<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PLATINUM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 36-3509662
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTIONOF INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
INCORPORATION OR CODE NUMBER) NO.)
ORGANIZATION)
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181, (630) 620-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW J. FILIPOWSKI
1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181, (630) 620-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
MATTHEW S. BROWN, ESQ.MARK D. WOOD, THOMAS A. COLE, ESQ.
ESQ. PAUL L. CHOI, ESQ.
Katten Muchin & Zavis Sidley & Austin
525 West Monroe Street, Suite 1600 One First National Plaza
Chicago, Illinois 60661-3693 Chicago, Illinois 60603
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger of a wholly-owned subsidiary of the Registrant
with and into Mastering, Inc. (the "Merger"), which shall occur as soon as
practicable after the effective date of this Registration Statement and the
satisfaction of all conditions to closing of such merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _____________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________________________________________________
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................. 1,713,246 shares(1) N/A N/A $0(2)(3)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) PLATINUM technology inc., previously registered 8,342,759 shares of its
Common Stock, par value $.001 per share ("PLATINUM Common Stock"),
issuable in the Merger, under a Registration Statement on Form S-4
("Registration No. 333-48965") filed on March 31, 1998 (the "Original
Registration Statement"). The shares registered hereby represent the
maximum number of additional shares of PLATINUM Common Stock issuable in
the Merger, assuming the exercise of all outstanding options to purchase
shares of Mastering, Inc. common stock ("Mastering Common Stock").
Includes associated rights ("Rights") to purchase 1/100 of a share of
Series A Participating Preferred Stock, par value $.01 per share, of
PLATINUM technology, inc. Rights initially are attached to and trade with
the PLATINUM Common Stock. The value attributable to such Rights, if any,
is reflected in the market price of the PLATINUM Common Stock.
(2) The registration fee of $57,340 was previously paid in connection with the
registration of the PLATINUM Common Stock under the Original Registration
Statement.
(3) The registration fee was paid pursuant to Rule 457(f)(l) and 457(c), based
upon 18,622,229 shares of Mastering Common Stock being exchanged for
PLATINUM Common Stock in the Merger, using the average high and low prices
of Mastering Common Stock of $10.125, as reported on the Nasdaq National
Market on March 24, 1998. Pursuant to Rules 457(f)(1) and 457(c), the
registration fee for the 1,713,246 shares of PLATINUM Common Stock
registered hereby is payable based upon the 18,622,229 shares of Mastering
Common Stock being exchanged for PLATINUM Common Stock in the Merger. The
registration fee previously paid for the Original Registration Statement
was determined based upon the same 18,622,229 shares of Mastering Common
Stock. Using the average high and low prices of Mastering Common Stock of
$10.125, as reported on the Nasdaq National Market on April 7, 1998, the
proposed maximum offering price for all of the up to 10,056,005 shares of
PLATINUM Common Stock issuable in the Merger is $188,550,069, which is
less than the proposed maximum offering price of $194,369,516 set forth on
the facing page of the Original Registration Statement. Therefore, no
registration fee is payable herewith.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PURSUANT TO THE PROVISIONS OF RULE 429 OF THE RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT
NO. 1 WITH RESPECT TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-4
(REGISTRATION NO. 333-48965).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
Pursuant to Rule 429 under the Securities Act of 1933, this Registration
Statement constitutes Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4, Registration No. 333-48965 (the "Original Registration
Statement"), of PLATINUM technology, inc. ("PLATINUM"). The Original
Registration Statement relates to up to 8,342,759 shares of PLATINUM common
stock to be issued to the stockholders of Mastering, Inc. ("Mastering") in
connection with the proposed merger of a wholly-owned subsidiary of PLATINUM
with and into Mastering (the "Merger"). This Registration Statement also
relates to up to an additional 1,713,246 shares of PLATINUM common stock to be
issued to stockholders of Mastering in connection with the Merger.
This Registration Statement includes (i) the Letter to Stockholders, Notice
of Special Meeting, Proxy Statement/Prospectus and appendices to the Proxy
Statement/Prospectus included in their entirety in the Original Registration
Statement (collectively, the "Original Proxy Materials") and (ii) a new Letter
to Stockholders, Supplement to the Proxy Statement/Prospectus and appendices
to the Supplement (collectively, the "New Proxy Materials"). The holders of
Mastering common stock as of the record date (the "Record Date Holders") for
the Mastering special meeting of stockholders to be held on April 21, 1998, at
which a proposal to approve the Merger will be considered and voted upon,
previously received the Original Proxy Materials. Therefore, only the New
Proxy Materials will be mailed to the Record Date Holders.
<PAGE>
LOGO
9201 EAST MOUNTAIN VIEW ROAD
SCOTTSDALE, ARIZONA 85258
April 10, 1998
Dear Stockholder:
The Board of Directors of Mastering, Inc. ("Mastering") is pleased to
announce that Mastering and PLATINUM technology, inc. ("PLATINUM") have
amended the Merger Agreement dated as of February 18, 1998 (the "Merger
Agreement") to, among other things, change the number of shares of PLATINUM
common stock which holders of Mastering common stock will receive upon the
consummation of the merger (the "Merger") of a wholly-owned subsidiary of
PLATINUM with and into Mastering.
You should have previously received a Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus dated April 1, 1998 relating to a
proposal to approve the Merger Agreement and the Merger at a special meeting
of Mastering stockholders (the "Special Meeting"). The Special Meeting will be
held as originally scheduled on April 21, 1998.
The original Merger Agreement contemplated an exchange of 0.448 of a share
of PLATINUM common stock for each share of Mastering common stock. Under the
amended Merger Agreement, PLATINUM will issue to each Mastering stockholder a
portion of a share of PLATINUM common stock having a value (determined as
described below) of $12.50 for each share of Mastering common stock. However,
PLATINUM will issue a minimum of 0.448 of a share of PLATINUM common stock and
a maximum of 0.540 of a share of PLATINUM common stock for each share of
Mastering common stock. Consequently, if the value per share of the PLATINUM
common stock is $27.875 or more, the exchange ratio will be 0.448, and if the
value per share of the PLATINUM common stock is $23.125 or less, the exchange
ratio will be 0.540. For the purpose of these calculations, the value of the
PLATINUM common stock will be the average closing price per share of the
PLATINUM common stock, as reported on the Nasdaq National Market, for the six
trading days ending on the trading day immediately preceding the date of the
Special Meeting. If the value per share of the PLATINUM common stock were to
equal $24.0521, the average closing price of the PLATINUM common stock for the
six trading days ended April 7, 1998, the exchange ratio would be 0.5197.
BEGINNING ON APRIL 13, 1998, STOCKHOLDERS INTERESTED IN OBTAINING THE MOST
RECENT CLOSING PRICE OF THE PLATINUM COMMON STOCK, THE AVERAGE CLOSING PRICE
OF THE PLATINUM COMMON STOCK FOR THE SIX MOST RECENTLY COMPLETED TRADING DAYS,
AND THE EXCHANGE RATIO BASED ON THIS SIX-DAY AVERAGE CLOSING PRICE MAY CALL
(800) 655-9985 (TOLL FREE) OR, FOR CALLERS OUTSIDE THE UNITED STATES, (630)
691-9119. AFTER CALLING EITHER NUMBER, CALLERS SHOULD PRESS 6 WHEN PROMPTED.
Your Board of Directors (excluding certain directors who are also directors
of PLATINUM) has unanimously approved the amendment to the Merger Agreement.
In the materials accompanying this letter, you will find a Supplement to the
Proxy Statement/Prospectus and an additional form of proxy. The Supplement
explains more fully the amendments to the Merger Agreement and certain other
matters. You should be aware that four Mastering stockholders, holding
approximately 52% of the outstanding shares of Mastering common stock, have
agreed to vote in favor of the Merger Agreement and the Merger. The
affirmative vote of a majority of the issued and outstanding shares of
Mastering common stock is required to approve the Merger Agreement and the
Merger.
Please complete, sign, date and return your proxy (either the one included
with the enclosed Supplement or the one previously provided to you) in the
enclosed envelope or in the envelope previously provided. If you attend the
Special Meeting, you may revoke your proxy at the Special Meeting by voting in
person. If you have previously executed and delivered a proxy, you do not need
to execute a new proxy unless you wish to revoke your earlier executed proxy.
I look forward to seeing you at the Special Meeting. On behalf of the
management and directors of Mastering, I want to thank you again for your
support.
Sincerely,
LOGO
Marc Pinto
Executive Vice President, Chief
Financial Officer
and Corporate Secretary
Mastering Inc.
<PAGE>
LOGO
SUPPLEMENT TO PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 21, 1998
LOGO
SUPPLEMENT TO PROSPECTUS
This Supplement to the Proxy Statement/Prospectus dated April 1, 1998 (the
"Proxy Statement/Prospectus") is being furnished to the stockholders of
Mastering, Inc., a Delaware corporation ("Mastering"), in connection with the
solicitation of proxies by the Board of Directors of Mastering (the "Mastering
Board") for use at a special stockholders' meeting to be held on April 21,
1998 at 10:00 a.m. (local time) at The Chicago Club, 81 East Van Buren Street,
Chicago, Illinois 60605, and at any and all adjournments or postponements
thereof (the "Meeting"). At the Meeting, Mastering's stockholders are being
asked to consider and vote upon a proposal to approve and adopt (a) the
Agreement and Plan of Merger, dated as of February 18, 1998 (the "Merger
Agreement"), entered into among Mastering, PLATINUM technology, inc.
("PLATINUM") and PT Acquisition Corporation I, a newly-formed, wholly-owned
subsidiary of PLATINUM ("PT Acquisition"), and (b) the merger (the "Merger")
of PT Acquisition with and into Mastering, whereby, among other things,
Mastering will be the surviving corporation in the Merger and become a wholly-
owned subsidiary of PLATINUM. On April 7, 1998, Mastering and PLATINUM entered
into an amendment to the Merger Agreement (the "Amendment") to, among other
things, change the number of shares of PLATINUM common stock ("PLATINUM Common
Stock") which each holder of shares of Mastering common stock ("Common
Shares") would receive in the Merger. Capitalized terms not defined herein
have the meanings ascribed to them in the Proxy Statement/Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THE PROXY STATEMENT/PROSPECTUS
FOR A DESCRIPTION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS OF
MASTERING COMMON STOCK BEFORE VOTING ON THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT AND THE MERGER.
This Supplement to the Proxy Statement/Prospectus also constitutes a
Supplement to the Prospectus of PLATINUM with respect to up to 10,056,005
shares of PLATINUM common stock issuable pursuant to the Merger (including the
issuance of shares of PLATINUM common stock issuable upon exercise of
Substitute Options). This Supplement and the accompanying form of proxy are
first being sent to Mastering stockholders on or about April 10, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SUPPLEMENT OR THE PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS SUPPLEMENT IS APRIL 10, 1998.
<PAGE>
OVERVIEW
The original Merger Agreement contemplated an exchange of 0.448 of a share
of PLATINUM Common Stock for each Common Share. Under the amended Merger
Agreement, PLATINUM will issue to each Mastering stockholder a portion of a
share of PLATINUM Common Stock having a value (determined as described below)
of $12.50 for each Common Share. However, PLATINUM will issue a minimum of
0.448 of a share of PLATINUM Common Stock and a maximum of 0.540 of a share of
PLATINUM Common Stock for each Common Share. Consequently, if the value per
share of the PLATINUM Common Stock is $27.875 or more, the exchange ratio will
be 0.448 and PLATINUM will issue a total of 6,217,190 shares of PLATINUM
Common Stock to the stockholders of Mastering (based on the 13,877,656 Common
Shares outstanding as of March 27, 1998). If the value per share of the
PLATINUM Common Stock is $23.125 or less, the exchange ratio will be 0.540 and
PLATINUM will issue a total of 7,493,934 shares of PLATINUM Common Stock to
the stockholders of Mastering (based on the 13,877,656 Common Shares
outstanding as of March 27, 1998). For the purpose of these calculations, the
value of the PLATINUM Common Stock will be the average closing price per share
of the PLATINUM Common Stock, as reported on the Nasdaq National Market
("Nasdaq"), for the six trading days ending on the trading day immediately
preceding the date of the Meeting. If the value per share of the PLATINUM
Common Stock were to equal $24.0521, the average closing price of the PLATINUM
Common Stock for the six trading days ended April 7, 1998, the exchange ratio
would be 0.5197 and PLATINUM would issue a total of 7,212,218 shares of
PLATINUM Common Stock to the stockholders of Mastering (based on the
13,877,656 Common Shares outstanding as of March 27, 1998). BEGINNING ON APRIL
13, 1998, STOCKHOLDERS INTERESTED IN OBTAINING THE MOST RECENT CLOSING PRICE
OF THE PLATINUM COMMON STOCK, THE AVERAGE CLOSING PRICE OF THE PLATINUM COMMON
STOCK FOR THE SIX MOST RECENTLY COMPLETED TRADING DAYS, AND THE EXCHANGE RATIO
BASED ON THIS SIX-DAY AVERAGE CLOSING PRICE MAY CALL (800) 655-9985 (TOLL
FREE) OR, FOR CALLERS OUTSIDE THE UNITED STATES, (630) 691-9119. AFTER CALLING
EITHER NUMBER, CALLERS SHOULD PRESS 6 WHEN PROMPTED.
