet included in the Company December 31st Financials, or (d) as set
forth in the Company Schedules, since December 31, 1997, neither the Company nor
any of its subsidiaries has incurred any material liabilities that would be
required to be reflected or reserved against in a consolidated balance sheet of
the Company and its subsidiaries prepared in accordance with generally accepted
accounting principles as applied in preparing the consolidated balance sheet of
the Company and its subsidiaries as of December 31, 1997 contained in the
Company December 31st Financials.
2.8 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all federal, state, local and foreign, taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, 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,
10
<PAGE>
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and including
any liability for taxes of a predecessor entity. For purposes of this
Agreement, a "Significant Tax Agreement" is any agreement to which the
Company or any subsidiary of the Company is a party under which the Company
or such subsidiary could reasonably be expected to be liable to another
party under such agreement in an amount in excess of $10,000 in respect of
Taxes payable by such other party to any taxing authority.
(b) Tax Returns and Audits. Except as set forth in the Company
Schedules:
(i) The Company and each of its subsidiaries has timely filed
all federal, state, local and foreign returns, information statements
and reports relating to Taxes ("Returns") required by applicable Tax
law to be filed by the Company and each of its subsidiaries, except
for any such failures to file that could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on
the Company. All Taxes owed by the Company or any of its subsidiaries
to a taxing authority, or for which the Company or any of its
subsidiaries is liable, whether to a taxing authority or to other
persons or entities under a Significant Tax Agreement, as of the date
hereof, have been paid and, as of the Effective Time, will have been
paid, except for any such failure to pay that could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company. The Company has made (A) accruals for Taxes on
the Company Balance Sheet and (B) with respect to periods after the
date of the Company Balance Sheet, provisions on a periodic basis
consistent with past practice on the Company's or one of its
subsidiaries' books and records or financial statements, in each case
which are adequate to cover any Tax liability of the Company and each
of its subsidiaries determined in accordance with generally accepted
accounting principles through the date of the Company Balance Sheet or
the date of the provision, as the case may be, except where failures
to make such accruals or provisions could not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
(ii) Except to the extent that any such failure to withhold
could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, the Company and
each of its subsidiaries have withheld with respect to its employees
all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(iii) There is no Tax deficiency outstanding, proposed or
assessed against the Company or any of its subsidiaries, except any
such deficiency that, if paid, could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on
the Company. Neither the Company nor any of its subsidiaries executed
or requested any waiver of any statute of limitations on or extending
the period for the assessment or collection of any federal or material
state Tax.
11
<PAGE>
(iv) No federal or state Tax audit or other examination of
the Company or any of its subsidiaries is presently in progress, nor
has the Company or any of its subsidiaries been notified in writing of
any request for such federal or material state Tax audit or other
examination, except in all cases for Tax audits and other examinations
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(v) Neither the Company nor any of its subsidiaries has 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.
(vi) Neither the Company nor any of its subsidiaries is a
party to (A) any agreement with a party other than the Company or any
of its subsidiaries providing for the allocation or payment of Tax
liabilities or payment for Tax benefits with respect to a
consolidated, combined or unitary Return which Return includes or
included the Company or any subsidiary or (B) any Significant Tax
Agreement other than any Significant Tax Agreement described in (A).
(vii) Except for the group of which the Company and its
subsidiaries are now presently members, neither the Company nor any of
its subsidiaries has ever been a member of an affiliated group of
corporations within the meaning of Sections 1504 of the Code.
(viii) Neither the Company nor any of its subsidiaries has
agreed to make nor is it required to make any adjustment under Section
481(a) of the Code by reason of a change in accounting method or
otherwise provided, however, that the Company is required to make an
adjustment under Section 481(a) of the Code by reason of change in
accounting method related to the acquisition of Graphic Media, Inc.
and the change in its accounting method from cash to accrual, and the
full amount of the adjustment (which will not exceed $400,000 of
taxable income) will be recognized by the Company on its timely filed
federal and state income tax returns for the tax year ended December
31, 1997.
(ix) The Company is not, and has not at any time been, a
"United States Real Property Holding Corporation" within the meaning
of Section 897(c)(2) of the Code.
2.9 Restrictions on Business Activities. Except as set forth in the
Company Schedules, there is no agreement, judgment, injunction, order or decree
binding upon the Company or its subsidiaries or their properties (including,
without limitation, their intellectual properties) which has or could reasonably
be expected to have the effect of prohibiting or materially impairing any
material acquisition of property by the Company or any of its subsidiaries or
the conduct of the business by the Company or any of its subsidiaries, including
any exclusive distribution or licensing agreements.
12
<PAGE>
2.10 Absence of Liens and Encumbrances. Each of the Company and its
subsidiaries has good, valid, and marketable title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its properties and
assets (whether real, personal or mixed, and whether tangible or intangible),
necessary for the conduct of its business, free and clear of any liens and
encumbrances, except (i) as reflected in the Company December 31st Financials,
(ii) liens for Taxes not yet due and payable, and (iii) such liens and
encumbrances that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
2.11 Intellectual Property.
(a) Except as disclosed in the Company Schedules, the Company or its
subsidiaries owns, or is licensed, or otherwise possesses legally
enforceable rights, to use, sell or license, as applicable, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, schematics, technology, trade secrets, know-how,
computer software (in both source code and object code form), and tangible
or intangible proprietary information or material (excluding in each case
Commercial Software (as defined below)) that are material to the business
of the Company or its subsidiaries as currently conducted (the "Company
Intellectual Property Rights"). Except as disclosed in the Company
Schedules, each of the Company and its subsidiaries has licenses for all
Commercial Software used in its business and neither the Company nor any
subsidiary has any obligation to pay fees, royalties and other amounts at
any time pursuant to any such license. "Commercial Software" means packaged
commercially available software programs generally available to the public
which have been licensed to the Company or any of its subsidiaries pursuant
to end-user licenses and which are used in the Company's or any of its
subsidiaries' respective businesses.
(b) The Company Schedules set forth a complete list of all licenses,
sublicenses and other agreements as to which the Company or any of its
subsidiaries is a party (as licensor, licensee or otherwise) and pursuant
to which the Company or any of its subsidiaries or any other person is
authorized to use, sell, or license any Company Intellectual Property
Rights (excluding object code end-user licenses granted to end-users
pursuant to the Company's standard form of end-user license 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")). Neither
the Company nor any of its subsidiaries is in violation of any such
license, sublicense or agreement, except for such violations that could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
(c) Except as disclosed in the Company Schedules, the Company or one
of its subsidiaries is the sole and exclusive owner of the Company
Intellectual Property Rights (free and clear of any liens or encumbrances),
and has sole and exclusive rights to the use and distribution therefor or
the material covered thereby in connection with the services or products in
respect of which such Company Intellectual Property Rights are currently
being used. Except as disclosed on the Company Schedules, the Company or
one of its subsidiaries is a non-exclusive licensee as to all other Company
Intellectual Property Rights with rights to the use and distribution
therefor or the material covered
13
<PAGE>
thereby in connection with the services or products in respect of which
such Company Intellectual Property Rights are currently being used. Neither
the Company nor any of its subsidiaries is contractually obligated to pay
compensation to any third party with respect to any Company Intellectual
Property Rights, except pursuant to the agreements disclosed on the Company
Schedules.
(d) Except as disclosed in the Company Schedules, neither the Company
nor any of its subsidiaries has infringed on any intellectual property
rights of any third persons, except for infringements that could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(e) Except as disclosed in the Company Schedules, no claims with
respect to the Company Intellectual Property Rights are pending or, to the
knowledge of the Company, threatened by the Company or any third party, (i)
alleging that the manufacture, sale, licensing or use of any Company
Intellectual Property Rights as now manufactured, sold, licensed or used by
the Company or any of its subsidiaries or any third party infringes on any
intellectual property rights of any third party or the Company, (ii)
against the use by the Company or any of its subsidiaries or any third
party of any technology, know-how or computer software used in the
Company's business as currently conducted or (iii) challenging the
ownership by the Company or any of its subsidiaries, validity or
effectiveness of any such Company Intellectual Property Rights; provided,
however, no disclosure pursuant to this paragraph (e) shall be required
with respect to any Company Intellectual Property Rights which are licensed
to the Company or any of its subsidiaries on a non-exclusive basis, unless
the Company has knowledge of the pending or threatened claim and such
claim, if true, could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(f) Except as disclosed in the Company Schedules, neither the Company
nor any of its subsidiaries has entered into any agreement under which the
Company or its subsidiaries is restricted from selling, licensing or
otherwise distributing any products to any class or type of customers, in
any geographic area or during any period of time.
(g) The Company or one of its subsidiaries has taken reasonable
security measures to safeguard and maintain their respective property
rights in, all Company Intellectual Property Rights owned by the Company or
any of its subsidiaries. Except for clerical and other lower level internal
support personnel (e.g. mail room, messengers, etc.), all officers,
employees and consultants of the Company or any of its subsidiaries have
executed and delivered to the Company or one of its subsidiaries an
agreement regarding the protection of proprietary information, and (i) the
assignment to the Company or one of its subsidiaries of all Company
Intellectual Property Rights arising from the services performed for the
Company or any of its subsidiaries by such persons, or (ii) the ownership
by the Company or one of its subsidiaries of all Company Intellectual
Property Rights arising from the services performed for the Company or one
of its subsidiaries by such persons. To the knowledge of the Company, no
current or prior officers, employees or consultants of the Company or any
of its subsidiaries claim, and neither the Company nor any of its
subsidiaries is aware of any grounds to assert a
14
<PAGE>
claim to, any ownership interest in any Company Intellectual Property Right
as a result of having been involved in the development of such property
while employed by or consulting to the Company or one of its subsidiaries,
or otherwise.
(h) Except as disclosed in the Company Schedules, the occurrence in or
use by any computer software included in the Company Intellectual Property
Rights, of dates on or after January 1, 2000 (the "Millennial Dates") will
not adversely affect the performance of such software with respect to date
dependent data, computations, output or other functions (including without
limitation, calculating, computing and sequencing) and such software will
create, sort and generate output data related to or including Millennial
Dates without any material errors or omissions.
(i) No government funding or university or college facilities were
used in the development of the computer software programs or applications
owned by the Company or one of its subsidiaries.
2.12 Agreements, Contracts and Commitments. Except as set forth in the
Company Schedules or in the Exhibits to the Company SEC Reports filed prior to
the date of this Agreement, neither the Company nor any of its subsidiaries is a
party to nor is it or its assets bound by any Material Contract. For purposes of
this Agreement, "Material Contract" means:
(a) any collective bargaining agreements;
(b) any employment or consulting agreement, contract or binding
commitment (including royalty agreements with employees) providing for
compensation or payments in excess of $50,000 in any year not terminable by
the Company or its subsidiary on thirty days notice without liability,
except to the extent general principles of wrongful termination or other
employment law may limit the Company's or its subsidiary's ability to
terminate employees at will;
(c) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated or the right to benefits will be created, by the
occurrence of any of the transactions contemplated by this Agreement;
(d) any agreement of indemnification or guaranty not entered into in
the ordinary course of business with any party in excess of $100,000
individually or in the aggregate, and any agreement of indemnification or
guarantee between the Company or any of its subsidiaries and any of its
officers or directors, irrespective of the amount of such agreement or
guarantee;
(e) Any agreement, contract or binding commitment containing any
covenant directly or indirectly limiting the freedom of the Company or any
of its subsidiaries to engage in any line of business, compete with any
person, or sell any product, or
15
<PAGE>
following the consummation of the Merger would so limit Parent, the Company
or any of Company's subsidiaries;
(f) any agreement, contract or binding commitment relating to capital
expenditures and involving future obligations in excess of $250,000;
(g) any agreement, contract or binding commitment relating to the
disposition or acquisition of assets not in the ordinary course of business
(since March 1, 1996) or any ownership interest in any corporation,
partnership, joint venture or other business enterprise;
(h) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit (other than extensions of credit in the
ordinary course of business from vendors);
(i) any joint marketing or development agreement (including any
agreements with independent contractors);
(j) any distribution, sales representative, reseller, or value-added
reseller agreement, including in such Company Schedules an indication of
those distributors, sales representatives, resellers or value-added
resellers who have not met the quotas established in accordance with those
agreements or whose agreements are otherwise currently terminable;
(k) other than in connection with the transactions contemplated by
this Agreement, any other agreement, contract or binding commitment
(excluding real and personal property leases) which involves payment by the
Company or any of its subsidiaries of $100,000 or more in any twelve (12)
month period or $250,000 in the aggregate and is not cancelable without
penalty within thirty (30) days;
(l) any escrow agreements involving Company Intellectual Property
Rights (including source codes);
(m) any agreements to register its securities; or
(n) any other material agreements, contracts or binding commitments.
The numerical thresholds set forth in this Section 2.12 shall not be deemed in
any respects to define materiality for other purposes of this Agreement.
2.13 No Default. Neither the Company nor any of its subsidiaries has
breached, or received in writing any claim or threat that it has breached, in
any material respect, any Material Contract. Each Material Contract that has
not expired or been terminated in accordance with its terms is in full force and
effect, except for such Material Contracts for which the failure to be in full
force and effect could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
16
<PAGE>
2.14 Governmental Authorization. Each of the Company and its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities which are material to the operation of
its business as currently conducted (the "Company Permits"). Neither the
Company nor any of its subsidiaries is in violation of the terms of the Company
Permits, except for violations which could not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. The
business of the Company and its subsidiaries is not being, and the business of
the Company and its subsidiaries (and any prior subsidiaries (but only with
respect to the period prior to the disposition of such subsidiary)) currently or
previously conducted has not been, conducted in violation of any law, ordinance
or regulation of any Governmental Entity, except for violations which could not
be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. No material investigation or review by any
Governmental Entity with respect to the Company or any of its subsidiaries is
pending or, to the knowledge of the Company, threatened.
2.15 Litigation. Except as disclosed in the Company Schedules or in the
Company SEC Reports filed prior to the date of this Agreement, there is no suit,
action, arbitration, demand, claim or proceeding pending, or, to the knowledge
of the Company, threatened against the Company or any of its subsidiaries,
except for suits, actions, arbitrations, demands, claims and proceedings which
could not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company; nor is there any material judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries. The Company has
made available to Parent or its counsel correct and complete copies of all
correspondence prepared by its counsel for the Company's auditors in connection
with the last two completed audits of the Company's financial statements and any
such correspondence since the date of the last such audit.
2.16 Insurance. Other than with respect to directors and officers
insurance and errors and omissions insurance, the Company and each of its
subsidiaries maintains in full force and effect insurance on its assets and its
business and operations against loss or damage, risks, hazards, and liabilities
of any kinds on and in the amounts customarily insured against by corporations
engaged in the same or similar businesses.
2.17 Labor Matters. Each of the Company and its subsidiaries has
complied with all applicable laws, and there is no allegation, charge or
complaint or proceeding pending or, to the Company's knowledge, threatened
against the Company, its subsidiaries or any of their officers, directors or
employees, relating to the employment of labor, including with respect to
employment, equal employment opportunity, discrimination, harassment,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and other taxes, workers compensation or long term disability,
except, in each case, for any such non-compliance, allegations, charges,
complaints or proceedings which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Except as disclosed in the Company Schedules, there has never been, there is not
presently pending or existing, and to the Company's knowledge there is not
threatened, any labor arbitration, or proceeding in respect of the grievance of
any employee, or other labor dispute against or affecting the Company or any of
its subsidiaries, except, in each case, for any of the foregoing which could not
reasonably be expected to have, individually or in the aggregate, a Material
17
<PAGE>
Adverse Effect on the Company, or, to the knowledge of the Company, any strike,
slowdown, picketing, work stoppage, organizational activity or application or
complaint filed by an employee or union with the National Labor Relations Board
or any comparable governmental authority. No application for certification of a
collective bargaining agent is pending or, to the Company's knowledge,
threatened. There is no lockout of any employees by the Company or any of its
subsidiaries, and no such action is contemplated by the Company or any of its
subsidiaries. As of the date hereof, neither the Company nor any of its
subsidiaries has given to or received from any current officer or director of
the Company or any of its subsidiaries or any current instructor for the
Company's or any of its subsidiaries' instructor-led training seminars, written
notice of termination of employment or has the knowledge that any such officer,
director or instructor intends to terminate such employment.
2.18 Employee Benefits.
(a) The Company Schedules contain a list of each Company Plan (as
hereinafter defined) maintained by the Company or any of its subsidiaries.
With respect to each Company Plan, the Company has delivered to Parent
prior to the date hereof, to the extent applicable, a true and correct copy
of (i) such Company Plan and all amendments thereto, (ii) each trust
agreement, insurance contract or administration agreement relating to such
Company Plan, (iii) the most recent summary plan description for each
Company Plan for which a summary plan description is required, (iv) the
most recent annual report (Form 5500) filed with the IRS, (v) the most
recent actuarial report or valuation relating to a Company Plan subject to
Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (vi) the most recent determination letter, if any, issued by the
IRS with respect to any Company Plan intended to be qualified under section
401(a) of the Code, (vii) any request for a determination currently pending
before the IRS and (viii) all correspondence with the IRS, the Department
of Labor or the Pension Benefit Guaranty Corporation relating to any
outstanding controversy. Except as set forth on the Company Schedules and
except as could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, (i) each Company Plan
complies with ERISA, the Code and all other applicable statutes and
governmental rules and regulations, (ii) no "reportable event" (within the
meaning of Section 4043 of ERISA) has occurred within the past three years
with respect to any Company Plan which is likely to result in liability to
the Company and (iii) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA. At
no time has the Company or any of its ERISA Affiliates (as hereinafter
defined) been required to contribute to, or otherwise had any liability
with respect to, a "multiemployer plan" (as defined in Section 4001(a)(3)
of ERISA).
(b) There has been no failure to make any contribution or pay any
amount due to any Company Plan as required by Section 412 of the Code,
Section 302 of ERISA, or the terms of any such Plan, and no Company Plan,
nor any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
18
<PAGE>
(c) To the knowledge of the Company, there are no actions, suits or
claims pending or threatened (other than routine claims for benefits) with
respect to any Company Plan which could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect on the
Company. Neither the Company nor any of its ERISA Affiliates has incurred
or would reasonably be expected to incur any material liability under or
pursuant to Title IV of ERISA, including, without limitation, any material
liability in the event of the involuntary termination of any Company Plan
subject to Title IV of ERISA. No prohibited transactions described in
Section 406 of ERISA or Section 4975 of the Code have occurred which would
reasonably be expected to result in material liability to the Company or
its subsidiaries. All Company Plans that are intended to be qualified
under Section 401(a) of the Code have been determined by the IRS to be so
qualified, and there is no reason why any Company Plan is not so qualified
in operation. Neither the Company nor any of its ERISA Affiliates has any
liability or obligation under any welfare plan to provide life insurance or
medical benefits after termination of employment to any employee or
dependent other than as required by Part 6 of Title I of ERISA or as
disclosed in the Company Schedules.
(d) As used herein, (i) "Company Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA), a "welfare plan" (as defined in Section
3(1) of ERISA), or any bonus, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, vacation, severance, death benefit, insurance or other plan,
arrangement or understanding, in each case established, maintained or
contributed to by the Company or any of its ERISA Affiliates or as to which
the Company or any of its ERISA Affiliates or otherwise may have any
liability and (ii) with respect to any person, "ERISA Affiliate" means any
trade or business (whether or not incorporated) which is under common
control or would be considered a single employer with such person pursuant
to Section 414(b), (c), (m) or (o) of the Code and the regulations
promulgated under those sections or pursuant to Section 4001(b) of ERISA
and the regulations promulgated thereunder.
(e) The Company Schedules contain a list of each Company Ex-U.S.
Pension Plan and the Company has made available to Parent prior to the date
hereof a copy of any written plan document with respect thereto. Except
for non-compliance that could not reasonably be expected to, individually
or in the aggregate, have a Material Adverse Effect on the Company, each
such plan has been maintained in compliance with all applicable laws,
orders and regulations, and the fair market value of the assets of each
such plan which is intended to be a funded plan or arrangement equals or
exceeds the value of the accrued benefits. "Company Ex-U.S. Pension Plan"
shall mean any arrangement providing retirement pension benefits that is
established or maintained by the Company or any of its subsidiaries
exclusively for the benefit of employees who are or were employed outside
the United States.