The following table sets forth the assumed dollar value of the PLATINUM
Common Stock to be issued in exchange for each Common Share, based upon
assumed whole dollar average stock prices ranging from $21.00 to $30.00 for
the six trading days ending on the trading day immediately preceding the date
of the Meeting:
<TABLE>
<CAPTION>
PLATINUM AVERAGE STOCK PRICE
---------------------------------------------------------------------
$21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00 $28.00 $29.00 $30.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assumed Dollar Value per
Common Share........... $11.34 $11.88 $12.42 $12.50 $12.50 $12.50 $12.50 $12.54 $12.99 $13.44
</TABLE>
Although upon consummation of the Merger each Mastering stockholder will
receive a number of shares of PLATINUM Common Stock determined using an
average closing price for six trading days, the actual fair market value of
the PLATINUM Common Stock received by any Mastering stockholder will depend on
the trading price of the PLATINUM Common Stock on and after the date the
Merger is consummated.
Even though the exchange ratio under the Merger Agreement, as amended, will
not exceed 0.540, regardless of the value (determined as described above) of
the PLATINUM Common Stock, Mastering has certain rights to terminate the
Merger Agreement in the event that the PLATINUM Common Stock trades below a
predetermined level. Specifically, if the average closing price for a share of
PLATINUM Common Stock, as reported on Nasdaq, for the twenty trading days
ending April 20, 1998 is less than $19.00, Mastering may terminate the Merger
Agreement.
In connection with the amendment to the Merger Agreement, four stockholders
of Mastering, holding approximately 52% of the outstanding shares of Mastering
common stock, have agreed with PLATINUM to vote such shares in favor of the
Merger Agreement and the Merger at the Meeting. The affirmative vote of a
majority of the issued and outstanding shares of Mastering common stock is
required to approve the Merger Agreement and the Merger. See "The Stockholder
Agreements."
2
<PAGE>
The Board of Directors of Mastering (excluding certain directors who are
also directors of PLATINUM (the "PLATINUM Directors")) has unanimously
approved the amendment to the Merger Agreement.
MASTERING STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE INFORMATION CONTAINED
HEREIN, TOGETHER WITH THE INFORMATION CONTAINED IN THE PROXY
STATEMENT/PROSPECTUS, IN CONNECTION WITH VOTING ON THE MATTERS TO BE PRESENTED
AT THE MEETING. PLEASE CONTACT MARC PINTO AT MASTERING, 9201 EAST MOUNTAIN
VIEW ROAD, SUITE 200, SCOTTSDALE, ARIZONA 85285 (TELEPHONE NUMBER (602) 657-
4000), IF YOU WOULD LIKE TO RECEIVE AN ADDITIONAL COPY OF THE PROXY
STATEMENT/PROSPECTUS. THIS SUPPLEMENT IS BEING DELIVERED TO EACH MASTERING
STOCKHOLDER ENTITLED TO RECEIVE NOTICE OF AND TO VOTE AT THE MEETING.
This Supplement includes pro forma combined comparative per share data and
PLATINUM pro forma financial information reflecting the new exchange ratio, as
well as information regarding the market prices of the PLATINUM common stock
since March 27, 1998 and equivalent per share prices for the Mastering common
stock. Also included are (1) a discussion of developments with respect to the
Merger since the date of the Proxy Statement/Prospectus and factors considered
by the Mastering Board in approving the amendment to the Merger Agreement, (2)
a discussion regarding a new fairness opinion issued by Piper Jaffray Inc.,
Mastering's financial advisor (the "New Fairness Opinion"), (3) a description
of the amendment to the Merger Agreement, and (4) a description of the
stockholder agreements executed by four stockholders of Mastering. Attached as
appendices to this Supplement are copies of the Amendment and the New Fairness
Opinion.
3
<PAGE>
PRO FORMA COMBINED COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of PLATINUM
and Mastering and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a pooling-of-interests basis, as if the
Merger had been effective for all periods presented. The unaudited pro forma
per share data presented below will vary based upon the average closing price
of PLATINUM's Common Stock, as reported on Nasdaq, for the six trading days
ending the day before the Meeting. Pro forma net loss from continuing
operations per share and pro forma book value per share are computed using an
exchange ratio of 0.5197, based upon the average closing price of PLATINUM
Common Stock for the six trading days ended April 7, 1998, as discussed in
Note A of the Notes to the Unaudited Pro Forma Condensed Combining Financial
Statements.
This data should be read in conjunction with the selected financial data,
the Unaudited Pro Forma Condensed Combining Financial Statements and the
separate historical financial statements of PLATINUM and Mastering and notes
thereto, included elsewhere in this Supplement and the Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
EQUIVALENT
MASTERING
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PLATINUM MASTERING(2) COMBINED(3) COMBINED
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss) from
Continuing Operations
Per Share
Years ended December 31:
1997................... $(1.90) $0.27 $(1.65)(4) $(0.86)(4)
1996................... (1.14) 0.04 (1.02)(4) (0.53)(4)
1995................... (2.50) 0.11(5) (2.35)(4) (1.22)(4)
Book Value Per Share:(1)
December 31, 1997........ 3.81 4.03 4.21 (6) 2.19 (6)
</TABLE>
- --------
(1) Book value per share reflects PLATINUM and Mastering at December 31, 1997
and is computed by dividing stockholders' equity by the number of shares
of common stock outstanding at the respective dates.
(2) Historical Mastering per share data reflect basic earnings per share from
continuing operations for each period. See Note B of the Notes to the
Unaudited Pro Forma Condensed Combining Financial Statements included in
this Supplement.
(3) Pro forma combined per share amounts reflect the Merger.
(4) Using the maximum exchange ratio of 0.540, pro forma combined net loss
from continuing operations per share would have been $(1.65), $(1.01) and
$(2.35) and the equivalent Mastering pro forma combined net loss from
continuing operations per share would have been $(0.89), $(0.55) and
$(1.27) for the years ended December 31, 1997, 1996 and 1995,
respectively. Using the minimum exchange ratio of 0.448, pro forma
combined net loss from continuing operations per share would have been
$(1.68), $(1.03) and $(2.37) and the equivalent Mastering pro forma
combined net loss from continuing operations per share would have been
$(0.75), $(0.46) and $(1.06) for the years ended December 31, 1997, 1996
and 1995, respectively.
(5) Although historical Mastering income from continuing operations per share
for 1995 is not presented in Mastering's consolidated financial
statements, as it is not considered relevant, net income per share for
Mastering for the year ended December 31, 1995 is presented here solely
for purposes of calculating pro forma combined net loss per share. See
Note B of the Notes to the Unaudited Pro Forma Condensed Combining
Financial Statements included in this Supplement.
(6) Using the maximum exchange ratio of 0.540, pro forma combined book value
per share would have been $4.19 and equivalent Mastering pro forma
combined book value per share would have been $2.26 as of December 31,
1997. Using the minimum exchange ratio of 0.448, pro forma combined book
value per share would have been $4.27 and equivalent Mastering pro forma
combined book value per share would have been $1.91 as of December 31,
1997.
4
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
MASTERING
The principal trading market for the Common Shares is Nasdaq under the
symbol "MASC."
The table below sets forth, for the periods indicated, the reported high and
low sales prices for the Common Shares, as reported on Nasdaq.
<TABLE>
<CAPTION>
PRICE PER PRO FORMA PRICE
COMMON SHARE PER COMMON SHARE(1)
--------------- -------------------
FISCAL PERIOD HIGH LOW HIGH LOW
------------- ------- ------- -------------------
<S> <C> <C> <C> <C>
1996
Quarter ended March 31(2)............... $14.750 $13.000 $ 9.740 $ 5.847
Quarter ended June 30................... 22.125 13.125 9.744 6.626
Quarter ended September 30.............. 19.500 8.625 8.250 4.807
Quarter ended December 31............... 10.750 5.500 8.055 5.522
1997
Quarter ended March 31.................. 13.750 7.125 9.290 5.652
Quarter ended June 30................... 11.500 6.750 7.698 5.457
Quarter ended September 30.............. 11.250 7.250 12.993 6.561
Quarter ended December 31............... 10.750 8.000 16.013 10.459
1998
Quarter ended March 31.................. 12.000 8.500 16.176 11.498
Quarter beginning April 1 (through April
8, 1998)............................... 12.500 9.875 13.577 11.693
</TABLE>
- --------
(1) Determined by multiplying the applicable prices for PLATINUM Common Stock
by an exchange ratio of 0.5197, based upon the average closing price of
the PLATINUM Common Stock for the six trading days ended April 7, 1998. As
of February 18, 1998, the last trading day before the announcement of the
Merger, the closing price on Nasdaq for the Common Shares was $9.50 and
the pro forma price per Common Share would have been $14.097. On April 8,
1998, the latest practicable trading day before the printing of this
Supplement, the closing price on Nasdaq for the Common Shares was $12.063
and the pro forma price per Common Share would have been $12.765. Using
the 0.5197 exchange ratio and based on the closing price of PLATINUM
Common Stock on February 18, 1998 and April 8, 1998 and on the number of
Common Shares outstanding as of such dates, the aggregate market value of
the PLATINUM Common Stock to be issued in respect of all outstanding
Common Shares would be approximately $193.7 million and $177.2 million,
respectively.
(2) The Common Shares started trading on March 21, 1996.
As of March 27, 1998, there were approximately 175 record holders of Common
Shares. Mastering has not paid any cash dividends on its Common Shares in the
last two fiscal years and does not currently intend to pay any cash dividends
in the foreseeable future. Mastering currently intends to retain its earnings,
if any, for the continued growth of its business.
5
<PAGE>
PLATINUM
PLATINUM Common Stock is traded on Nasdaq under the symbol "PLAT." The table
below sets forth, for the periods indicated, the high and low sales prices for
the PLATINUM Common Stock, as reported on Nasdaq.
<TABLE>
<CAPTION>
FISCAL PERIOD HIGH LOW
------------- -------- --------
<S> <C> <C>
1996
Quarter ended March 31.................................... $18.7500 $11.2500
Quarter ended June 30..................................... 18.7500 12.7500
Quarter ended September 30................................ 15.8750 9.2500
Quarter ended December 31................................. 15.5000 10.6250
1997
Quarter ended March 31.................................... 17.8750 10.8750
Quarter ended June 30..................................... 14.8125 10.5000
Quarter ended September 30................................ 25.0000 12.6250
Quarter ended December 31................................. 30.8125 20.1250
1998
Quarter ended March 31.................................... 31.1250 22.1250
Quarter beginning April 1 (through April 8, 1998)......... 26.1250 22.5000
</TABLE>
As of February 18, 1998, the last trading day before the announcement of the
Merger, the last reported sales price on Nasdaq for the PLATINUM Common Stock
was $27.1250. On April 8, 1998, the latest practicable trading day before the
printing of this Supplement, the last reported sales price on Nasdaq for the
PLATINUM Common Stock was $24.5625.
As of April 8, 1998, there were approximately 917 record holders of PLATINUM
Common Stock. PLATINUM has not paid dividends on the PLATINUM Common Stock,
and the PLATINUM Board intends to continue a policy of retaining earnings to
finance its growth and for general corporate purposes. PLATINUM does not
anticipate paying any dividends in the foreseeable future.
ADDITIONAL INFORMATION ABOUT THE MERGER
ADDITIONAL INFORMATION REGARDING INTERESTS OF CERTAIN PERSONS IN THE MERGER
Andrew J. Filipowski, the Chairman of the Board, President and Chief
Executive Officer of PLATINUM, is also a director of Mastering and has certain
other ownership interests in Mastering. Mr. Filipowski participated in the
deliberations of PLATINUM's Board of Directors on the Amendment but excused
himself from the vote of PLATINUM's Board. James Cowie, who is a director of
both PLATINUM and Mastering, did not participate in the deliberations or vote
of PLATINUM's Board on the Amendment. Messrs. Filipowski and Cowie did not
participate in the deliberations or vote of the Mastering Board on the
Amendment. See "THE MERGER--Interests of Certain Persons in the Merger" in the
Proxy Statement/Prospectus.