(f) The Company Schedules contain a list, as of the date of this
Agreement, of all (i) severance and employment agreements with officers and
employees of the Company and each ERISA Affiliate, (ii) severance plans,
programs and policies of the Company with or relating to its employees and
(iii) plans, programs, agreements and other arrangements of the Company
with or relating to its employees which contain
19
<PAGE>
change of control or similar provisions. The Company has provided to
Parent a true and complete copy of each of the foregoing.
2.19 Relationships with Related Persons. Except as disclosed in the
Company SEC Reports filed prior to the date hereof and except as set forth on
the Company Schedules, there are no, and since January 1, 1997 have not been
any, undischarged contracts or agreements or other material transactions between
the Company or any of its subsidiaries, on the one hand, and any director or
executive officer of the Company or any of their respective Related Persons (as
defined below), on the other hand, and no director or executive officer of the
Company or any of their respective Related Persons have any interest in any of
the assets of the Company or any of its subsidiaries. For purposes hereof, the
term "Related Persons" shall mean: (a) each other member of such individual's
Family and (b) any person or entity that is directly or indirectly controlled by
any one or more members of such individual's Family. For purposes of this
definition, the "Family" of an individual includes (i) such individual, (ii) the
individual's spouse, (iii) any lineal descendant of such individual, or (iv) a
trust for the benefit of the foregoing.
2.20 State "Anti-Takeover" Statutes. Neither Section 203 of Delaware law
nor any other "fair price" or "control share acquisition" statute or other
similar statute or regulation will apply to the Merger or this Agreement or the
transactions contemplated hereby.
2.21 Pooling of Interests. To the knowledge of the Company, based on
consultation with its independent accountants, neither the Company nor its
directors, officers or stockholders has taken any action which would preclude
(i) Parent's ability to account for the Merger as a pooling of interests or (ii)
Parent's, Surviving Corporation's or the Company's ability to continue to
account for as a pooling of interests any past acquisition by the Company
currently accounted for as a pooling of interests.
2.22 Change of Control Payments. Except as set forth on the Company
Schedules, except for the acceleration of vesting of outstanding stock options
in accordance with the terms of the Company Stock Option Plans, except for
employment agreements with directors and officers entered into before the date
of this Agreement and filed with the SEC and except as contemplated by this
Agreement, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or employee
of the Company or any of its subsidiaries from the Company or any of its
subsidiaries, under any Company Employee Benefit Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Company Employee
Benefit Plan, (iii) result in the acceleration of the time of payment or vesting
of any such benefits or (iv) create a right to receive payments upon a
subsequent termination of employment.
2.23 Registration Statements; Proxy Statements/Prospectus. The
information supplied by the Company for inclusion in the Registration Statement
(as defined in Section 3.7) shall not at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
20
<PAGE>
statements therein not misleading. The information supplied by or concerning
the Company for inclusion in the proxy statement/prospectus to be sent to the
stockholders of the Company in connection with the meeting of the Company's
stockholders to consider the Merger (the "Company Stockholders' Meeting") (such
proxy statement/prospectus as amended or supplemented is referred to herein as
the "Proxy Statement") shall not, on the date the Proxy Statement is first
mailed to the Company's stockholders, at the time of the Company Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not false or misleading. The Proxy Statement will
comply (with respect to the Company) as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder. If
at any time prior to the Effective Time any event relating to the Company or any
of its affiliates, officers or directors should be discovered by the Company
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Company shall promptly inform Parent.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by or concerning Parent or Merger Sub
which is contained in any of the foregoing documents.
2.24 Board Approval. The Board of Directors of the Company, has, on or
prior to the date hereof, approved this Agreement and the Merger.
2.25 Fairness Opinion. The Company has received a written opinion from
Piper Jaffray Inc. dated as of the date hereof, that the Exchange Ratio
contemplated by this Agreement is fair to the Company's stockholders from a
financial point of view and has delivered to Parent a copy of such opinion.
2.26 Brokers' and Finders' Fees. Neither the Company nor any of its
subsidiaries has 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, except for a fee due to Piper Jaffray Inc. at the Effective Time
pursuant to an agreement, a copy of which has been provided to Parent (the
"Piper Engagement Letter").
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions specifically disclosed in the disclosure letter supplied by Parent to
the Company (the "Parent Schedules") and dated as of the date hereof as follows:
3.1 Organization of Parent. Each of Parent and its material subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which such qualification is required
by virtue of the nature of activities conducted by it, except to the extent that
the failure to be so qualified and in good standing could not reasonably be
expected to have, individual or
21
<PAGE>
in the aggregate, a Material Adverse Effect on Parent. Parent has delivered or
made available a true and correct copy of the Certificate of Incorporation and
Bylaws or other charter documents of Parent, each as amended to date, to counsel
for the Company.
3.2 Absence of Certain Changes of Events. Except as described in the
Parent SEC Reports (as hereinafter defined) filed prior to the date hereof,
since the date of the Parent Balance Sheet (as hereinafter defined), except with
respect to the actions contemplated by this Agreement, the Parent has conducted
its business only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any Material Adverse
Effect on the Parent or any development that could reasonably be expected to
have a Material Adverse Effect on the Parent; (ii) any damage, destruction or
loss (whether or not covered by insurance) on the Parent or any of its material
subsidiaries that has had or could reasonably be expected to have a Material
Adverse Effect on the Parent; (iii) any material change by the Parent or any of
its material subsidiaries in its accounting methods, principles or practices;
(iv) any material revaluation by the Parent or any of its material subsidiaries
of any of its assets, including, without limitation, writing down the value of
capitalized software or inventory or deferred tax assets or writing off notes or
accounts receivable other than in the ordinary course of business; (v) any labor
dispute or charge of unfair labor practice which could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent, any activity or proceeding by a labor union or representative thereof to
organize any employee of the Parent or any of its material subsidiaries or any
campaign being conducted to solicit authorization from employees to be
represented by such labor union; or (vi) any waiver by the Parent of any rights
of material value. In this Agreement, the term "Material Adverse Effect" used
in reference to the Parent and its subsidiaries means any event, change or
effect materially adverse to the financial condition, assets, liabilities,
results of operations or business of the Parent and its subsidiaries, taken as a
whole, other than changes resulting solely from changes in general economic or
computer industry conditions.
3.3 Capital Structure.
(a) The authorized capital stock of Parent consists of 180,000,000
shares of Common Stock, $.001 par value, as of the date hereof, of which
64,009,818 shares were issued and outstanding as of February 13, 1998 plus
any shares issued on such date upon exercise of options outstanding on such
date and 10,000,000 shares of Class II Preferred Stock, $.01 par value,
1,000,000 shares of which (subject to adjustment upward or downward by the
Parent's Board of Directors) have been designated Series A Junior
Participating Preferred Stock and 1,775,000 of which (subject to adjustment
upward or downward in accordance with the Parent's Certificate of
Incorporation, as amended) have been designated as Class II Series B
Preferred Stock. No shares of the Series A Junior Participating Preferred
Stock are issued or outstanding as of the date hereof. The shares of
Parent Common Stock to be issued pursuant to the Merger and upon the
exercise of Substitute Options will include a corresponding number of
rights (such rights being hereinafter referred to collectively as "Parent
Rights") to purchase shares of Series A Junior Participating Stock pursuant
to the Rights Agreement dated as of December 21, 1995 (the "Parent Rights
Agreement") between Parent and Harris Trust and Savings Bank, as Rights
Agent. The authorized capital stock of Merger Sub consists of 1,000 shares
of Common Stock, $.01 par value, 1,000 shares of which are issued and
22
<PAGE>
outstanding and held by Parent. A total of 1,768,421 shares of Class II
Series B Preferred Stock are issued and outstanding as of the date hereof.
All of the foregoing 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. The
registered holders of Parent Common Stock have Parent Rights, pursuant to
the Parent Rights Agreement. The description and terms of the Parent
Rights are set forth in the Parent Rights Agreement. As of the date
hereof, Parent has also reserved (i) 864,850 shares of Common Stock for
issuance to the Parent's officers, directors, employees or independent
contractors or affiliates thereof under the Parent's 1989 Stock Option
Plan, (ii) 115,000 shares of Common Stock for issuance to the Chief
Executive Officer of the Parent under the Parent's Chief Executive Officer
Stock Option Plan, (iii) 2,475,706 shares of Common Stock for issuance to
the Parent's officers, directors, employees or independent contractors or
affiliates thereof under the Parent's 1991 Stock Option Plan, (iv) 498,000
shares of its Common Stock for issuance to non-employee directors of the
Parent under the Parent's Directors' Stock Option Plan, (v) 1,000,000
shares of its Common Stock for issuance to officers, directors, employees,
independent contractors or other service providers of the Parent under the
1994 Stock Incentive Plan, (vi) 8,030,251 shares of its Common Stock for
issuance to officers, directors, employees, independent contractors or
other service providers of the Parent under the Parent's 1995 Employee
Incentive Compensation Plan, (vii) 1,768,421 shares (subject to adjustment
upward or downward) of its Common Stock for issuance upon conversion of
outstanding shares of Class II Series B Preferred Stock, (viii) 8,243,010
shares of Common Stock for issuance upon the election by the holders of
6.75% Convertible Subordinated Notes to convert such notes into shares of
Common Stock as provided therein and (ix) 4,160,600 shares of Common Stock
for issuance upon the election by the holders of 6.25% Convertible
Subordinated Notes to convert such notes into shares of Common Stock as
provided therein. As of December 31, 1997, of the 13,474,659 shares of
Parent Common Stock reserved for issuance upon exercise of options
therefor, 11,861,865 shares remained subject to outstanding options and
1,612,794 shares were reserved for future grant. In addition, pursuant to
Parent's Employee Stock Purchase Plan, 300,000 shares of Parent's Common
Stock will be issuable to the participants therein for the offering period
ending February 28, 1998, provided that all participants continue to
contribute at current levels (assuming the purchase price of such shares to
be 85% of the fair market value of Parent's Common Stock on the first day
of the current offering period). In addition, as of the date hereof, there
are outstanding (A) $115,000,000 (aggregate principal amount) of 6 3/4%
Convertible Subordinated Notes Due 2001 (the "Notes"), which Notes are (i)
convertible at the option of the holder into shares of Parent Common Stock
at any time prior to maturity at a conversion price of $13.95 per share
(equivalent to a conversion rate of 71.685 shares per $1,000 principal
amount of Notes), (ii) redeemable at the option of Parent at any time after
November 15, 1999 and (iii) mature on November 15, 2001, and (B)
$150,000,000 (aggregate principal amount) of 6.25% Convertible Subordinated
Notes Due 2002, which (i) are redeemable at the option of the Purchaser at
any time after December 15, 2000 and (ii) mature on December 15, 2002.