ADDITIONAL BACKGROUND FOR THE MERGER
On April 1, 1998, Mr. Terence Graunke received an unsolicited telephone call
from the chief executive officer of the third party which had contacted
Mastering in mid-March 1998 (as described in the Proxy Statement/Prospectus).
He indicated an interest in proposing a stock-for-stock merger at a range of
values in excess of what had been proposed in the earlier contact (the "April
Third-Party Proposal"). During the period between April 1 and 5, 1998, Mr.
Terence Graunke had several conversations with such chief executive officer
and, separately, with Mr. Filipowski. Among other things, such chief executive
officer indicated an ability to move quickly and a desire to conduct due
diligence. At a meeting on the evening of April 5, 1998, the Mastering Board,
after receiving the advice of Piper Jaffray, determined that the April Third-
Party Proposal, if consummated, was likely to result in a Superior Proposal
(as defined in the Merger Agreement) when compared to the terms as set forth
in the original Merger Agreement. Accordingly, the Mastering Board resolved to
provide further notification to PLATINUM and to permit the third party to
conduct due diligence, all in accordance with the terms of the Merger
Agreement.
6
<PAGE>
On the evening of April 6, 1998 counsel to PLATINUM delivered to Mastering
drafts of the Amendment and Stockholder Agreements. Among other things, the
drafts contemplated amendments to the Exchange Ratio which would be favorable
to the Mastering stockholders. The terms of the April Third-Party Proposal
were still nominally higher than the amended Exchange Ratio.
On the morning of April 7, 1998, the Mastering Board met with its financial
and legal advisors and determined that if certain changes to the draft
agreements received from PLATINUM could be negotiated it was likely to
continue to support the transaction with PLATINUM. Accordingly, the Mastering
Board authorized management to defer due diligence by the third party and to
negotiate the draft agreements with PLATINUM and to report to the Mastering
Board at a meeting scheduled for later that day.
During the afternoon of April 7, 1998, the Amendment was negotiated between
counsel for PLATINUM and Mastering, and the Stockholder Agreements were
negotiated between counsel for PLATINUM and the stockholders signatory
thereto.
On the evening of April 7, 1998, the Mastering Board again met with its
financial and legal advisors and determined to approve the Amendment. (The
terms of the Amendment and of the Stockholders Agreements are described below
under "The Amendment to the Merger Agreement" and "The Stockholder
Agreements." The factors considered by the Mastering Board in approving the
Amendment are described below under "--Factors Considered in Approving the
Amendment.")
On April 7, 1998, the Amendment and the Stockholder Agreements were
executed. The parties promptly issued a related press release shortly
thereafter.
FACTORS CONSIDERED IN APPROVING THE AMENDMENT
In reaching its determination to approve the Amendment, the Mastering Board
(excluding the Platinum Directors) consulted with Mastering's management, as
well as its financial and legal advisors, and considered a number of factors,
including, but not limited to, the following:
(i) the increase in the value of the consideration to be received by
Mastering's stockholders under the Amendment compared to what would have
been received under the original Merger Agreement;
(ii) the oral confirmation by Piper Jaffray delivered to the Mastering
Board on April 7, 1998 that it would be in a position to render a favorable
written opinion that the amended Exchange Ratio was fair, from a financial
point of view, to the holders of Common Shares as of the date of such
opinion. (Such written opinion was delivered on April 7, 1998 and is
attached to this Supplement as Appendix B);
(iii) the uncertainty as to whether the April Third-Party Proposal would
ultimately lead to an offer or a definitive agreement and the timing with
respect thereto;
(iv) publicly-available information with respect to the third party,
including the price to earnings ratio of its stock;
(v) the indication of the three largest stockholders of Mastering that such
stockholders still support the proposed Merger, as the terms thereof were
to be amended by the Amendment, and that they were prepared to execute the
Stockholder Agreements;
(vi) the likely impact of the Stockholder Agreements and certain provisions
of the Amendment in discouraging the third party and others from proposing
alternative transactions, but the insistence by PLATINUM on such provisions
as a condition to increasing the value of the consideration by means of the
amendment; and
(vii) certain of the other factors described in the Proxy
Statement/Prospectus under "The Merger--Recommendations of the Mastering
Board; Reasons for the Merger."
7
<PAGE>
OPINION OF MASTERING'S FINANCIAL ADVISOR
On April 7, 1998, the Mastering Board met to evaluate the proposed
Amendment. During this meeting, Piper Jaffray discussed with the Mastering
Board the financial analysis and procedures conducted since February 18, 1998
in order to render an opinion as to the fairness, from a financial point of
view, of the exchange ratio contained in the Amendment. Piper Jaffray then
delivered to the Mastering Board its oral opinion, which opinion was
subsequently confirmed in writing (the "Piper Jaffray Opinion"), that as of
April 7, 1998, and based upon the matters described therein, the exchange
ratio was fair, from a financial point of view, to the holders of Common
Shares.
The full text of the Piper Jaffray Opinion, which sets forth, among other
things, assumptions made, matters considered and limitations on the review
undertaken, is attached hereto as Appendix B and is incorporated herein by
reference. Stockholders of Mastering are urged to read the Piper Jaffray
Opinion in its entirety. The Piper Jaffray Opinion was prepared for the
benefit and use of the Mastering Board in its consideration of the Amendment
and does not constitute a recommendation to stockholders of Mastering as to
how they should vote at the Meeting in connection with the Merger. The Piper
Jaffray Opinion does not address the relative merits of the Merger and any
other transaction or business strategies discussed by the Mastering Board as
alternatives to the Merger Agreement or, except with respect to the fairness
of the exchange ratio, from a financial point of view to the holders of Common
Shares, the underlying business decision of the Mastering Board to proceed
with or effect the Merger. The summary of the Piper Jaffray Opinion set forth
in this Supplement is qualified in its entirety by reference to the full text
of the Piper Jaffray Opinion and the discussion contained in the Proxy
Statement/Prospectus under the heading "--Opinion of Mastering's Financial
Advisor," which discussion is incorporated herein by reference. With respect
to the discussion under the heading "Pro Forma Earnings Analysis--Synergy
Adjustments," as a result of the revised exchange ratio, the results of the
pro forma earnings analysis suggested that the Merger could be dilutive to the
combined company's EPS in the calendar year 1998.
Pursuant to a letter agreement dated as of April 7, 1998, Mastering agreed
to pay Piper Jaffray a fee equal to $100,000 in connection with delivering the
Piper Jaffray Opinion (which constitutes part of Piper Jaffray's fee equal to
a percentage of the total sale price). See "THE MERGER--Opinion of Mastering's
Financial Advisor" contained in the Proxy Statement/Prospectus for a complete
description of the Piper Jaffray Engagement Letter.
THE AMENDMENT TO THE MERGER AGREEMENT
The following is a summary of certain provisions of the Amendment. The
summary does not purport to be complete and is qualified in its entirety by
reference to the Amendment, a copy of which is attached to this Supplement as
Appendix A and incorporated herein by reference. Statements in this Supplement
with respect to the terms of the Amendment are qualified in their entirety by
reference to the Amendment. Mastering stockholders are urged to read the full
text of the Amendment.
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger and without any further
action on the part of Mastering or PT Acquisition or any holder of any of the
following securities:
(i) each issued and outstanding share of Common Stock of PT Acquisition
will be converted into one Common Share of Mastering as the surviving
corporation;
(ii) all Common Shares owned by PLATINUM, PT Acquisition or Mastering or by
any direct or indirect subsidiary of PLATINUM or Mastering will be
canceled; and
(iii) each Common Share issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled as described in
subparagraph (ii) above) will be converted automatically into a number of
shares ("Conversion Shares") of PLATINUM Common Stock determined by
multiplying each Common Share by a fraction, the numerator of which is
$12.50 and the denominator of which is the average closing
8
<PAGE>
(last) price for a share of PLATINUM Common Stock, as reported on the
Nasdaq National Market (as reported in The Wall Street Journal, Midwest
Edition), for the most recent six days that the shares of PLATINUM Common
Stock have traded ending on the trading day immediately prior to the day of
the Meeting; provided, however, that (i) if the ratio of Conversion Shares
per Common Share determined pursuant to the foregoing is greater than
0.540, then, notwithstanding the foregoing, each Common Share issued and
outstanding immediately prior to the Effective Time (other than shares to
be canceled as described in subparagraph (ii) above) will be converted
automatically into 0.540 shares of PLATINUM Common Stock and (ii) if the
ratio of Conversion Shares per Common Share determined pursuant to the
foregoing is less than 0.448, then, notwithstanding the foregoing, each
Common Share issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled as described in subparagraph (ii) above)
will be converted automatically into 0.448 shares of PLATINUM Common Stock.
All Common Shares converted as provided in subparagraph (iii) of the
preceding paragraph will no longer be outstanding and will automatically be
canceled and retired; and each holder of a Mastering Certificate representing
immediately prior to the Effective Time any such Common Shares will cease to
have any rights with respect thereto, except the right to receive, as
hereinafter described: (i) certificates representing the number of whole
shares of PLATINUM Common Stock into which such Common Shares have been
converted, (ii) cash in lieu of any fractional share of PLATINUM Common Stock
and (iii) certain dividends and other distributions.
SUPERIOR PROPOSALS
The Amendment provides that in the event Mastering receives a Superior
Proposal (as defined in the Merger Agreement), nothing contained in the Merger
Agreement shall prevent the Mastering Board from accepting or approving such
Superior Proposal, and nothing contained in the Merger Agreement shall prevent
the Mastering Board and its directors, officers, employees, representatives,
investment bankers, agents or affiliates from recommending such Superior
Proposal to Mastering's stockholders, if the Mastering Board reasonably
determines in good faith, based upon the advice of Mastering's outside
corporate counsel, that the failure to take such action or actions would
constitute a breach of the fiduciary duties of the Mastering Board to
Mastering's stockholders under applicable law; in such case, the Mastering
Board may amend, withhold or withdraw its recommendation of the Merger,
decline to hold the Meeting or exercise its termination rights under the
Merger Agreement.
CONDITIONS TO THE MERGER
The Amendment eliminates certain conditions to Closing, including the
following: (i) if requested by PLATINUM, the requirement of Mastering to
deliver to PLATINUM agreements in form and substance reasonably acceptable to
PLATINUM and duly executed by the parties to such agreements, clarifying
certain non-competition covenants or agreements to which Mastering or one of
its subsidiaries is a party or by which it is bound and (ii) the requirement
that Mastering's consolidated revenue for the three-month period ended March
31, 1998 (as set forth in its earnings release for such period) equaled or
exceeded $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 Mastering's
financial statements for the year ended December 31, 1997.
TERMINATION
The Amendment modifies certain termination rights in the Merger Agreement.
The original Merger Agreement provided that Mastering could terminate the
Merger Agreement if the value of PLATINUM Common Stock (based on a ten-day
average) at any time from and after the date on which the Registration
Statement was declared effective and prior to the Meeting was less than
$22.50. The Amendment provides that Mastering may terminate the Merger
Agreement if the average closing (last) price for a share of PLATINUM Common
Stock, as reported on the Nasdaq National Market (as reported in The Wall
Street Journal, Midwest Edition), for the most recent 20 days that the shares
of PLATINUM Common Stock have traded ending on April 20, 1998 is less than
$19.00.
9
<PAGE>
THE STOCKHOLDER AGREEMENTS
As a condition to PLATINUM's execution of the Amendment, each of Terence M.
Graunke, Thomas R. Graunke, Marc Pinto and Frontenac VI Limited Partnership
(collectively, the "Stockholders") executed a Stockholder Agreement with
PLATINUM, pursuant to which the Stockholders have agreed that at any meeting
(whether annual or special and whether or not an adjourned or postponed
meeting) of the Mastering stockholders, however called, or in connection with
any written consent of the Mastering stockholders, each such Stockholder will
appear at the meeting or otherwise cause the Common Shares owned by such
Stockholder to be counted as present thereat for purposes of establishing a
quorum and vote or consent (or cause to be voted or consented) the Common
Shares owned by such Stockholder (A) in favor of the adoption of the Merger
Agreement and the approval of the other actions contemplated by the Merger
Agreement and the Stockholder Agreement and any actions required in
furtherance thereof; (B) against any action or agreement that would result in
a breach in any respect of any covenant, representation or warranty, or any
other obligation or agreement, of Mastering under the Merger Agreement or the
Stockholder Agreement; and (C) except as otherwise agreed to in writing in
advance by PLATINUM in its sole discretion, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement and the Stockholder Agreement): (1) any Acquisition Proposal, (2)
(u) any change in a majority of the individuals who constitute the Mastering
Board; (v) any material change in the present capitalization of Mastering,
including without limitation any proposal to sell a substantial equity
interest in Mastering or its subsidiaries or substantial assets of Mastering
or its subsidiaries; (w) any amendment of Mastering's Certificate of
Incorporation or By-laws; (x) any other material change in Mastering's
corporate structure or business; or (y) any other action which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone or
materially adversely affect the Merger and the transactions contemplated by
the Merger Agreement and the Stockholder Agreement.
In addition to the foregoing, each of the Stockholders has agreed that such
Stockholder and any representatives will not, directly or indirectly, (i)
solicit, initiate or encourage (including by way of furnishing information)
any inquiries or the making of any proposal with respect to any Acquisition
Proposal or (ii) negotiate or otherwise engage in discussions with any person
with respect to any Acquisition Proposal, or which may reasonably be expect to
lead to a proposal for any Acquisition Proposal, or enter into any agreement,
arrangement or understanding (including any letter of intent, agreement in
principle or similar agreement) with respect to any such Acquisition Proposal.
Moreover, the Stockholder Agreement provides that each Stockholder will not,
directly or indirectly, (i) offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option
or other arrangement or understanding with respect to or consent to the offer
for sale, sell, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Common Shares owned by such Stockholder or
any interest therein, (ii) grant any proxies or powers of attorney, deposit
the Common Shares owned by such Stockholder into a voting trust or enter into
a voting agreement with respect to the Common Shares owned by such
Stockholder, or (iii) take any action that would make any representation or
warranty of such Stockholder contained in the Stockholder Agreement untrue or
incorrect or would result in a breach by such Stockholder of its obligations
under the Stockholder Agreement.
The Stockholder Agreements generally terminate upon (or within 30 days
after) the termination of the Merger Agreement. However, if the Merger
Agreement is terminated (i) by PLATINUM or Mastering if the Mastering
stockholders do not approve the Merger, (ii) by PLATINUM if the Mastering
Board changes its recommendation regarding the Merger, (iii) by PLATINUM or
Mastering if the Merger has not been consummated by July 31, 1998 and, in the
case of clause (i), (ii) or (iii), prior to such termination there shall have
been made a Superior Proposal or Acquisition Proposal or (iv) by PLATINUM or
Mastering if the Mastering Board accepts or recommends a Superior Proposal,
then for a period of 365 days after the date of the Stockholder Agreements,
the Stockholders will not vote in favor of such Superior Proposal or
Acquisition Proposal or any proposal made by the person or entity that made
such Superior Proposal or Acquisition Proposal or any affiliate of such person
or entity and will not sell the Stockholders' Common Shares (by means of a
tender or otherwise) to the person or entity making such Superior Proposal or
Acquisition Proposal or any affiliate of such person or entity.
The Stockholders held an aggregate of 7,217,428 Common Shares, or
approximately 52% of the outstanding Common Shares, on the Record Date.
10
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1997 1997 ADJUSTMENTS 1997
------------ ------------ ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products......... $ 357,223 $ -- $-- $ 357,223
Maintenance............... 125,245 -- -- 125,245
Professional services..... 141,035 40,966 -- 182,001
--------- ------- ---- ---------
Total revenues.......... 623,503 40,966 -- 664,469
--------- ------- ---- ---------
Costs and expenses:
Professional services..... 127,499 37,149 -- 164,648
Product development and
support.................. 187,383 -- -- 187,383
Sales and marketing....... 228,387 -- -- 228,387
General and
administrative........... 61,876 -- -- 61,876
Restructuring charges..... 57,319 -- -- 57,319
Merger costs.............. 8,927 -- -- 8,927
Acquired in-process
technology............... 67,904 -- -- 67,904
--------- ------- ---- ---------
Total costs and ex-
penses................. 739,295 37,149 -- 776,444
--------- ------- ---- ---------
Operating income (loss)..... (115,792) 3,817 -- (111,975)
Other income, net........... 16,729 1,870 -- 18,599
--------- ------- ---- ---------
Income (loss) before income
taxes...................... (99,063) 5,687 -- (93,376)
Income taxes................ 18,721 2,081 -- 20,802
--------- ------- ---- ---------
Net income (loss) from
continuing operations...... $(117,784) $ 3,606 $-- $(114,178)
========= ======= ==== =========
Net income (loss) from
continuing operations per
share...................... $ (1.90) $ 0.27 $-- $ (1.65)
========= ======= ==== =========
Shares used in computing net
income (loss) from
continuing operations per
share...................... 62,042 13,535 69,076
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
11
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1996 1996 ADJUSTMENTS 1996
------------ ------------ ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products......... $243,938 $ -- $-- $243,938
Maintenance............... 102,364 -- -- 102,364
Professional services..... 121,763 21,018 -- 142,781
-------- ------- ---- --------
Total revenues.......... 468,065 21,018 -- 489,083
-------- ------- ---- --------
Costs and expenses:
Professional services..... 116,133 21,574 -- 137,707
Product development and
support.................. 155,277 -- -- 155,277
Sales and marketing....... 182,597 -- -- 182,597
General and
administrative........... 39,224 -- -- 39,224
Merger costs.............. 5,782 -- -- 5,782
Acquired in-process
technology............... 48,456 -- -- 48,456
-------- ------- ---- --------
Total costs and ex-
penses................. 547,469 21,574 -- 569,043
-------- ------- ---- --------
Operating loss.............. (79,404) (556) -- (79,960)
Other income, net........... 5,237 1,537 -- 6,774
-------- ------- ---- --------
Income (loss) before income
taxes...................... (74,167) 981 -- (73,186)
Income taxes................ (9,245) 461 -- (8,784)
-------- ------- ---- --------
Net income (loss) from
continuing operations...... $(64,922) $ 520 $-- $(64,402)
======== ======= ==== ========
Net income (loss) from
continuing operations per
share...................... $ (1.14) $ 0.04 $-- $ (1.02)
======== ======= ==== ========
Shares used in computing net
income (loss) from
continuing operations per
share...................... 56,968 12,286 63,353
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
12
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1995 1995 ADJUSTMENTS 1995
------------ ------------ ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products......... $ 158,597 $ -- $-- $ 158,597
Maintenance............... 76,498 -- -- 76,498
Professional services..... 91,316 10,168 -- 101,484
--------- ------- ---- ---------
Total revenues.......... 326,411 10,168 -- 336,579
--------- ------- ---- ---------
Costs and expenses:
Professional services..... 92,374 9,720 -- 102,094
Product development and
support.................. 94,027 -- -- 94,027
Sales and marketing....... 113,978 -- -- 113,978
General and
administrative........... 34,097 -- -- 34,097
Merger costs.............. 30,819 -- -- 30,819
Acquired in-process
technology............... 88,493 -- -- 88,493
--------- ------- ---- ---------
Total costs and ex-
penses................. 453,788 9,720 -- 463,508
--------- ------- ---- ---------
Operating income (loss)..... (127,377) 448 -- (126,929)
Other income, net........... 4,130 70 -- 4,200
--------- ------- ---- ---------
Income (loss) before income
taxes...................... (123,247) 518 -- (122,729)
Income taxes................ (11,680) -- -- (11,680)
--------- ------- ---- ---------
Net income (loss) from
continuing operations...... $(111,567) $ 518 $-- $(111,049)
========= ======= ==== =========
Net income (loss) from
continuing operations per
share...................... $ (2.50) $ 0.11 $-- $ (2.35)
========= ======= ==== =========
Shares used in computing net
income (loss) from
continuing operations per
share...................... 44,671 4,807 47,169
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
13
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
NOTE A--DESCRIPTION OF MERGER
On February 18, 1998, PLATINUM signed a definitive agreement to acquire all
of the outstanding capital stock of Mastering. Under the Merger Agreement, as
amended, the ratio of PLATINUM Common Stock exchanged for each Common Share of
Mastering will vary based upon the average closing price of PLATINUM's Common
Stock as reported on Nasdaq for the six trading days ending the day before the
Meeting. Accordingly, the following table presents the effect of different
levels of exchange ratios ranging from the minimum exchange ratio to the
maximum exchange ratio. The current average is based on a PLATINUM six-day
average closing stock price of $24.0521 (for the six business days ended April
7, 1998), which is assumed for purposes of the pro forma financial statements.
Shares converted and options converted represent the number of PLATINUM shares
and options resulting from the indicated exchange ratio.
<TABLE>
<CAPTION>
MAXIMUM CURRENT AVERAGE MINIMUM
---------------- ---------------- ----------------
(AMOUNTS IN THOUSANDS, EXCEPT EXCHANGE RATIO DATA)
<S> <C> <C> <C>
Exchange Ratio............ .5400 .5197 .4480
Shares Converted.......... 7,494 7,212 6,217
Options Converted......... 2,562 2,466 2,126
</TABLE>
Mastering will become a wholly-owned subsidiary of PLATINUM. The closing of
the definitive merger agreement is subject to approval by the stockholders of
Mastering as well as the satisfaction of conditions customary in such
agreements. It is expected that the acquisition will qualify as a tax-free
reorganization and will be accounted for as a pooling of interests.
The unaudited pro forma combined financial data are not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the periods presented and
should not be construed as representative of future operations.
PLATINUM and Mastering estimate that they will incur merger-related expenses
of approximately $10,000,000, consisting primarily of transaction costs for
financial advisory fees, attorneys, accountants, financial printing and one-
time charges related to the transaction. These nonrecurring expenses will be
charged to operations in the fiscal quarter in which the merger is
consummated. Such charges have not been reflected in the pro forma financial
statements.
The following table summarizes the pro forma net loss from continuing
operations per share and the assumed average shares outstanding used in
computing pro forma net loss from continuing operations per share under the
three exchange ratio categories for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
MAXIMUM CURRENT AVERAGE MINIMUM
--------------- --------------- ---------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Year ended December 31, 1997
Pro forma net loss from
continuing operations per
share........................ $ (1.65) $(1.65 ) $ (1.68)
============== ============== ===============
PLATINUM average shares
outstanding.................. 62,042 62,042 62,042
Mastering assumed average
shares outstanding........... 7,309 7,034 6,064
-------------- -------------- ---------------
Pro forma average shares
outstanding.................. 69,351 69,076 68,106
============== ============== ===============
Year ended December 31, 1996
Pro forma net loss from
continuing operations per
share........................ $ (1.01) $ (1.02) $ (1.03)
============== ============== ===============
PLATINUM average shares
outstanding.................. 56,968 56,968 56,968
Mastering assumed average
shares outstanding........... 6,634 6,385 5,504
-------------- -------------- ---------------
Pro forma average shares
outstanding.................. 63,602 63,353 62,472
============== ============== ===============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM CURRENT AVERAGE MINIMUM
--------------- --------------- ---------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Year ended December 31, 1995
Pro forma net loss from
continuing operations per
share...................... $ (2.35) $ (2.35) $ (2.37)
=============== =============== ===============
PLATINUM average shares
outstanding................ 44,671 44,671 44,671
Mastering assumed average
shares outstanding......... 2,596 2,498 2,153
--------------- --------------- ---------------
Pro forma average shares
outstanding................ 47,267 47,169 46,824
=============== =============== ===============
</TABLE>
NOTE B--EARNINGS PER SHARE
Share and per share amounts for 1996 and 1995 reflect actual shares of
Mastering outstanding for purposes of the unaudited pro forma statements of
operations. Due to the significant changes that occurred to Mastering's
capital structure upon its initial public offering in March 1996, Mastering
has not presented such share data except on a pro forma basis, as discussed in
Note 1 to Mastering's consolidated financial statements included in the Proxy
Statement/Prospectus.
NOTE C--RECLASSIFICATIONS
Certain historical amounts have been reclassified to conform to the pro
forma combined presentation.
NOTE D--SUBSEQUENT EVENTS
See Note 18 to PLATINUM's consolidated financial statements included in the
Proxy Statement/Prospectus which includes a discussion of the transactions
entered into by PLATINUM subsequent to December 31, 1997. Also included is a
summary of the pro forma effects of the proposed acquisitions of Learmonth and
Burchett Management Systems PLC, Mastering and Logic Works, Inc. on revenues
and net income (loss) for the years ended December 31, 1997, 1996 and 1995.
15
<PAGE>
APPENDIX A
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "First
Amendment") is made as of this 7th day of April, 1998 among PLATINUM
technology, inc., a Delaware corporation ("Parent"), PT Acquisition
Corporation I, a Delaware corporation and wholly-owned subsidiary of the
Parent ("Merger Sub"), and Mastering, Inc. a Delaware corporation (the
"Company").
Parent, Merger Sub and the Company are parties to that certain Agreement and
Plan of Merger dated as of February 18, 1998 (the "Merger Agreement"). Except
as otherwise defined or modified herein, all capitalized terms used in this
First Amendment shall have the meaning set forth in the Merger Agreement.