Except as set forth in the Parent Schedules and for shares of Parent
Capital Stock issuable in connection with business combinations or
acquisitions of technology pursuant to agreements entered into after the
date hereof, there are no other equity securities,
23
<PAGE>
options, warrants, calls, rights, commitments or agreements of any
character to which Parent is a party or by which it is bound obligating
Parent to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Parent or obligating Parent to grant, extend or enter into any
such equity security, option, warrant, call, right, commitment or
agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger and upon exercise of Substitute Options will, upon issuance, be duly
authorized, validly issued, fully paid and non-assessable.
3.4 Authority; No Conflict.
(a) 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, except as
enforceability may be limited by bankruptcy and other similar laws and
general principles of equity.
(b) The execution and delivery of this Agreement does not, and 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 a benefit under
(i) any provision of the Certificate of Incorporation or Bylaws of Parent
or Merger Sub 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
Parent, any of its subsidiaries or their respective properties or assets
other than any such conflicts, violations, defaults, terminations,
cancellations or accelerations which could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent
or materially impair the ability of Parent to consummate the transactions
contemplated hereby.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Parent and Merger Sub and their respective subsidiaries in
connection with the execution and delivery of this Agreement by Parent and
Merger Sub or the consummation by Parent and Merger Sub of the transactions
contemplated hereby, except for (i) the filing of a pre-merger notification
report under the HSR Act, (ii) the filing of the Form S-4 Registration
Statement with the SEC, (iii) the filing of the Certificate of Merger with
the Delaware Secretary of State, (iv) the filing of a Form 8-K with the
SEC, (v) listing of the shares on the Nasdaq National Market, and (vi) such
other consents, authorizations, filings, approvals and registrations which
if not obtained or made could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent or
materially impair the ability of Parent to consummate the transactions
contemplated hereby.
24
<PAGE>
3.5 SEC Filings; Parent Financial Statements
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC since January 1, 1996. All such required forms, reports
and documents are referred to herein as the "Parent SEC Reports." As of
their respective dates, the Parent SEC Reports (i) complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Reports and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
None of Parent's subsidiaries is required to file any forms, reports or
other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports (the
"Parent Financials"), including any Parent SEC Reports filed after the date
hereof until the Closing and the consolidated unaudited balance sheet of
the Parent and its subsidiaries as of December 31, 1997 and the
consolidated unaudited statement of operations and cash flow for the twelve
month period then ended, true and correct copies of which were delivered to
the Company (the "Parent December 31st Financials"), (i) complies, or
complied, as the case may be, as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared (or will be prepared) in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and (iii) fairly
presented (or will fairly present) in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements do not include footnote disclosure of the type
associated with audited financial statements and (other than the Parent
December 31st Financials) were or are subject to normal and recurring year-
end adjustments and to any other adjustments described therein. The
consolidated unaudited balance sheet of Parent and its subsidiaries
included in the Parent December 31st Financials is hereinafter referred to
as the "Parent Balance Sheet."
(c) Except as set forth on the Parent Schedules, there are no
material amendments or modifications to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant
to the Securities Act or the Exchange Act, which have not yet been filed
with the SEC but which are required to be filed.
3.6 Pooling of Interests. To the Parent's knowledge, based on
consultation with its independent accountants, neither the Parent nor its
directors, officers or stockholders nor any of its subsidiaries has taken any
action which would preclude (i) the Parent's ability to account for the Merger
as a pooling of interests or (ii) the Parent's or the Surviving Corporation's
ability
25
<PAGE>
to continue to account for as a pooling of interests any past acquisitions by
Parent or the Company currently accounted for as a pooling of interests.
3.7 Registration Statement; Proxy Statement/Prospectus. Other than with
respect to the information supplied by the Company, the registration statement
on Form S-4 (or such other or successor form as shall be appropriate) (including
any amendments or supplements thereto, the "Registration Statement"), pursuant
to which the shares of Parent Common Stock to be issued in the Merger will be
registered with the SEC shall not, at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements included therein not
misleading. The information supplied by Parent for inclusion in the Proxy
Statement shall not, on the date the Proxy Statement is first mailed to
stockholders, at the time of the Company Stockholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading. The Proxy Statement will comply (with respect to
information relating to Parent or Merger Sub) as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any event relating to
Parent, Merger Sub or any of their respective affiliates, officers or directors
should be discovered by Parent or Merger Sub which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
Parent or Merger Sub will promptly inform the Company. Notwithstanding the
foregoing, Parent and Merger Sub make no representation or warranty with respect
to any information supplied by the Company which is contained in any of the
foregoing documents.
3.8 Board Approval. The Board of Directors of Parent has, as of the date
hereof, approved this Agreement and the Merger.
3.9 Fairness Opinion. Parent has received a written opinion from
Donaldson Lufkin & Jenrette Securities Corporation, dated as of the date hereof,
that the Exchange Ratio is fair to Parent from a financial point of view, and
has delivered to the Company a copy of such opinion.
3.10 Brokers' and Finders' Fees. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby, except for a fee due to
Donaldson, Lufkin & Jenrette Securities Corporation at the Effective Time.
3.11 Operations of Merger Sub. Merger Sub is a direct, wholly-owned
subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
3.12 Employee Benefits.
26
<PAGE>
(a) Except as could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Parent, (i) each Parent
Plan complies with ERISA, the Code and all other applicable statutes and
governmental rules and regulations and (ii) there has been no failure to
make any contribution or pay any amount due to any Parent Plan as required
by Section 412 of the Code or Section 302 of ERISA and no Parent Plan, nor
any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
(b) To the knowledge of Parent, there are no actions, suits or claims
pending or threatened (other than routine claims for benefits) with respect
to any Parent Plan which would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Parent. Neither Parent
nor any of its ERISA Affiliates has incurred or would reasonably be
expected to incur any material liability under or pursuant to Title IV of
ERISA. No prohibited transactions described in Section 406 of ERISA or
Section 4975 of the Code have occurred which could reasonably be expected
to result in material liability to Parent or its subsidiaries.
(c) As used herein, "Parent Plan" means a "pension plan" (as defined
in Section 3(2) of ERISA), a "welfare plan" (as defined in Section 3(1) of
ERISA), or any bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established, maintained or contributed to by
Parent or any of its ERISA Affiliates or as to which Parent or any of its
ERISA Affiliates or otherwise may have any material liability.
3.13 Liabilities. Except (a) for liabilities incurred in the ordinary
course of business consistent with past practice, (b) for liabilities set forth
on the balance sheet included in the Parent December 31st Financials, (c) as set
forth in Parent and Merger Sub Schedules or (d) other liabilities that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent, since December 31, 1997, none of Parent, Merger Sub or
any of Parent's subsidiaries has incurred any liabilities that would be required
to be reflected or reserved against in a consolidated balance sheet of Parent
and its subsidiaries prepared in accordance with generally accepted accounting
principles as applied in preparing the consolidated balance sheet of Parent and
its subsidiaries as of December 31, 1997 contained in the Parent December 31st
Financials.
3.14 Taxes. Except as set forth in Parent and Merger Sub Schedules:
(a) Parent and each of its subsidiaries has timely filed all Returns
required by applicable Tax law to be filed by Parent and each of its
subsidiaries, except where any such failure to file that could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. All Taxes imposed on Parent or any of
its subsidiaries by a taxing authority or for which Parent or any of its
subsidiaries is or could be liable, whether to a taxing authority or to
other persons or entities, to the extent required to be paid by Parent or
any of its subsidiaries have been paid, except for any such failure to pay
that could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
27
<PAGE>
(b) Except to the extent that any such failure to withhold could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent, as of the Effective Time, Parent and
each of its subsidiaries, will have withheld with respect to its employees
all federal and state taxes, FICA, FUTA and other Taxes required to be
withheld.
(c) There is no Tax deficiency outstanding, proposed or assessed
against Parent or any of its subsidiaries, except any deficiency that, if
paid, could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
3.15 Intellectual Property. Parent and its subsidiaries have all patents,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary Parent intellectual property rights (collectively, "Parent
Intellectual Property Rights") as are necessary in connection with the business
of Parent and its subsidiaries, taken as a whole, except where the failure to
have such Intellectual Property Rights could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. Neither
Parent nor any of its subsidiaries has infringed any Intellectual Property
Rights of any third party, other than any infringements that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
3.16 Governmental Authorization. Parent and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of their businesses as
currently conducted (the "Parent Permits") except where the failure to hold such
Permits could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent. Neither Parent nor any of its
subsidiaries is in violation of the terms of the Parent Permits, except for
violations which could not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on Parent. The business of Parent and
its subsidiaries is not being and the business of Parent and its subsidiaries
(and any prior subsidiaries (but only with resect to the period prior to the
disposition of such subsidiary)) currently or previously conducted has not been,
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for violations which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. No
material investigation or review by any Governmental Entity with respect to
Parent or any of its subsidiaries is pending or threatened.
3.17 Litigation. Except as disclosed in Parent Schedules or in Parent SEC
Reports filed prior to the date of this Agreement, there is no suit, action,
arbitration, demand, claim or proceeding pending or, to the knowledge of Parent,
threatened against Parent or any of its subsidiaries, except for suits, actions,
arbitrations, demands, claims and proceedings which could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent; nor is there any material judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against Parent or any of its
subsidiaries.