In consideration of the mutual agreements contained in the Merger Agreement
and in this First Amendment and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Amendments to Merger Agreement.
A. Amendment to Section 1.6(a) of the Merger Agreement. Section 1.6(a) of
the Merger Agreement is hereby amended to read in its entirety as follows:
"(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 a number of shares
("Conversion Shares") of Common Stock, par value $0.001 per share, of
Parent (the "Parent Common Stock") determined by multiplying each share of
Company Capital Stock by a fraction, the numerator of which is $12.50 and
the denominator of which is the average closing (last) price 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 six (6)
days that the shares of Parent Common Stock have traded ending on the
trading day immediately prior to the day of the Company Stockholders'
Meeting; provided however that (i) if the ratio of Conversion Shares per
share of Company Capital Stock determined pursuant to the foregoing is
greater than .54, then, notwithstanding the foregoing, each share of
Company Capital Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Capital Stock to be
cancelled pursuant to Section 1.6(b)) will be converted automatically into
.54 shares of Parent Common Stock and (ii) if the ratio of Conversion
Shares per share of Company Capital Stock determined pursuant to the
foregoing is less than .448, then, notwithstanding the foregoing, each
share of Company Capital Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of Company Capital Stock to be
cancelled pursuant to Section 1.6(b)) will be converted automatically into
.448 shares of Parent Common Stock. All shares of Company Capital Stock,
when converted, shall no longer be outstanding and shall automatically be
cancelled 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 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 determined pursuant to the first sentence of this
Section 1.6(a) is sometimes hereinafter referred to as the "Exchange
Ratio." "
B. Amendments to Section 5 of the Merger Agreement.
(I) The last sentence of Section 5.1 of the Merger Agreement is hereby
amended to read in its entirety as follows:
"The Proxy Statement shall also include the recommendation of the Board
of Directors of the Company in favor of the Merger which recommendation
shall not be withdrawn, modified or withheld
A-1
<PAGE>
unless the Company's Board is required to do so in order to comply with the
fiduciary duties of the Company's Board to the Company's stockholders under
applicable law."
(II) Section 5.2 of the Merger Agreement is hereby amended to read in its
entirety as follows:
"5.2 Meeting of Stockholders. Promptly after the date hereof, 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, unless the Company's Board is
required not to do so in order to comply with the fiduciary duties of the
Company's Board to the Company's stockholders under applicable law. Subject
to the rights of termination set forth in Section 7.1 hereof, each of the
parties to this Agreement shall use its reasonable commercial efforts to
have the Company hold the Company Stockholders' Meeting for the purpose of
voting upon this Agreement and the Merger on April 21, 1998."
(III) Section 5.4(c) of the Merger Agreement is hereby amended to read in
its entirety as follows:
"(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 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, if the Company's Board reasonably determines in
good faith, based upon the advice of the Company's outside corporate
counsel, that the failure to take such action or actions would constitute a
breach of the fiduciary duties of the Company's Board of Directors to the
Company's stockholders under applicable law; 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."
C. Amendments to Section 6.3 of the Merger Agreement.
(I) Sections 6.3(k) and (l) of the Merger Agreement are hereby amended by
deleting such sections in their entirety and substituting the following in
lieu thereof: "This Section is intentionally omitted."
(II) Section 6.3(n) of the Merger Agreement is hereby amended by deleting
the name "Terence M. Graunke" set forth therein and substituting in lieu
thereof the name "Lake Creek Research L.L.C."
D. Amendment to Section 7.1 of the Merger Agreement.
(I) Section 7.1(c)(ii) of the Merger Agreement is hereby amended to read in
its entirety as follows:
"(ii) the average closing (last) price 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 twenty (20) days that
the shares of Parent Common Stock have traded ending on April 20, 1998 is
less than $19.00,"
(II) Section 7.1(f) of the Merger Agreement is hereby amended to read in its
entirety as follows:
"(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 the Company's Board may only take
such action if it reasonably determines in good faith, based upon the
advice of the Company's outside corporate counsel, that the failure to take
such action or actions would constitute a breach of the fiduciary duties of
the Company's Board of Directors to the Company's stockholders under
applicable law; provided further that the Company shall provide the Parent
three (3) business days' prior written notice that the Company may accept
or approve a Superior Proposal."
A-2
<PAGE>
Section 2. Representations and Warranties.
A. Representations and Warranties of the Company. The Company represents and
warrants to Parent and Merger Sub as follows:
(1) Authority; No Conflicts.
a. The Company has all requisite corporate power and authority to
enter into this First Amendment and, subject to obtaining requisite
stockholder approval, to consummate the transactions contemplated by
the Merger Agreement, as amended hereby. The execution and delivery of
this First Amendment and the consummation of the transactions
contemplated by the Merger Agreement as amended 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 First Amendment 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 First Amendment by the Company does not, and the
consummation of the transactions contemplated by the Merger Agreement
as amended 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 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 First Amendment or the consummation of the
transactions contemplated hereby, except (i) in connection, or in
compliance, with the provisions of 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) State "Anti-Takeover" Statutes. The Company's Board has taken all
actions necessary so that neither Section 203 of Delaware Law nor any other
"fair price" or "control share acquisition" statute or other similar
statute or regulation applies to the Merger or this First Amendment.
B. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub represent and warrant to the Company as follows:
(1) Parent and Merger Sub have all requisite corporate power and
authority to enter into this First Amendment and to consummate the
transactions contemplated by the Merger Agreement as amended hereby. The
execution and delivery of this First Amendment and the consummation of the
transactions
A-3
<PAGE>
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent and Merger Sub. This First Amendment 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.
(2) The execution and delivery of this First Amendment does not, and the
consummation of the transactions contemplated by the Merger Agreement, as
amended 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.
(3) 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 First Amendment by
Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Delaware Secretary of State, (ii) listing of
the shares on the Nasdaq National Market, and (iii) 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.
Section 3. Conditions Precedent. The effectiveness of the amendments to the
Merger Agreement set forth in Section 1 hereof are subject to the condition
that on or prior to April 7, 1998 each of Terence M. Graunke, Thomas R.
Graunke, Marc Pinto and Frontenac VI Limited Partnership shall have executed
and delivered to Parent a Stockholder Agreement in the form of Exhibit A
hereto attached.
Section 4. Consent. Parent hereby consents to the release by the Company of
17,500 shares of Company Capital Stock that have been pledged to the Company
by Thomas R. Graunke pursuant to a Stock Pledge Agreement.
Section 5. Miscellaneous. Except as herein expressly modified, the terms and
provisions of the Merger Agreement shall remain as originally executed.
IN WITNESS WHEREOF, the parties have executed this First Amendment and
caused the same to be duly delivered on their behalf on the day and year first
hereinabove written.
PLATINUM technology, inc.
Larry S. Freedman
By: _________________________________
Senior Vice President
Its: ________________________________
PT ACQUISITION CORPORATION I
Larry S. Freedman
By: _________________________________
Senior Vice President
Its: ________________________________
MASTERING, INC.
Terence M. Graunke
By: _________________________________
President and Chief Executive
Officer
Its: ________________________________
A-4
<PAGE>
APPENDIX B
April 7, 1998
PERSONAL & CONFIDENTIAL
Board of Directors
Mastering, Inc.
9201 East Mountain View Road
Suite 200
Scottsdale, Arizona 85258
Members of the Board:
We understand that PLATINUM technology, inc., a Delaware corporation
("PLATINUM" or the "Acquiror"), PT Acquisition Corporation I, a Delaware
corporation ("Acquisition Sub"), and Mastering, Inc., a Delaware corporation
("Mastering" or the "Company") have entered into an Agreement and Plan of
Merger dated as of February 18, 1998 (the "Agreement") as amended by the First
Amendment to Agreement and Plan of Merger dated as of April 7, 1998 (the
"First Amendment") pursuant to which the Acquisition Sub will be merged with
and into the Company in a transaction (the "Transaction") in which each
outstanding share of the Company's common stock, $.001 par value per share
(the "Company Shares") will be converted into the right to receive a number of
shares of the common stock of PLATINUM, par value $0.001 per share (the
"Acquiror Shares") determined by multiplying each Company share by a fraction,
the numerator of which is $12.50 and the denominator of which is the average
closing price for a share of PLATINUM common stock for the most recent six
days that such shares have traded ending on the trading day immediately prior
to the day of the Company Stockholder's Meeting to approve the Transaction;
provided that (i) if such ratio determined pursuant to the foregoing is
greater than .54, then each Company Share shall be converted into .54 shares
of PLATINUM common stock and (ii) if such ratio determined pursuant to the
foregoing is less than .448, then each Company Share shall be converted into
.448 shares of PLATINUM common stock (the ratio of PLATINUM common stock per
Company Share as so determined is referred to herein as the "Exchange Ratio").
You have requested our opinion as to whether the Exchange Ratio is fair, from
a financial point of view, to the holders of Company Shares.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, underwritings and
secondary distributions of securities, private placements, and valuations for
estate, corporate and other purposes. For our services in rendering this
opinion, the Company will pay us a fee and indemnify us against certain
liabilities. In the ordinary course of its business, we and our affiliates may
actively trade securities of the Company and PLATINUM for our own account or
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. Reviewed the definitive Agreement and the First Amendment.
2. Reviewed the Report on Form 10-K for the Company for the two fiscal
years ended December 31, 1997.
3. Reviewed the Reports on Form 10-K for PLATINUM for the four fiscal years
ended December 31, 1997.
4. Reviewed financial forecasts prepared by Company management for the five
fiscal years ending December 31, 1998 through 2002 ("Five-Year Financial
Forecasts").
5. Visited the headquarters of the Company and conducted discussions with
members of senior management of the Company, including the Chief
Executive Officer, the President, the Executive Vice
B-1
<PAGE>
President and Chief Financial Officer and other members of senior
management. Topics discussed included, but were not limited to, the
background and rationale of the proposed Transaction, the financial
condition, operating performance and the balance sheet characteristics
of the Company and the prospects for the Company.
6. Conducted discussions with members of senior management of PLATINUM,
including the Chief Executive Officer and the Executive Vice President
and Chief Financial Officer. Topics discussed included, but were not
limited to, the background and rationale of the proposed Transaction,
the financial condition, operating performance and the balance sheet
characteristics of PLATINUM and the prospects for PLATINUM.
7. Conducted discussions with PLATINUM's auditors. Topics discussed
included, but were not limited to, PLATINUM's financial accounting
policies and procedures and other financial and accounting matters.
8. Reviewed the historical prices and trading activity for PLATINUM common
stock.
9. Performed discounted cash flow analysis on the Five-Year Financial
Forecasts.
10. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant.
11. Compared certain financial data of the Company and PLATINUM with
certain financial and securities data of companies deemed similar to
the Company and PLATINUM or representative of the business sectors in
which they operate.
12. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by the Company and
PLATINUM or otherwise made available to us and have not assumed responsibility
independently to verify such information. We have further relied upon the
assurances of the Company's and PLATINUM's management that the information
provided has been prepared on a reasonable basis in accordance with industry
practice, and, with respect to financial planning data, reflects the best
currently available estimates and judgment of the Company's and PLATINUM's
management as to the expected future financial performance of the Company and
PLATINUM and that they are not aware of any information or facts that would
make the information provided to us incomplete or misleading. Without limiting
the generality of the foregoing, for the purpose of this opinion, we have
assumed that neither the Company nor PLATINUM are a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Transaction or in the ordinary course of
business. We have also assumed that the Transaction will be free of Federal
tax to the Company, PLATINUM, and the holders of Company Shares and that the
Transaction will be accounted for as a pooling of interests under generally
accepted accounting principles. In arriving at our opinion, we have assumed
that all the necessary regulatory approvals and consents required for the
Transaction will be obtained in a manner that will not change the purchase
price for the Company. We also note that Mr. Filipowski, a director of the
Company, is the Chief Executive Officer of PLATINUM and that Mr. James Cowie,
a director of the Company is also a director of PLATINUM.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Company or PLATINUM and
have not been furnished with any such appraisals or valuations. Without
limiting the generality of the foregoing, we have undertaken no independent
analysis of any pending or threatened litigation, possible unasserted claims
or other contingent liabilities, to which the Company, PLATINUM or any of
their respective affiliates is a party or may be subject and, at the Company's
direction and with its consent, our opinion makes no assumption concerning and
therefore does not consider, the possible assertion of claims, outcomes or
damages arising out of any such matters.