28
<PAGE>
4. 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 pursuant to its terms and the Effective Time, the Company (which for
the purposes of this Section 4.1 shall include the Company and each of its
subsidiaries) agrees, except to the extent that Parent shall otherwise consent
in writing (which consent shall not be unreasonably withheld or delayed), to
carry on its business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to timely pay its debts and Taxes,
subject to good faith disputes over such debts or taxes, and on the same payment
terms such debts and taxes have historically been paid, to collect its
receivables in the same manner and on the same terms such receivables have
historically been collected, to timely pay or perform other material obligations
when due, and to use all commercially reasonable efforts consistent with past
practices and policies to preserve intact the Company's present business
organizations, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with the Company, to
the end that the Company's goodwill and ongoing businesses be unimpaired at the
Effective Time. The Company shall promptly notify Parent of any event or
occurrence not in the ordinary course of business of the Company. Except as
expressly provided for by this Agreement or as set forth on the Company
Schedules, the Company shall not, prior to the Effective Time or earlier
termination of this Agreement pursuant to its terms, without the prior written
consent of Parent (which consent shall not be unreasonably withheld or delayed):
(a) Except as required by the Company's benefit plans and agreements,
accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options granted under the Company Stock Option
Plans or authorize cash payments in exchange for any options granted under
any of such plans;
(b) Enter into any partnership agreements, joint development
agreements or strategic alliance agreements;
(c) Except as required by the Company Plans, grant any severance or
termination pay (i) to any executive officer or (ii) to any other employee
except payments made in connection with the termination of employees who
are not executive officers in amounts consistent with Parent's policies and
past practices or pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing to
Parent or pursuant to written agreements consistent with the Company's past
agreements under similar circumstances;
(d) Other than in the ordinary course of business, transfer or
license to any person or entity or otherwise extend, amend or modify any
rights to the Company Intellectual Property Rights (including rights to
resell or relicense the Company Intellectual Property Rights) or enter into
grants to future patent rights, other than the Company's standard forms of
End-User Licenses entered into in the ordinary course of business
consistent with past practices;
29
<PAGE>
(e) Commence any litigation other than (i) for the routine collection
of bills, (ii) for software piracy, or (iii) in such cases where the
Company in good faith determines that failure to commence suit would result
in the material impairment of a valuable aspect of the Company's business,
provided that Parent consults with the Company prior to the filing of such
a suit (except that the Company shall not require the approval of, and
shall not be required to consult with, Parent with respect to any claim,
suit or proceeding by the Company against Parent or any of its affiliates);
(f) Declare 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;
(g) Repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock;
(h) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options
to acquire, or enter into other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the issuance of shares of Company Capital Stock pursuant to
the exercise of Company stock options or warrants therefor outstanding as
of the date of this Agreement, (ii) up to 11,000 shares of Company Capital
Stock issuable to participants in the Stock Purchase Plan consistent with
the terms of that Plan, (iii) shares of Company Capital Stock issuable
pursuant to the Company Rights Agreement, and (iv) options to purchase up
to 100,000 shares of Company Capital Stock granted to non-executive
officers of the Company in the ordinary course of business, provided such
options vest proportionately over a four year period, do not vest upon the
consummation of the Merger or any of the transactions contemplated hereby
and have an exercise price equal to the market value of the Company Common
Stock on the date of grant;
(i) Cause, permit or propose any amendments to the Company's
Certificate of Incorporation or Bylaws, or amend any Material Contract;
(j) Sell, lease, license, encumber or otherwise dispose of any of the
Company's properties or assets which are material, individually or in the
aggregate, to the business of the Company, except in the ordinary course of
business consistent with past practice;
(k) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities
of the Company or guarantee any debt securities of others;
(l) Except as required by law, adopt or amend any Company Plan or
increase the salaries or wage rates of any of its employees (except for
wage increases in the
30
<PAGE>
ordinary course of business and consistent with past practices), including
but not limited to (but without limiting the generality of the foregoing),
the adoption or amendment of any stock purchase or option plan, the
entering into of any employment contract or the payment of any special
bonus or special remuneration to any director or employee, other than
bonuses reflected on the balance sheet included in the December 31st
Financials and bonuses payable in the ordinary course of business pursuant
to the provisions contained in the Company Schedules;
(m) Revalue any of the Company's assets, including without limitation
writing down the value of inventory, writing off notes or accounts
receivable other than in the ordinary course of business consistent with
past practice or waive any right of material value;
(n) 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), including, without limitation, under any employment contract or
with respect to any bonus or special remuneration, other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
of the type reflected or reserved against in the Company Financials (or the
notes thereto);
(o) Except as required by applicable Tax law, make or change any
material election in respect of Taxes, adopt or change in any material
respect any accounting method in respect of Taxes, file any material Return
or any amendment to a material Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes (except settlements
effected solely through payment of immaterial sums of money), or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(p) Intentionally take any action, including the acceleration of
vesting (except as contemplated under the Company Stock Option Plans) of
any options, warrants, restricted stock or other rights to acquire shares
of the Company's Capital Stock, which would be reasonably likely to
interfere with Parent's ability to account for the Merger as a pooling of
interests; or
(q) Take, or agree in writing or otherwise to take, any of the
actions described in Section 4.1(a) through (p) above, or any action which
would cause or would be reasonably likely to cause any of the conditions to
the Merger set forth in Sections 6.1 or 6.3, not to be satisfied.
4.2 Conduct by Parent. Except as expressly provided for by this
Agreement, Parent shall not, prior to the Effective Time or earlier termination
of this Agreement pursuant to its terms, without the prior written consent of
the Company (which consent shall not be unreasonably withheld or delayed), adopt
any amendments to its Certificate of Incorporation, or take any other action
requiring a vote of the holders of Parent Common Stock, which would materially
adversely affect the terms and provisions of the Parent Common Stock or take, or
agree in writing or otherwise to take, any of the foregoing actions.
31
<PAGE>
5. ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Parent and the Company shall
prepare, and file with the SEC, the Proxy Statement and Parent shall prepare and
file with the SEC the Registration Statement in which the Proxy Statement will
be included as a prospectus. Each of the Parent and Company shall use its
reasonable best efforts to have the Registration Statement declared effective as
soon thereafter as practicable; provided, however, that Parent shall have no
obligation to agree to account for the Merger as a "purchase" in order to cause
the Registration Statement to become effective. The Proxy Statement shall
include the fairness opinion of Piper Jaffray Inc. referred to in Section 2.25.
The Proxy Statement shall also include the recommendation of the Board of
Directors of the Company in favor of the Merger which shall not be withdrawn,
modified or withheld except in compliance with the fiduciary duties of the
Company's Board under applicable law, subject to Section 5.4(c).
5.2 Meeting of Stockholders. Promptly after the date hereof, and subject
to the fiduciary duties of the Board of Directors of the Company under
applicable law and also subject to Section 5.4(c), the Company shall take all
action necessary in accordance with the Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Company Stockholders' Meeting to be held
as promptly as practicable for the purpose of voting upon this Agreement and the
Merger.
5.3 Access to Information; Confidentiality.
(a) Each party shall afford the other party and its accountants,
counsel and other representatives reasonable access during normal business
hours during the period prior to the Effective Time to all information
concerning the business, including the status of product development
efforts, properties and personnel of such party as the other party may
reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 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.
(b) The parties acknowledge that Parent and the Company have
previously executed Confidentiality Agreements (the "Confidentiality
Agreements"), which Confidentiality Agreements shall continue in full force
and effect in accordance with their respective terms and which
Confidentiality Agreements shall be applicable to any information obtained
pursuant to Section 5.3(a).
5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective
Time or the earlier termination of this Agreement in accordance with its
terms, the Company and its subsidiaries will not, and will not permit their
respective directors, officers, investment bankers and affiliates to, and
will use their best efforts to cause their respective employees,
representatives and other agents not to, directly or indirectly, (i)
solicit or knowingly encourage submission of any inquiries, proposals or
offers by, (ii) participate
32
<PAGE>
in any negotiations with, (iii) afford any access to the properties, books
or records of the Company or any of its subsidiaries to, or (iv) otherwise
knowingly assist, facilitate or encourage, or enter into any agreement or
understanding with, any person, entity or group (other than Parent, Merger
Sub and their affiliates, agents and representatives), in connection with
any Acquisition Proposal. For the purposes of this Agreement, an
"Acquisition Proposal" shall mean any proposal relating to the possible
acquisition of the Company, whether by way of merger, purchase of capital
stock of the Company representing 25% or more of the voting power or equity
of the Company, purchase of all or substantially all of the assets of the
Company and its subsidiaries, taken as a whole, or otherwise. In addition,
subject to the Company's rights under paragraph (c) hereof, from and after
the date of this Agreement until the Effective Time or the earlier
termination of this Agreement in accordance with its terms, the Company and
its subsidiaries will not, and will not permit their respective directors,
officers, investment bankers and affiliates to, and will use their best
efforts to cause their respective employees, representatives and other
agents not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than Parent and/or
Merger Sub). The Company will immediately cease any and all existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) Notwithstanding the provisions of paragraph (a) above, prior to
the approval of this Agreement and the Merger by the stockholders of the
Company at the Company Stockholders' Meeting, nothing contained in this
Agreement shall prevent the Company from furnishing information concerning
the Company and its business, properties and assets (but not encouraging
the request for such information) to, and participating in any negotiations
or discussions with, any third party, provided that (i) such third party
has made an Acquisition Proposal, or indicated an interest in making an
Acquisition Proposal, and the Board of Directors of the Company determines,
in its good faith reasonable judgment, that such Acquisition Proposal, if
consummated, is reasonably likely to constitute a Superior Proposal (as
hereinafter defined), (ii) the Company notifies Parent within 24 hours of
any disclosure of non-public information to any such third party, with a
description of the information to be disclosed, and (iii) the Company
provides such non-public information pursuant to a confidentiality
agreement at least as restrictive as the Confidentiality Agreement.
Notwithstanding the foregoing, the Company may not provide any non-public
information to any third party if it has not provided such information to
Parent or Parent's representatives. "Superior Proposal" shall mean a bona
fide Acquisition Proposal which the Board of Directors of the Company in
its good faith reasonable judgment determines, after consultation with its
independent financial advisor, to be more favorable to the stockholders of
the Company from a financial point of view than the Merger and for which
financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Board of Directors of the Company (based
upon the advice of its independent financial advisor), is reasonably
capable of being financed by such person, entity or group and which is
likely to be consummated.
(c) In the event the Company receives a Superior Proposal, nothing
contained in this Agreement shall prevent the Board of Directors of the
Company from accepting or approving such Superior Proposal and nothing
contained in this Agreement shall
33
<PAGE>
prevent the Board of Directors of the Company and its directors, officers,
employees, representatives, investment bankers, agents or affiliates from
recommending such Superior Proposal to the Company's stockholders; in such
case, the Board may amend, withhold or withdraw its recommendation of the
Merger, decline to hold the Company Stockholders' Meeting or exercise its
termination rights hereunder. Subject to the right of termination set forth
in Section 7.1(f), except to the extent expressly set forth in this Section
5.4, nothing shall relieve the Company from complying with all other terms
of this Agreement. Nothing contained in this paragraph (c) shall affect
Parent's right to terminate this Agreement pursuant to Section 7.1 or the
Company's obligations under Sections 5.5(c) and 5.6.
(d) The Company will (i) notify Parent within 24 hours if any
proposal is made or any information or access is requested in connection
with an Acquisition Proposal and (ii) within 24 hours communicate to Parent
the principal terms and conditions of any such Acquisition Proposal or
potential Acquisition Proposal or inquiry (but not the identity of the
offeror or potential offeror) and a list and description of any information
provided to the offeror or potential offeror.
(e) Nothing contained in this Section 5.4 shall prevent the Company
or its Board of Directors from complying with the provisions of Rule 14e-2
and 14d-9 promulgated under the Exchange Act.
5.5 Expenses.
(a) Except as set forth in this Section 5.5, all fees and expenses
incurred in connection with the Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not
the Merger is consummated.
(b) In connection with any claim, dispute, disagreement or other
conflict involving the enforcement of this Article V, the parties agree
that the prevailing party shall be reimbursed by the other party for all
reasonable attorneys' fees and costs and expenses associated with such
conflict.
(c) If this Agreement is terminated pursuant to Section 7.1(e)
because the Merger has not been consummated as a result of the failure to
satisfy the condition set forth in Section 6.3(k), then the Company shall
pay, or reimburse Parent, for all Expenses (as hereinafter defined),
provided that Parent is not then in material breach of the terms of this
Agreement.
5.6 Break-Up Fee.
(a) If this Agreement is terminated pursuant to Section 7.1(b)(ii),
7.1(b)(iii), or 7.1(c)(iii), then, provided that Parent is not then in
material breach of the terms of this Agreement, the Company shall pay to
Parent, within five (5) business days following Parent's written request,
therefor the aggregate sum of $1,000,000 plus Expenses (as hereinafter
defined) by wire transfer of immediately available funds to an account
designated by Parent. In addition, if (i) within nine months after such
termination, the
34
<PAGE>
Company or any of its subsidiaries enters into a definitive agreement for
the consummation of an Acquisition Proposal with a person or entity who had
made an Acquisition Proposal or indicated an interest in making an
Acquisition Proposal after the date of this Agreement but prior to the
termination of this Agreement or (ii) within six months after such
termination, the Company or any of its subsidiaries enters into an
definitive agreement for the consummation of an Acquisition Proposal with
any person or entity, then the Company shall pay to Parent, within five (5)
businesses days following Parent's written request therefor, $3,000,000 by
wire transfer of immediately available funds to an account designated by
Parent, provided that Parent is not then in material breach of the terms of
this Agreement. "Expenses" shall mean all of the reasonable out-of-pocket
expenses of Parent, including but not limited to attorneys' fees,
accounting fees, financial printer fees, filing fees and fees and expenses
of financial advisors, in each case incurred in connection with this
Agreement and the Merger, provided, however, that Parent shall have
provided reasonable supporting documentation (such as invoices and
receipts) to the Company for such Expenses; and provided further, that in
no event shall the aggregate amount of Expenses payable by the Company
pursuant to this Section 5.6 or Section 5.5(c) exceed $1,500,000.
(b) If this Agreement is terminated pursuant to Section 7.1(f)
hereto, then, provided that Parent is not then in material breach of the
terms of this Agreement, the Company shall pay to Parent, prior to the
termination of this Agreement pursuant to Section 7.1(f), the aggregate sum
of $4,000,000 plus Expenses by wire transfer of immediately available funds
to an account designated by Parent. Under no circumstances shall the
Company be required to pay to Parent more than the aggregate of $4,000,000
plus Expenses pursuant to this Section 5.6. The foregoing sentence shall
not limit in any manner Parent's remedies for a breach by the Company of
this Agreement.
5.7 Public Disclosure. Parent and the Company shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange or the Nasdaq National Market.
5.8 Pooling Accounting. Parent and the Company shall each use its
reasonable commercial 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 commercial efforts to cause its Affiliates
(as defined in Section 5.10) 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.
5.9 Auditors' Letters. The Company shall use its reasonable commercial
efforts to cause to be delivered to the Company (with a copy to Parent) a letter
of Arthur Andersen LLP, independent auditors to the Company, dated a date within
two business days before the date on which the Registration Statement becomes
effective, in form and substance reasonably satisfactory to Parent and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
35
<PAGE>
Statement. The Parent shall use its reasonable commercial efforts to cause to be
delivered to Parent (with a copy to the Company) a letter of KPMG Peat Marwick
LLP, independent auditors to the Parent, dated a date within two business days
before the date on which the Registration Statement becomes effective, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
5.10 Affiliate Agreements. Set forth respectively in Parent's Schedules
and the Company's Schedules is a list of those persons who are, in Parent's or
the Company's reasonable judgment, as the case may be, "Affiliates" of Parent or
the Company, as the case may be, within the meaning of Rule 145 (each such
person who is an "affiliate" of Parent or the Company within the meaning of Rule
145 is referred to as an "Affiliate") promulgated under the Securities Act
("Rule 145"). Each of Parent and the Company shall provide the other such
information and documents as the other shall reasonably request for purposes of
reviewing such list. The Company shall use its reasonable commercial efforts to
deliver or cause to be delivered to Parent, within thirty (30) days after the
date hereof, from each of the Affiliates of the Company, an executed Affiliate
Agreement in the form attached hereto as Exhibit B (each, a "Company Affiliate
Agreement" and, collectively, the "Company Affiliate Agreements"). Parent shall
use its reasonable best efforts to deliver or cause to be delivered to the
Company, within thirty (30) days after the date hereof, an Affiliate Agreement,
executed by each of the Affiliates of Parent, in the form attached hereto as
Exhibit C (the "Parent Affiliate Agreement"). Parent shall be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to be
received by such 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 the Company
Affiliate Agreements.
5.11 Legal Requirements. Each of Parent, Merger Sub and the Company will
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any Governmental Entity, and prompt resolution of any litigation
prompted hereby) and will promptly cooperate with and furnish information to any
party hereto necessary in connection with any such requirements imposed upon any
of them or their respective subsidiaries in connection with the consummation of
the transactions contemplated by this Agreement, and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
public or private third party required to be obtained or made in connection with
the Merger or taking of any action contemplated by this Agreement.
5.12 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 Parent Common Stock pursuant hereto. The Company
shall use its reasonable commercial 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.
36
<PAGE>
5.13 Reasonable Commercial Efforts and Further Assurances.
(a) Subject to the exercise of the Company's rights under Section 5.4
hereof, each of the parties to this Agreement shall each use its reasonable
commercial efforts to effectuate the transactions contemplated hereby as
expeditiously as reasonably practicable and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement (including
resolution of any litigation prompted hereby). Subject to the exercise of
the Company's rights under Section 5.4 hereof, each party hereto, at the
reasonable request of another 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 the
transactions contemplated hereby.
(b) If requested by Parent to deliver the Clarification Agreements
(as hereinafter defined) contemplated by Section 6.3(k), the Company shall
consult with Parent and shall use its best efforts to negotiate agreements
for delivery of the Clarification Agreements that are on terms most
favorable to Parent and the Company after the Merger. If the Company
negotiates any agreements that require it to waive or modify its existing
rights to future contingent payments (provided such agreement does not
require the Company or any subsidiary to pay any other amounts) in order to
obtain any Clarification Agreement contemplated by Section 6.3(k), Parent
will either (a) consent to such agreement and waive the requirement of
Section 6.3(k)(ii) or (b) waive the condition in Sections 6.3(k)(i) and
(ii).
5.14 Certain Benefit Plans.
(a) Parent agrees that it will cause the Surviving Corporation from
and after the Effective Time to honor all Company Plans and all employment
agreements entered into by the Company prior to the date hereof; provided,
however, that nothing in this Agreement shall be interpreted as limiting
the power of Parent or the Surviving Corporation to amend or terminate any
Company Plan or any other individual employee benefit plan, program,
agreement or policy or as requiring Parent or the Surviving Corporation to
offer to continue (other than as required by its terms) any written
employment contract. As soon as administratively practicable following the
Effective Time, Parent shall cause all employees of the Company and its
subsidiaries then actually at work ("Company Employees") to be covered
under employee benefit and fringe benefit plans, programs, policies and
arrangements that are substantially the same as the employee benefit plans,
programs, policies and arrangements that Parent maintains for similarly
situated employees of Parent ("Parent-Provided Plans").
(b) All service of a Company Employee taken into account prior to the
Effective Time under any Company Plan shall, on and after the Effective
Time, be taken into account as service with the Parent or any of its
subsidiaries (as applicable) for purposes of eligibility to participate and
vesting and accrual of benefits under any similar Parent-Provided Plan;
provided, however, that a Company Employee's service prior to the Effective
Time shall not be taken into account as service for purposes of the accrual
of benefits under any defined benefit pension plan maintained by Parent or
any of its subsidiaries on or after the Effective Time. Parent shall cause
all Parent-Provided Plans
37
<PAGE>
to (i) waive any pre-existing condition limitations otherwise applicable on
and after the Effective Time to the extent that such conditions are covered
under Company Plans immediately prior to the Effective Time and (ii)
provide that any expenses incurred by Company Employees (and their
dependents) during the plan year within which the Effective Time occurs
shall be taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions (and like
adjustments or limitations on coverage) under the Parent-Provided Plans.
Any salary reduction elections of Company Employees under a flexible
spending plan maintained by the Company pursuant to section 125 of the Code
prior to the Effective Time shall continue in effect under any similar
Parent-Provided Plan on and after the Effective Time, and any amounts
credited and debited to accounts of such employees under such Company Plan
as of the Effective Time shall be credited and debited to such employees'
accounts under such Parent-Provided Plan.