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof; events occurring after
B-2
<PAGE>
the date hereof could materially affect the assumptions used in preparing this
opinion. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring after the date hereof and do not
have any obligation to update, revise or reaffirm this opinion. We are not
expressing any opinion herein as to the prices at which the Company Shares or
the Acquiror Shares will trade following the consummation of the Transaction
or the prices at which the Company Shares or the Acquiror Shares will trade
between the date hereof and the consummation of the Transaction. In addition,
we express no opinion or recommendation as to how the holders of Company
Shares should vote at the stockholders meeting to be held in connection with
the Transaction.
This opinion is for the benefit of the Board of Directors of the Company in
evaluating the Transaction and shall not be published or otherwise used, nor
shall any public references to Piper Jaffray be made without our prior written
consent. In connection with this opinion, we were not requested to opine as
to, and this opinion does not address (except to the extent expressly set
forth in the next paragraph), the underlying business decision to proceed with
or effect the Transaction.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the Exchange Ratio is fair, from
a financial point of view, to the holders of Company Shares, as of the date
hereof.
Sincerely,
/s/ Piper Jaffray
PIPER JAFFRAY INC.
B-3
<PAGE>
LOGO
9201 EAST MOUNTAIN VIEW ROAD
SCOTTSDALE, ARIZONA 85258
April 1, 1998
Dear Stockholder:
A Special Meeting of Stockholders (the "Meeting") of Mastering, Inc., a
Delaware corporation ("Mastering"), will be held at The Chicago Club, 81 East
Van Buren Street, Chicago, Illinois 60605 on April 21, 1998, at 10:00 a.m.,
local time.
At the Meeting, you will be asked to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of February 18, 1998 (the
"Merger Agreement"), among PLATINUM technology, inc. ("PLATINUM"), Mastering
and PT Acquisition Corporation I, a newly-formed, wholly-owned subsidiary of
PLATINUM ("PT Acquisition"), and the merger (the "Merger") of PT Acquisition
with and into Mastering. If the proposed Merger is approved and becomes
effective, Mastering will become a wholly-owned subsidiary of PLATINUM, and
each outstanding share of common stock of Mastering, $.001 par value per share
("Common Share"), will be converted into 0.448 of a share of common stock of
PLATINUM, $.001 par value per share ("PLATINUM Common Stock"). Cash will be
paid in lieu of any fractional share of PLATINUM Common Stock. If the
requisite approval of the stockholders of Mastering is received, the Merger is
expected to be consummated on or about April 21, 1998 or as soon thereafter as
practicable after all necessary conditions to the closing have been satisfied.
After careful consideration, your Board of Directors (excluding certain
directors who are also directors of PLATINUM (the "PLATINUM directors")) has
unanimously approved the Merger Agreement and the transactions provided for
therein and has concluded that they are in the best interests of Mastering and
its stockholders. Your Board of Directors (excluding the PLATINUM directors)
recommends a vote in favor of the Merger Agreement and the Merger.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Proxy Statement/Prospectus relating to the actions
to be taken by Mastering stockholders at the Meeting and a proxy. The Proxy
Statement/Prospectus more fully describes the proposed Merger and includes
information about Mastering and PLATINUM.
All stockholders are cordially invited to attend the Meeting in person.
However, regardless of whether you plan to attend the Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Meeting, you may revoke your proxy at the Meeting by voting in
person. It is important that your shares be represented and voted at the
Meeting.
I look forward to seeing you at the Meeting. On behalf of the management and
directors of Mastering, I want to thank you for your support.
Sincerely,
LOGO
Marc Pinto
Executive Vice President, Chief
Financial Officer and Corporate
Secretary
Mastering, Inc.
<PAGE>
LOGO
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
To Our Stockholders:
A Special Meeting of Stockholders (the "Meeting") of Mastering, Inc., a
Delaware corporation ("Mastering"), will be held at 10:00 a.m., local time, on
April 21, 1998 at The Chicago Club, 81 East Van Buren Street, Chicago,
Illinois 60605 for the following purposes:
1. To consider and vote upon a proposal to approve and adopt (a) the
Agreement and Plan of Merger, dated as of February 18, 1998 (the "Merger
Agreement"), entered into among Mastering, PLATINUM technology, inc.
("PLATINUM") and PT Acquisition Corporation I, a newly-formed, wholly-owned
subsidiary of PLATINUM ("PT Acquisition"), and (b) the merger (the
"Merger") of PT Acquisition with and into Mastering, whereby, among other
things, Mastering will be the surviving corporation in the Merger and
become a wholly-owned subsidiary of PLATINUM, and each outstanding share of
common stock of Mastering, $.001 par value per share ("Common Share"), will
be converted into 0.448 of a share of common stock of PLATINUM, $.001 par
value per share ("PLATINUM Common Stock"). Cash will be paid in lieu of any
fractional share of PLATINUM Common Stock.
2. To transact such other business as may properly come before the
Meeting or any postponement or adjournment thereof.
The business to be transacted at the Meeting is more fully described in the
Proxy Statement/Prospectus accompanying this Notice.
Only stockholders of record of Common Shares at the close of business on
March 27, 1998 are entitled to notice of, and will be entitled to vote at, the
Meeting or any postponements or adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Marc Pinto
Corporate Secretary
Mastering, Inc.
Scottsdale, Arizona
April 1, 1998
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS VOTED. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES WHEN
RETURNING YOUR PROXY. IF THE MERGER IS CONSUMMATED, YOU WILL BE NOTIFIED AND
PROVIDED WITH INSTRUCTIONS FOR EXCHANGE OF YOUR STOCK CERTIFICATES.
<PAGE>
LOGO
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 21, 1998
LOGO
Logo of Platinum Technology
PROSPECTUS
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to the stockholders of Mastering, Inc., a Delaware corporation
("Mastering"), in connection with the solicitation of proxies by the Board of
Directors of Mastering (the "Mastering Board") for use at a special
stockholders' meeting to be held on April 21, 1998 at 10:00 a.m. (local time)
at The Chicago Club, 81 East Van Buren Street, Chicago, Illinois 60605, and at
any and all adjournments or postponements thereof (the "Meeting").
At the Meeting, stockholders will be asked to consider and vote on a
proposal to approve the Agreement and Plan of Merger, dated as of February 18,
1998 (the "Merger Agreement"), by and among PLATINUM technology, inc., a
Delaware corporation ("PLATINUM"), PT Acquisition Corporation I, a Delaware
corporation and wholly-owned subsidiary of PLATINUM ("PT Acquisition"), and
Mastering, which provides for the merger (the "Merger") of PT Acquisition with
and into Mastering, with Mastering surviving as a wholly-owned subsidiary of
PLATINUM. A copy of the Merger Agreement is attached as Appendix A to this
Proxy Statement/Prospectus. Subject to the terms and conditions of the Merger
Agreement, each share of common stock of Mastering, $.001 par value per share
("Common Share"), outstanding immediately prior to the Effective Time (as
defined in the Merger Agreement) of the Merger (other than shares owned
directly or indirectly by PLATINUM or Mastering, which will be cancelled) will
be converted into 0.448 of a share (the "Exchange Ratio") of common stock,
$.001 par value per share, of PLATINUM (the "PLATINUM Common Stock"). Cash
will be paid in lieu of any fractional share of PLATINUM Common Stock.
Mastering's Board of Directors (excluding certain directors who are also
directors of PLATINUM) has unanimously approved the Merger Agreement and the
Merger and recommends that the Mastering stockholders vote in favor of the
proposal to approve the Merger Agreement and the Merger.
The consummation of the Merger is subject, among other things, to the
adoption of the Merger Agreement by the affirmative vote, in person or by
proxy, of the holders of a majority of the issued and outstanding Common
Shares. Holders of Common Shares are entitled to one vote for each Common
Share held.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY HOLDERS OF COMMON SHARES BEFORE VOTING.
This Proxy Statement/Prospectus also constitutes the Prospectus of PLATINUM
with respect to up to approximately 8,342,759 shares of PLATINUM Common Stock
issuable pursuant to the Merger (including the issuance of shares of PLATINUM
Common Stock issuable upon exercise of Substitute Options (as defined
herein)).
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being sent to Mastering stockholders on or about April 1, 1998. The Board of
Directors of Mastering has fixed the close of business on March 27, 1998 as
the record date for the determination of stockholders entitled to receive
notice of and to vote at the Meeting and any postponement or adjournment
thereof. As of the record date, 13,877,656 Common Shares were issued and
outstanding and entitled to vote.
The PLATINUM Common Stock is listed for trading under the symbol "PLAT" on
the Nasdaq National Market ("Nasdaq"). The Common Shares are listed for
trading under the symbol "MASC" on Nasdaq. Execution of the Merger Agreement
was publicly announced after the close of trading on February 18, 1998. On
that date, the last sale price of PLATINUM Common Stock, as reported by
Nasdaq, was $27.125 per share and the last reported sale price of Common
Shares, as reported by Nasdaq, was $9.50 per share. On March 27, 1998, the
latest practicable trading day prior to the printing of this Proxy
Statement/Prospectus, the last reported sale price of PLATINUM Common Stock,
as reported by Nasdaq, was $24.75 per share and the last reported sale price
of Common Shares, as reported by Nasdaq, was $10.6875 per share. See
"Description of PLATINUM's Common Stock" and "Comparison of Stockholder
Rights." Based on the last reported sale price of PLATINUM Common Stock on
February 18, 1998 and March 27, 1998, and on the number of Common Shares
outstanding as of such dates, the aggregate value of the PLATINUM Common Stock
to be issued in respect of all outstanding Common Shares would be
approximately $167.0 million and $153.9 million, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS APRIL 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION..................................................... -i-
SUMMARY................................................................... 1
The Companies........................................................... 1
The Meeting............................................................. 1
The Merger.............................................................. 2
PLATINUM Summary Selected Consolidated Financial Information............ 6
Mastering Summary Selected Consolidated Financial Information........... 7
Unaudited Pro Forma Condensed Selected Financial Data................... 8
Pro Forma Combined Comparative Per Share Data........................... 9
Market Price Data....................................................... 9
Cautionary Statement Regarding Forward-looking Statements............... 10
RISK FACTORS.............................................................. 11
THE MEETING............................................................... 17
THE MERGER................................................................ 18
THE MERGER AGREEMENT...................................................... 32
COMPARATIVE PER SHARE MARKET PRICE DATA................................... 40
PLATINUM SELECTED CONSOLIDATED FINANCIAL DATA............................. 42
MASTERING SELECTED CONSOLIDATED FINANCIAL INFORMATION..................... 43
PLATINUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 44
MASTERING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 56
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL DATA.................... 65
PRO FORMA COMBINED COMPARATIVE PER SHARE DATA............................. 70
INFORMATION REGARDING PLATINUM............................................ 71
MANAGEMENT OF PLATINUM.................................................... 80
PLATINUM EXECUTIVE COMPENSATION........................................... 81
PLATINUM COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...... 84
CERTAIN TRANSACTIONS RELATING TO PLATINUM................................. 84
INFORMATION REGARDING MASTERING........................................... 85
DESCRIPTION OF PLATINUM'S CAPITAL STOCK................................... 89
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 93
SECURITY OWNERSHIP OF PLATINUM MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF
PLATINUM................................................................. 98
SECURITY OWNERSHIP OF MASTERING MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF
MASTERING................................................................ 100
EXPERTS................................................................... 102
LEGAL MATTERS............................................................. 102
PROXY SOLICITATION........................................................ 102
OTHER MATTERS............................................................. 103
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
<TABLE>
<C> <S> <C>
APPENDICES
A Agreement and Plan of Merger......................................... A-1
B Piper Jaffray Inc. Opinion........................................... B-1
</TABLE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED BY PLATINUM OR MASTERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PLATINUM
OR MASTERING. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Mastering and PLATINUM are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These materials can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of these materials can also be obtained
from the Commission at prescribed rates by writing to the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials of the companies (including Mastering and
PLATINUM) that file electronically with the Commission. This Web site can be
accessed at http://www.sec.gov. In addition, material filed by each of
Mastering and PLATINUM can be inspected at the offices of The Nasdaq Stock
Market at 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") filed by PLATINUM under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the offering of PLATINUM
Common Stock in connection with the Merger. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information contained in the Registration Statement. Reference is made to the
Registration Statement for further information with respect to PLATINUM and
Mastering. Statements contained in this Proxy Statement/Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. For further information, reference is hereby made
to the Registration Statement.