5.15 Tax-Free Reorganization. Parent and the Company shall each use
reasonable commercial efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368 of the Code.
5.16 Nasdaq Listing. Parent agrees to authorize for listing on the Nasdaq
National 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.
5.17 Indemnification. From and after the Effective Time, Parent shall,
and shall cause the Surviving Corporation to, indemnify, defend and hold
harmless (and advance expenses to) all past and present officers, directors and
employees of the Company and of its subsidiaries to the same extent such persons
are indemnified as of the date of this Agreement by the Company pursuant to any
agreements between the Company and any such person and the Company's Restated
Certificate of Incorporation and By-Laws, for acts or omissions occurring at or
prior to the Effective Time. In the event of any dispute regarding whether a
director, officer or employee has met the standards of conduct set forth
therein, such question shall be conclusively determined by the written opinion
of reputable disinterested legal counsel selected by the Company's Board of
Directors. Any heirs or legal representatives entitled to the benefits of such
indemnification shall be deemed express third party beneficiaries of this
Section 5.17.
5.18 Notification. Between the date of this Agreement and the Effective
Time, each party will promptly notify the other party in writing if such party
becomes aware of any fact or condition that causes or constitutes a breach of
any of such party's representations and warranties as of the date of this
Agreement, or if such party becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would cause or constitute a breach
of any such representation or warranty had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition.
5.19 Company Stock Options; Employee Stock Purchase Plan.
(a) Not later than the Effective Time, each option to purchase
Company Capital Stock ("Company Stock Option") which is outstanding
immediately prior to the Effective Time pursuant to the Company's stock
option plans (other than any "stock
38
<PAGE>
purchase plan" within the meaning of Section 423 of the Code) in effect on
the date hereof (the "Company Stock Option Plans") shall become and
represent an option to purchase the number of shares of Parent Common Stock
(a "Substitute Option") (decreased to the nearest full share) determined by
multiplying (i) the number of shares of Company Capital Stock subject to
such Company Stock Option immediately prior to the Effective Time by (ii)
the Exchange Ratio, at an exercise price per share of Parent Common Stock
(rounded up to the nearest tenth of a cent) equal to the exercise price per
share of Company Capital Stock immediately prior to the Effective Time
divided by the Exchange Ratio. Parent shall pay cash to holders of Company
Stock Options in lieu of issuing fractional shares of Parent Common Stock
upon the exercise of Substitute Options for shares of Parent Common Stock,
unless in the judgment of Parent such payment would adversely affect the
ability to account for the Merger under the pooling of interests method.
After the Effective Time, except as provided above in this Section 5.19,
each Substitute Option shall be exercisable upon the same terms and
conditions as were applicable under the related Company Stock Option
immediately prior to the Effective Time (including that all such Substitute
Options shall be immediately exercisable pursuant to the terms of such
Stock Option Plan). The Company agrees that it will not grant any stock
appreciation rights or limited stock appreciation rights and will not
permit cash payments to holders of Company Stock Options in lieu of the
substitution therefor of Substitute Options, as described in this Section
5.19.
(b) The Company shall not commence any "offering periods" under its
Amended and Restated Employee Stock Purchase Plan (the "Stock Purchase
Plan") after March 31, 1998, shall apply all amounts deducted and withheld
thereunder to purchase shares of the Company Capital Stock in accordance
with the provisions thereof, and shall terminate the Stock Purchase Plan as
of the Effective Time. Parent shall have no obligation or duty in respect
of the Stock Purchase Plan or the rights granted thereunder.
6. CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote under applicable law of the
stockholders of the Company.
(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.
39
<PAGE>
(c) No Injunctions. 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) HSR Act. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
(e) Opinion of Accountants. (i) Arthur Andersen LLP shall have
delivered a letter to the Company, in form and substance reasonably
satisfactory to the Company and Parent, that the Company is an entity that
can participate in a merger that qualifies for pooling of interest
accounting treatment under Accounting Principles Board Opinion No. 16, and
(ii) KPMG Peat Marwick LLP shall have delivered a letter to Parent, in form
and substance reasonably satisfactory to Parent, that the Merger will
qualify for pooling of interests accounting treatment 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
(including the Substitute Options) shall have been authorized for listing
on the Nasdaq National Market upon official notice of issuance.
6.2 Additional Conditions to Obligations of The Company. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties.
(i) The representations and warranties of Parent and Merger Sub
contained in this Agreement that are qualified by materiality shall be
true and correct as of the Effective Time, as if made on and as of the
Effective Time, and the representations and warranties of Parent and
Merger Sub contained in this Agreement that are not so qualified shall
be true and correct in all material respects as of the Effective Time,
as if made on and as of the Effective Time, except in each case for
those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such
date).
(ii) All representations and warranties of Parent and Merger Sub
(without taking into account any qualifications for materiality or
Material Adverse Effect on Parent) shall be true and correct in all
respects as if made on and as of the Effective Time, except for (A)
those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such
date) and (B) such exceptions that in the aggregate do not have a
Material Adverse Effect on Parent or a material adverse effect on the
Parent's or Merger Sub's ability to consummate the Merger.
40
<PAGE>
(iii) The Company shall have received a certificate to the
foregoing effect signed on behalf of Parent by the President and Chief
Financial Officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all materials respect 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 the foregoing effect signed by the President and Chief
Financial Officer of Parent.
(c) Tax Opinion. The Company shall have received a tax opinion from
Sidley & Austin, legal counsel to the Company, in form and substance
reasonably satisfactory to the Company, dated the Effective Time,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion that are consistent with the
state of facts existing as of the Effective Time, for federal income tax
purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Merger Sub and
Parent will each be a party to such reorganization within the meaning
of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Parent, Merger Sub
or the Company as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders
of the Company upon the exchange of their Company Capital Stock solely
for shares of Parent Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common
Stock received solely in exchange for Company Capital Stock pursuant
to the Merger (including fractional shares of Parent Common Stock for
which cash is received) will be the same as the aggregate tax basis of
the Company Capital Stock exchanged therefor;
(v) the holding period for shares of Parent Common Stock
received solely in exchange for Company Capital Stock pursuant to the
Merger will include the holding period of the Company Capital Stock
exchanged therefor, provided such Company Capital Stock was held as a
capital asset by the stockholder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of
a fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's tax basis
in such fractional share (as described in clause (iv) above) and the
amount of cash received.
41
<PAGE>
In rendering such opinion, Sidley & Austin may receive and rely upon
representations contained in a certificate of the Company substantially in
the form of the Company Tax Certificate attached to the Company Schedules,
a certificate of Parent substantially in the form of the Parent Tax
Certificate attached to the Parent Schedules and representations contained
in other appropriate certificates of the Company, Parent and others.
(d) Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect on Parent.
(e) Affiliate Agreements. Each of the parties identified by Parent
pursuant to Section 5.10 hereof as being an Affiliate of Parent shall have
executed, and Parent shall have delivered to the Company, the Parent
Affiliate Agreement which shall be in full force and effect.
(f) Governmental Consents. All consents, approvals, orders or
authorizations of, or registrations, declarations or filings with any
Governmental Entity required by or with respect to the Company, Parent or
any of their respective subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby shall have been obtained or made, except for such
consents, approvals, orders, authorizations, registrations, declarations or
filings the failure to obtain or make could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company or Material Adverse Effect on the Parent or materially impair the
Company's ability to consummate the Merger.
(g) Fairness Opinion. If between the date of this Agreement and the
Effective Time, Parent or any of its subsidiaries shall enter into a
definitive agreement relating to a possible acquisition by it of another
business entity (whether by way of merger, purchase of capital stock or
assets or otherwise) for an equity value at the date of execution in excess
of $200 Million (a "Qualifying Subsequent Parent Acquisition"), then the
obligations of the Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time (or such earlier date selected by the Company
subsequent to its being informed of the Qualifying Subsequent Parent
Acquisition) of the following additional condition, which may be waived, in
writing, exclusively by the Company. The Company shall have received a
written opinion from Piper Jaffray Inc. dated as of the Effective Time (or
such earlier date selected by the Company subsequent to its being informed
of the Qualifying Subsequent Parent Acquisition) that, after taking into
account the Qualifying Subsequent Parent Acquisition, the Exchange Ratio
contemplated by this Agreement is fair to the Company's stockholders from a
financial point of view.
6.3 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
42
<PAGE>
(a) Representations and Warranties.
(i) The representations and warranties of the Company
contained in this Agreement that are qualified by materiality shall be
true and correct as of the Effective Time, as if made on and as of the
Effective Time, and the representations and warranties of the Company
contained in this Agreement that are not so qualified shall be true
and correct in all material respects as of the Effective Time, as if
made on and as of the Effective Time, except in each case for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date).
(ii) All representations and warranties of the Company (without
taking into account any qualifications for materiality or Material
Adverse Effect on the Company) shall be true and correct in all
respects as if made on and as of the Effective Time, except for (A)
those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such
date) and (B) such exceptions that in the aggregate do not have a
Material Adverse Effect on the Company or a material adverse effect on
the Company's ability to consummate the Merger.
(iii) Parent and Merger Sub shall have received a certificate to
the foregoing effect signed on behalf of the Company by the President
and Chief Financial Officer of the Company.
(b) Agreement and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and the Parent and Merger Sub shall have
received a certificate to the foregoing effect signed by the President and
Chief Financial Officer of the Company.
(c) Third Party Consents. Parent shall have received all written
consents, assignments, waivers, authorizations or other certificates
necessary to provide for the continuation in full force and effect of any
and all material contracts and leases of the Company and for the Company to
consummate the transactions contemplated hereby, except where the failure
to receive such consents, assignments, waivers, authorizations or
certificates could not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(d) Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect on the Company.
(e) Affiliate Agreements. Each of the parties identified by the
Company pursuant to Section 5.10 hereof as being an Affiliate of the
Company shall have delivered to Parent an executed Company Affiliate
Agreement which shall be in full force and effect.
43
<PAGE>
(f) Non-Competition/Non-Solicitation Agreement. Each of Terence M.