As used in this Proxy Statement/Prospectus, unless the context otherwise
requires, the term "Mastering" means Mastering, Inc. and its subsidiaries, and
the term "PLATINUM" means PLATINUM technology, inc. and its subsidiaries. All
information contained in this Proxy Statement/Prospectus relating to Mastering
was provided by the management and Board of Directors of Mastering. PLATINUM
assumes no responsibility for the accuracy of such information. All
information contained in this Proxy Statement/Prospectus relating to PLATINUM
was provided by the management and Board of Directors of PLATINUM. Mastering
assumes no responsibility for the accuracy of such information or for any of
the information contained herein relating to PLATINUM.
i
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. The summary is not, and is not intended to
be, complete and is qualified in its entirety by reference to the more detailed
information contained in this Proxy Statement/Prospectus and the Appendices
hereto. Stockholders are urged to read this Proxy Statement/Prospectus and the
Appendices in their entirety.
THE COMPANIES
PLATINUM
PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve their
information technology ("IT") infrastructures, which consist of data, systems
and applications. PLATINUM's products and services help IT departments,
primarily in large and data intensive organizations, minimize risk and improve
service levels and leverage information to make better business decisions.
PLATINUM's products typically perform fundamental functions, such as automating
operations, maintaining the operating efficiency of systems and applications,
and ensuring data access and integrity. PLATINUM also offers a wide array of
professional services, including consulting, systems integration and
educational programs, both in conjunction with and independent of software
product sales.
PLATINUM was incorporated in Delaware in 1987, and its executive offices are
located at 1815 South Meyers Road, Oakbrook Terrace, Illinois 60181. Its
telephone number at that address is (630) 620-5000, and its Web site is located
at http://www.platinum.com.
PT ACQUISITION
PT Acquisition is a wholly-owned subsidiary of PLATINUM formed solely for the
purpose of the Merger. PT Acquisition's principal executive offices are located
at 1815 South Meyers Road, Oakbrook Terrace, Illinois 60181, and its telephone
number is (630) 620-5000.
MASTERING
Mastering is an educational services company that provides corporate training
products and services. Mastering, Inc. was formerly known as Eagle River
Interactive, Inc., and changed its name to Mastering, Inc. on October 15, 1997.
Training products for IT professionals are created, developed and marketed by
Mastering Computers, Inc., a wholly-owned subsidiary of Mastering, Inc.
("Mastering Computers"). Training products include instructor-led seminars for
Windows operating systems and other IT topics, instructor-led Microsoft
Certified Professional preparation courses, on-site workshops, computer-based
training media, interactive software, videos and a newsletter. Mastering's
principal executive offices are located at 9201 East Mountain View Road, Suite
200, Scottsdale, Arizona 85258, and its telephone number is (602) 657-4000, and
its Web site is located at http://www.masteringcomputers.com.
THE MEETING
TIME, PLACE AND DATE
The Meeting will be held on April 21, 1998 at 10:00 a.m., local time, at The
Chicago Club, 81 East Van Buren Street, Chicago, Illinois 60605.
1
<PAGE>
PURPOSE OF THE MEETING
At the Meeting, stockholders of Mastering will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement and the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE
The Board of Directors of Mastering (the "Mastering Board") has fixed the
close of business on March 27, 1998 as the record date (the "Record Date") for
the determination of stockholders entitled to receive notice of and to vote at
the Meeting and any postponement or adjournment thereof. On the Record Date,
there were 13,877,656 Common Shares issued and outstanding. At the close of
business on the Record Date, directors and executive officers of Mastering and
their affiliates beneficially owned and had the right to vote an aggregate of
7,933,458 Common Shares (approximately 57.7% of the Common Shares outstanding).
The affirmative vote of holders of a majority of the issued and outstanding
Common Shares is required to approve the Merger Agreement and the Merger.
VOTES REQUIRED; QUORUM; ABSTENTIONS AND BROKER NON-VOTES
Stockholders are entitled to one vote per share on all matters to be
considered at the Meeting. A majority of the shares entitled to vote present,
in person or by proxy, at the Meeting shall constitute a quorum. The
affirmative vote of holders of a majority of the issued and outstanding Common
Shares is required to approve the Merger Agreement and the Merger. Abstentions
and broker non-votes will be treated as present at the Meeting for purposes of
reaching a quorum. Abstentions and broker non-votes will have the same effect
as votes against the proposal to approve the Merger Agreement and the Merger.
Brokers who hold Common Shares will not have discretionary authority to vote
such shares in the absence of instructions from the beneficial owners thereof.
See "THE MEETING--Vote Required" and "--Abstentions and Broker Non-Votes."
THE MERGER
GENERAL
Upon the terms and subject to the conditions of the Merger Agreement, PT
Acquisition will be merged with and into Mastering, with Mastering continuing
as the surviving corporation and a wholly-owned subsidiary of PLATINUM (the
"Surviving Corporation"). As a result of the Merger, the separate corporate
existence of PT Acquisition will cease and Mastering will succeed to all the
rights and be responsible for all the obligations of PT Acquisition in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"). It is anticipated that the Merger will be consummated on or about
April 21, 1998, if approved at the Meeting, provided that the other conditions
to the Merger are then fulfilled or waived. See "THE MERGER--General."
CONVERSION OF SHARES
At the Effective Time, each of the Common Shares outstanding immediately
prior to the Effective Time of the Merger (other than shares owned directly or
indirectly by PLATINUM or Mastering, which will be cancelled) will be converted
into 0.448 validly issued, fully paid and nonassessable shares of PLATINUM
Common Stock. Cash will be paid in lieu of any fractional share of PLATINUM
Common Stock. See "THE MEETING--Purpose of the Meeting" and "THE MERGER--
Conversion of Common Shares."
RECOMMENDATION OF THE MASTERING BOARD OF DIRECTORS
The Mastering Board (excluding certain directors who are also directors of
PLATINUM (the "PLATINUM Directors")) has unanimously approved the Merger
Agreement and the Merger and recommends that holders of Common Shares vote in
favor of the Merger Agreement at the Meeting. See "THE MERGER--Recommendations
of the Mastering Board of Directors; Reasons for the Merger."
2
<PAGE>
OPINION OF MASTERING'S FINANCIAL ADVISOR
On February 18, 1998, Piper Jaffray Inc. ("Piper Jaffray") rendered its
written opinion to the Mastering Board to the effect that, as of February 18,
1998, based upon and subject to the various factors and assumptions set forth
therein, the Exchange Ratio to be paid to the holders of Common Shares pursuant
to the Merger Agreement was fair, from a financial point of view, to such
holders. The full text of the opinion of Piper Jaffray, which sets forth the
assumptions made, matters considered and limitations on the review undertaken
by Piper Jaffray is attached as Appendix B to this Proxy Statement/Prospectus.
Mastering stockholders are urged to read this opinion carefully in its
entirety. See "THE MERGER--Opinion of Mastering's Financial Advisor."
LISTING
The shares of PLATINUM Common Stock to be issued to Mastering stockholders in
exchange for Common Shares in the Merger (including the issuance of shares of
PLATINUM Common Stock issuable upon exercise of Substitute Options) will be
listed on Nasdaq.
CONDITIONS TO THE MERGER
The respective obligations of Mastering and PLATINUM to consummate the Merger
are subject to the fulfillment or waiver (where permissible) of certain
conditions set forth in the Merger Agreement. See "THE MERGER AGREEMENT--
Conditions to the Merger."
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Harris Trust and Savings Bank will be the Exchange Agent under the Merger
Agreement. Promptly after the Effective Time, PLATINUM will make available to
the Exchange Agent shares of PLATINUM Common Stock issuable pursuant to the
Merger in accordance with the Merger Agreement. The Exchange Agent will deliver
the certificates representing PLATINUM Common Stock (the "PLATINUM
Certificates") upon the surrender for exchange of certificates representing
Common Shares (the "Mastering Certificates"). See "THE MERGER AGREEMENT--
Exchange Agent; Procedures for Exchange of Mastering Certificates."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, the Exchange Agent will mail to each
record holder of a Mastering Certificate a letter of transmittal. Upon
surrender for exchange to the Exchange Agent of all Mastering Certificates held
by any record holder, together with such letter of transmittal duly executed,
such holder will be entitled to receive in exchange therefor: (i) a PLATINUM
Certificate representing the number of whole shares of PLATINUM Common Stock
into which the Common Shares represented by the surrendered Mastering
Certificates have been converted at the Effective Time, (ii) cash in lieu of
any fractional share of PLATINUM Common Stock and (iii) dividends and other
distributions, if any. See "THE MERGER AGREEMENT--Exchange Agent; Procedures
for Exchange of Mastering Certificates."
HOLDERS OF COMMON SHARES SHOULD NOT FORWARD THEIR MASTERING CERTIFICATES WITH
THE ENCLOSED PROXY CARD, NOR SHOULD THEY RETURN THEIR MASTERING CERTIFICATES TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER FROM THE
EXCHANGE AGENT AFTER THE EFFECTIVE TIME.
STOCK OPTIONS
Each option to purchase Common Shares (a "Mastering Stock Option") granted
under a Mastering Stock Plan (as hereinafter defined) which is outstanding
immediately prior to the Effective Time will become an option to purchase
shares of PLATINUM Common Stock (a "Substitute Option"). Appropriate adjustment
will be made to the number of shares of PLATINUM Common Stock subject thereto
and the associated exercise price. Each such option will be otherwise
exercisable upon the same terms and conditions as were applicable to the
3
<PAGE>
related Mastering Stock Option (including that all such Substitute Options will
be immediately exercisable pursuant to the terms of the Mastering Stock Plans).
See "THE MERGER AGREEMENT--Substitution of Options."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Mastering of the
proposal to adopt the Merger Agreement, as authorized by the respective boards
of directors of PLATINUM, PT Acquisition and Mastering, as applicable: (i) by
mutual written consent of PLATINUM and Mastering; (ii) by either PLATINUM or
Mastering if the other materially breaches any representation, warranty,
covenant or agreement (in most cases after a ten business-day cure period
following notice of such breach) or if the requisite Mastering stockholder
approval is not obtained; (iii) by either PLATINUM or Mastering if (A) the
Merger has not been effected on or prior to the close of business on July 31,
1998, subject to certain limitations and exceptions or (B) any court or other
governmental entity having jurisdiction has permanently enjoined, restrained or
otherwise prohibited the transactions contemplated by the Merger Agreement by
final and nonappealable order or other action; (iv) by either PLATINUM or
Mastering if the Mastering Board accepts or approves a Superior Proposal (as
defined in the Merger Agreement) or recommends a Superior Proposal to the
stockholders of Mastering, provided that Mastering provides PLATINUM three
business days' prior written notice that Mastering may accept or approve a
Superior Proposal; (v) by PLATINUM if the Mastering Board adversely amends or
withdraws its recommendation of the Merger or its approval of the Merger
Agreement; and (vi) by Mastering if (A) during the period from and after the
date on which the Registration Statement is declared effective and prior to the
date of the Meeting, the average closing price per share of PLATINUM Common
Stock (as published in The Wall Street Journal, Midwest Edition) for the most
recent ten trading days prior to the date of determination is less than $22.50
or (B) PLATINUM adopts a plan of complete or partial liquidation or dissolution
or a plan of merger or consolidation in which PLATINUM would become a
subsidiary of any other person. See "THE MERGER AGREEMENT--Termination."
FEES AND EXPENSES
The Merger Agreement provides for the payment of certain fees and the
reimbursement of expenses following a termination of the Merger Agreement under
certain circumstances. See "THE MERGER AGREEMENT--Expenses and Termination
Fee."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Mastering Board with respect to the
Merger, stockholders of Mastering should be aware that members of Mastering's
management and Board of Directors have certain interests in the Merger as
holders of options to purchase Common Shares (with currently unexercisable
options vesting upon a change in control of Mastering) that are in addition to
the interests of the stockholders of Mastering generally.
PLATINUM has also entered into certain arrangements with Terence Graunke,
President and Chief Executive Officer of Mastering, Thomas Graunke, Executive
Vice President of Mastering, and Marc Pinto, Executive Vice President and Chief
Financial Officer of Mastering, pursuant to which the foregoing executive
officers will agree, at the Effective Time, to certain non-competition and
nonsolicitation covenants and will provide post-Merger consulting and/or
employment services. PLATINUM has also entered into an agreement with the
directors of Mastering which provides that, at the Effective Time, each of Paul
Carbery, Casey Cowell, James Cowie, Peter Mason and Paul Yovovich will provide
consulting services to the Company for compensation in the amount of $100 per
hour. In addition, Andrew J. Filipowski and James Cowie are directors of both
PLATINUM and Mastering. Mr. Filipowski is also the President and Chief
Executive Officer of PLATINUM. Mr. Filipowski holds options to purchase 34,800
Common Shares (which were granted to him in his capacity as a director of
Mastering) and, through two investment partnerships of which he is a principal,
indirectly owns approximately 22,000 Common Shares. Mr. Cowie holds options to
purchase 34,800 Common
4
<PAGE>
Shares (granted to him in his capacity as a director of Mastering). Messrs.