Graunke, Thomas R. Graunke, Jay Sperco and Mark Rukavina shall have
executed, and the Company shall have delivered to the Parent, a Non-
Competition/Non-Solicitation Agreement in substantially the form attached
hereto as Exhibit D.
(g) Rights Plan. The Company Rights Agreement shall have been amended
to provide for the expiration of all outstanding Company Rights prior to
the Effective Time, all outstanding Company Rights under the Company Rights
Agreement shall expire in accordance with the provisions of the Company
Rights Agreement, as so amended, no Company Rights shall have been
triggered prior to such expiration and no shares of Company Capital Stock
or Preferred Stock shall have been issued or issuable with respect to
Company Rights.
(h) Transaction Expenses. The Company shall have delivered to Parent
evidence reasonably acceptable to Parent that the Company and its
subsidiaries have not incurred costs and expenses in excess of $800,000 in
the aggregate (or $2,000,000, in the aggregate, in the event that (i) a
third party commences a hostile tender or exchange offer for the Company
that the board of directors of the Company determines to contest, (ii) a
third party commences litigation challenging the Merger or (iii) there
shall have occurred an unexpected development (other than the analysis,
negotiation or pursuit of an Acquisition Proposal from a third party
(except for the defense of an offer as set forth in (i) above)) which has
prevented the parties from consummating the Merger at the time that similar
transactions would customarily be expected to close) for the costs and
expenses of lawyers, accountants, investment bankers, other consultants and
representatives and the costs and expenses of the printing and mailing of
the finished Proxy Statement to the Company's stockholders, in connection
with the preparation, negotiation and execution of this Agreement and the
completion of the transactions contemplated hereby, but excluding the fees
and expenses of Piper Jaffray Inc. pursuant to the Piper Engagement Letter.
(i) Severance Agreements. Each of Terence M. Graunke, Thomas R.
Graunke and Marc Pinto shall have delivered to Parent evidence that all
severance, change-of-control or similar arrangements or agreements pursuant
to which the Company or any of its subsidiaries is obligated to make
payments to Terence M. Graunke, Thomas R. Graunke or Marc Pinto,
respectively, upon a change-of-control or termination of employment
following a change-of-control or otherwise shall have been terminated as of
the Effective Time.
(j) Governmental Consents. All consents, approvals, orders or
authorizations of, or registrations, declarations or filings with any
Governmental Entity required by or with respect to the Company, Parent or
any of their respective subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby shall have been obtained or made, except for such
consents, approvals, orders, authorizations, registrations, declarations or
filings the failure to obtain or make could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company or Material Adverse Effect on the
44
<PAGE>
Parent or materially impair the Parent's or Merger Sub's ability to
consummate the Merger.
(k) Existing Non-Competition Agreements. If requested by Parent, (i)
the Company shall have delivered to Parent agreements in form and substance
reasonably acceptable to the Company and Parent and duly executed by the
parties to such agreements, clarifying certain non-competition covenants or
agreements to which the Company or one of its subsidiaries is a party or by
which it is bound ("Clarification Agreements") and (ii) neither the Company
nor any of its subsidiaries shall have paid, or agreed to pay, any amounts
to obtain any such Clarification Agreements.
(l) First Quarter Results. The Company's consolidated revenue for the
three-month period ending March 31, 1998 (as set forth in its earnings
release for such period) shall equal or exceed $10,640,000 (as determined
in accordance with generally accepted accounting principles (including
principles of materiality) applied on a basis consistent with the
principles applied in preparing the Company December 31st Financials)
(m) Tax Opinion. Parent shall have received a tax opinion from Katten
Muchin & Zavis, legal counsel to Parent, in form and substance reasonably
satisfactory to Parent, dated the Effective Time, substantially to the
effect that, on the basis of facts, representations and assumptions set
forth in such opinion that are consistent with the state of facts existing
as of the Effective Time, for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Merger Sub and
Parent will each be a party to such reorganization within the meaning
of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Parent, Merger Sub
or the Company as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders
of the Company upon the exchange of their Company Capital Stock solely
for shares of Parent Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common
Stock received solely in exchange for Company Capital Stock pursuant
to the Merger (including fractional shares of Parent Common Stock for
which cash is received) will be the same as the aggregate tax basis of
the Company Capital Stock exchanged therefor;
(v) the holding period for shares of Parent Common Stock
received solely in exchange for Company Capital Stock pursuant to the
Merger will include the holding period of the Company Capital Stock
exchanged therefor, provided such Company Capital Stock was held as a
capital asset by the stockholder at the Effective Time; and
45
<PAGE>
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's tax basis
in such fractional share (as described in clause (iv) above) and the
amount of cash received.
In rendering such opinion, Katten Muchin & Zavis may receive and rely upon
representations contained in a certificate of the Company substantially in
the form of the Company Tax Certificate attached to the Company Schedules,
a certificate of Parent substantially in the form of the Parent Tax
Certificate attached to the Parent Schedules and representations contained
in other appropriate certificates of the Company, Parent and others.
(n) Assumption of Chicago Lease. Terence M. Graunke shall have
subleased from the Company all real property leased by the Company at 676
N. Michigan in Chicago, Illinois and assumed all obligations of the Company
to be performed after the Effective Time under such lease, which sublease
and assumption shall be in form and substance reasonably acceptable to
Parent.
7. TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent if:
(i) there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the
part of the Company and such breach has not been cured within ten (10)
business days after written notice to the Company (provided, that
Parent is not in material breach of the terms of this Agreement; and
provided further, that no cure period shall be required for a breach
which by its nature cannot be cured) such that the conditions set
forth in Section 6.3(a) or Section 6.3(b), as the case may be, will
not be satisfied,
(ii) the Board of Directors of the Company adversely amends,
withholds or withdraws its recommendation of the Merger or the Merger
is not submitted to the Company's stockholders as contemplated by this
Agreement (provided that Parent is not in material breach of the terms
of this Agreement and this Agreement has not otherwise been terminated
pursuant to this Section 7.1), or
(iii) the Company's stockholders do not approve the Merger at
the Company Stockholders' Meeting;
(c) by the Company if:
46
<PAGE>
(i) there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the
part of the Parent or Merger Sub and such breach has not been cured
within ten (10) business days after written notice to the Parent
(provided, that the Company is not in material breach of the terms of
this Agreement; and provided further, that no cure period shall be
required for a breach which by its nature cannot be cured) such that
the conditions set forth in Section 6.2(a) or Section 6.2(b), as the
case may be, will not be satisfied,
(ii) the Share Value at any time from and after the date on which
the Registration Statement is declared effective and prior to the date
of the Company Stockholder's Meeting is less than $22.50,
(iii) the Company's stockholders do not approve the Merger at
the Company Stockholders' Meeting, or
(iv) Parent adopts a plan of complete or partial liquidation or
dissolution or a plan of merger or consolidation in which Parent would
become a subsidiary of any other person;
(d) by any party hereto if: (i) there shall be a final, non-
appealable order of a Federal or state court in effect preventing
consummation of the Merger; or (ii) there shall be any final action taken,
or any statute, rule, regulation or order enacted, promulgated or issued
and deemed applicable to the Merger by any Governmental Entity which would
make consummation of the Merger illegal or which would prohibit Parent's
ownership or operation of all or a material portion of the business of the
Company, or compel Parent to dispose of or hold separate all or a material
portion of the business or assets of the Company or Parent as a result of
the Merger;
(e) by any party hereto if the Merger shall not have been consummated
by July 31, 1998 (provided that if the Merger shall not have been
consummated solely due to the waiting period, or any extension thereof,
under the HSR Act not having expired or been terminated, then such date
shall be extended to August 31, 1998); provided, further, that the right to
terminate this Agreement under this Section 7.1(e) shall not be available
to any party whose willful failure to fulfill any material obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date.
(f) by any party if the Board of Directors of the Company accepts or
approves a Superior Proposal, or recommends a Superior Proposal to the
stockholders of the Company; provided that the Company shall provide to
Parent three (3) business days' prior written notice that the Company may
accept or approve a Superior Proposal.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in
Section 7.1, this Agreement shall forthwith become void and there shall be
no liability or obligation
47
<PAGE>
on the part of Parent, Merger Sub, the Company or their respective
officers, directors, stockholders or affiliates, except to the extent that
such termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, and, provided that the provisions of Sections 5.3(b), 5.5, and
5.6 and Article VIII of this Agreement shall remain in full force and
effect and survive any termination of this Agreement. The exercise by
either party of a termination right pursuant to Section 7.1 shall not be
deemed a breach of any provision of this Agreement.
(b) Any termination of this Agreement by the Company pursuant to
Section 7.1(f) hereof shall be of no force or effect unless prior to such
termination the Company shall have paid to Parent the sum as prescribed by
Section 5.6.
7.3 Notice of Termination. Subject to Section 7.2(b), any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
7.4 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
8. GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive beyond the Effective Time other than
the Parent Tax Certificates and the Company Tax Certificates referred to herein.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
48
<PAGE>
(a) if to Parent or Merger Sub, to:
PLATINUM technology, inc.
1815 South Meyers Road
Oak Brook Terrace, Illinois 60181
Attention: Andrew J. Filipowski,
Larry Freedman
Telecopy No.: (630) 691-0710
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois
Attention: Matthew S. Brown, Esq.
Telecopy No.: (312) 902-1061
(b) if to the Company, to:
Mastering, Inc.
9201 East Mountain View Road
Suite 200
Scottsdale, Arizona 85258-5132
Attention: Terence Graunke
Marc Pinto
Telecopy No.: (602) 657-4005
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.
Paul L. Choi, Esq.
Telecopy No.: (312) 853-7036
8.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include", "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the business
of all direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity. References in this Agreement to "knowledge" shall
mean the knowledge of the officers and directors of the Company or Parent, as
the case may be.
49
<PAGE>
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein, including the Company Schedules and the Parent Schedules (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being understood
that the Confidentiality Agreement shall continue in full force and effect until
the Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except with respect to Sections 5.14 and 5.17.
8.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies. 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.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the State of Delaware, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of Delaware for such persons and waives and covenants not
to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the parties.
50
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
PLATINUM technology, inc. MASTERING, INC.
By: By:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------ ---------------------------
PT ACQUISITION CORPORATION I
By:
---------------------------
Name:
-------------------------
Title:
------------------------
51