Filipowski and Cowie did not participate in the deliberations of the Mastering
Board or the Board of Directors of PLATINUM with respect to the Merger.
PLATINUM Ventures Partners I L.P. and PLATINUM Ventures Partners II L.P.
(collectively, the "PLATINUM Ventures") own a total of approximately 335,000
Common Shares. Mr. Filipowski is the President, Chief Executive Officer and a
stockholder of PLATINUM Ventures Partners, Inc., the general partner of
PLATINUM Ventures, and is a limited partner of each of the PLATINUM Ventures.
Additionally, all of the other executive officers and directors of PLATINUM
indirectly own an aggregate of more than 20,000 Common Shares. See "THE
MERGER--Interests of Certain Persons in the Merger."
CERTAIN TAX CONSEQUENCES
It is a condition to the obligations of PLATINUM and Mastering to consummate
the Merger that they receive from their respective counsel an opinion that the
Merger will constitute a "reorganization" under Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), for U.S. federal income tax
purposes and, accordingly, that no gain or loss will be recognized for U.S.
federal income tax purposes by holders of Common Shares when each Common Share
is converted into 0.448 shares of PLATINUM Common Stock (except to the extent
of any cash received in lieu of a fractional share interest in PLATINUM Common
Stock). Holders of Common Shares are urged to consult their own tax advisors as
to the specific tax consequences to them of the Merger. See "THE MERGER--
Certain U.S. Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger is expected to be accounted for under the pooling-of-interests
method of accounting in accordance with generally accepted accounting
principles. The receipt by each of PLATINUM and Mastering of a letter from its
respective independent public accountants with respect to pooling of interests
satisfactory to the other party is a condition precedent to the obligations of
PLATINUM and Mastering to effect the Merger. See "THE MERGER--Accounting
Treatment."
REGULATORY APPROVALS
The Merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder,
which provide that certain transactions (including the Merger) may not be
consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and
certain waiting period requirements have been satisfied. Mastering and PLATINUM
have filed the required information and, on March 27, 1998, received notice of
early termination of the applicable waiting period.
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE MERGER,
MASTERING STOCKHOLDERS SHOULD CAREFULLY REVIEW AND CONSIDER THE INFORMATION
CONTAINED HEREIN UNDER THE CAPTION "RISK FACTORS."
NO APPRAISAL OR DISSENTERS' RIGHTS
Holders of Common Shares will not be entitled to any dissenters' or appraisal
rights under the DGCL in connection with the Merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Mastering are currently governed by the DGCL,
Mastering's Certificate of Incorporation and Mastering's Bylaws. Upon
consummation of the Merger, stockholders of Mastering will become stockholders
of PLATINUM, and their rights as stockholders of PLATINUM will be governed by
the DGCL, PLATINUM's Restated Certificate of Incorporation, as amended, and
PLATINUM's Bylaws. For a discussion of various differences between the rights
of stockholders of Mastering and the rights of stockholders of PLATINUM, see
"COMPARISON OF STOCKHOLDER RIGHTS."
5
<PAGE>
PLATINUM SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
The summary selected consolidated financial data set forth below has been
derived from the historical financial statements of PLATINUM. The selected
consolidated financial data should be read in conjunction with "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and PLATINUM's consolidated financial statements and related notes
thereto included elsewhere herein. See "Available Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 623,503 $468,065 $ 326,411 $243,607 $190,623
Operating income
(loss)................. (115,792)(2) (79,404)(3) (127,377)(4) (517)(5) 3,062(6)
Net income (loss)....... (117,784)(2) (64,922)(3) (111,567)(4) (1,562)(5) 126(6)
Net income (loss) per
share.................. $ (1.90)(2) $ (1.14)(3) $ (2.50)(4) $ (0.04)(5) $ --(6)
Shares used in per share
calculation............ 62,042 56,968 44,671 41,294 39,375
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and investments........ $261,288 $185,673 $136,737 $126,215 $ 71,148
Working capital......... 288,349 217,157 127,990 90,500 43,672
Total assets............ 834,177 618,572 452,267 273,333 176,064
Long-term obligations
and acquisition-related
payables, less current
portion................ 285,144 118,305 11,389 9,080 3,465
Total stockholders'
equity................. $ 243,560 $295,760 $ 290,213 $160,126 $ 93,350
</TABLE>
- --------
(1) The selected consolidated financial data give retroactive effect to the
acquisitions of Australian Technology Resources Pty Limited ("ATR") as of
January 31, 1997 and I&S Informationstechnik and Services GmbH ("I&S") as
of February 28, 1997, each of which has been accounted for as a pooling of
interests for financial reporting purposes. As a result, the financial
position and results of operations are presented as if the combining
companies had been consolidated for all periods presented.
(2) Reflects a pre-tax charge for acquired in-process technology of $67,904,000
relating to PLATINUM's acquisitions of GEJAC, Inc. ("GEJAC") and ProMetrics
Group Limited ("ProMetrics"), the purchase of certain product technologies
and other intangible assets from Intel Corporation ("Intel") and the
purchase of certain other product technologies. Also reflects a pre-tax
charge for merger costs of $8,927,000 relating to PLATINUM acquisitions of
ATR, I&S and Vayda Consulting, Inc. ("Vayda") and a pre-tax charge of
$57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of $48,456,000
relating to PLATINUM's acquisitions of Advanced Systems Technologies, Inc.
("AST"), Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), Grateful Data, Inc. (d/b/a TransCentury Data
Systems) ("Grateful Data") and VREAM, Inc. ("VREAM"); substantially all of
the assets of the Access Manager business unit of the High Performance
Systems division of International Computers Limited ("Access Manager"); and
certain product technologies. Also reflects a pre-tax charge for merger
costs of $5,782,000 relating primarily to PLATINUM's acquisitions of Prodea
Software Corporation ("Prodea"), Paradigm Systems Corporation ("Paradigm")
and Axis Systems International, Inc. ("Axis").
(4) Reflects a pre-tax charge for acquired in-process technology of $88,493,000
relating primarily to PLATINUM's acquisitions of Advanced Software
Concepts, Inc. ("ASC"), SQL Software Corporation ("SQL"), RELTECH Group,
Inc. ("Reltech"), Protellicess Software, Inc. ("Protellicess"), AIB
Software Corporation ("AIB") and BMS Computer, Inc. ("BMS") and the net
assets of ViaTech Development, Inc. ("ViaTech"), BrownStone Solutions, Inc.
("BrownStone") and ProtoSoft, Inc. ("ProtoSoft") and to certain product
acquisitions. Also reflects a pre-tax charge for merger costs of
$30,819,000 relating to PLATINUM's acquisitions of Software Interfaces,
Inc. ("SII"), Answer Systems, Inc. ("Answer"), Locus Computing Corporation
("Locus"), Altai, Inc. ("Altai"), Trinzic Corporation ("Trinzic") and
Softool Corporation ("Softool").
(5) Reflects a pre-tax charge for acquired in-process technology of $24,594,000
relating primarily to PLATINUM's acquisitions of Dimeric Development, Inc.
("Dimeric") and the net assets of Aston Brooke Software, Inc. ("Aston
Brooke") and AutoSystems Corporation ("AutoSystems").
(6) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to PLATINUM's acquisition of Datura Corporation
("Datura") and a pre-tax charge of $4,659,000 relating to Trinzic and Locus
restructuring costs.
6
<PAGE>
MASTERING SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical financial data for
Mastering for each of the five years in the period ended December 31, 1997,
which data has been derived from Mastering's audited consolidated financial
statements. Such Mastering selected historical financial data should be read in
conjunction with "Mastering Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Mastering's audited consolidated
financial statements, including the notes thereto, and other financial
information contained elsewhere herein. See "Available Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(A)
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.................... $40,966 $21,018 $10,168 $6,787 $3,895
Operating expenses......... 37,149 21,574 9,720 6,567 4,156
Net income (loss) from
continuing operations..... 3,606 520 518 203 (264)
Net income from continuing
operations per share
(basic)................... $ .27 $ .04(b)(c) (c) (c) (c)
Weighted average shares
outstanding at year end
(basic)................... 13,535 12,286(b)(c) (c) (c) (c)
<CAPTION>
AS OF DECEMBER 31,(A)
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $64,319 $54,348 $ 5,481 $1,669 $2,338
Total long-term
liabilities............... 255 181 -- 928 --
Mandatory redeemable
convertible preferred
stock..................... -- -- 6,898 -- --
Total stockholders'
equity.................... $55,231 $49,914 $(3,542) $ (705) $ (4)
</TABLE>
- --------
(a) All amounts have been restated to reflect the disposition of the
interactive and outdoor media business segments which occurred in 1997, and
to reflect their treatment as discontinued operations for accounting
purposes.
(b) Net income from continuing operations per share and weighted average shares
outstanding at year end for 1996 are unaudited and pro forma.
(c) Historical income from continuing operations per share is not presented for
periods prior to 1996 as it is not considered relevant given Mastering's
initial public offering in March 1996, which resulted in significant
changes to Mastering's capital structure. Share and per share amounts for
1996 assume the conversion of the preferred stock on January 1, 1996 rather
than the date of the initial public offering.
7
<PAGE>
UNAUDITED PRO FORMA CONDENSED SELECTED FINANCIAL DATA
The unaudited pro forma condensed selected combined financial data are
qualified in their entirety by reference to, and should be read in conjunction
with, the pro forma unaudited condensed combining financial statements and
notes thereto that are included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPER-
ATIONS DATA:
Total revenues....................... $ 664,469 $ 489,083 $ 336,579
Operating loss....................... (111,975) (79,960) (126,929)
Net loss from continuing operations.. (114,178) (64,402) (111,049)
Net loss from continuing operations
per share........................... $ (1.68) $ (1.03) $ (2.37)
Shares used in computing per share
amounts............................. 68,106 62,472 46,824
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and investment securities........ $309,509
Working capital......................................... 314,200
Total assets............................................ 898,496
Long-term obligations and acquisition-related payables,
less current portion................................... 285,399
Total stockholders' equity.............................. 298,791
Book value per share (1)................................ 4.27
</TABLE>
- --------
(1) Book value per share is computed by dividing pro forma stockholders' equity
by the pro forma number of shares of common stock outstanding at December
31, 1997.
8
<PAGE>
PRO FORMA COMBINED COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of PLATINUM
and Mastering and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis utilizing the
Exchange Ratio discussed in Note (4) below, as if the Merger had been effective
for all periods presented. This data should be read in conjunction with the
selected financial data, the unaudited pro forma condensed combining financial
statements and the separate historical financial statements of PLATINUM and
Mastering and notes thereto, included elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
EQUIVALENT
MASTERING
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PLATINUM MASTERING(2) COMBINED(3) COMBINED(4)
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss) Per Share
Years ended December 31:
1997........................ $(1.90) $0.27 $(1.68) $(0.75)
1996........................ (1.14) 0.04 (1.03) (0.46)
1995........................ (2.50) 0.11(5) (2.37) (1.06)
Book Value Per Share:(1)
December 31, 1997............. 3.81 4.03 4.27 1.91
</TABLE>
- --------
(1) Book value per share reflects PLATINUM and Mastering at December 31, 1997
and is computed by dividing stockholders' equity by the number of shares of
common stock outstanding at the respective dates.
(2) Historical Mastering per share data reflect basic earnings per share from
continuing operations for each period. See Note B to the pro forma
financial statements.
(3) Pro forma combined per share amounts reflect the Merger.
(4) The equivalent Mastering pro forma combined per share amount is calculated
by multiplying the pro forma combined per share amount by the Exchange
Ratio of 0.448.
(5) Although historical Mastering income from continuing operations per share
for 1995 is not presented in Mastering's consolidated financial statements,
as it is not considered relevant, net income per share for Mastering for
the year ended December 31, 1995 is presented here solely for purposes of
calculating pro forma combined net loss per share. See Note B to the pro
forma financial statements.
MARKET PRICE DATA
The following table sets forth the closing prices per share of PLATINUM
Common Stock and the Common Shares on the Nasdaq National Market on February
18, 1998, the last trading day before the announcement of the Merger, and on
March 27, 1998, the latest practicable trading day prior to the printing of
this Proxy Statement/Prospectus, and equivalent per share prices for the Common
Shares based on PLATINUM Common Stock prices:
<TABLE>
<CAPTION>
PLATINUM
COMMON COMMON MASTERING
STOCK SHARES EQUIVALENT(A)
-------- -------- -------------
<S> <C> <C> <C>
February 18, 1998......................... $27.125 $ 9.500 $12.152
March 27, 1998............................ $24.750 $10.6875 $11.088
</TABLE>
- --------
(a) Represents the equivalent of one Common Share, calculated by multiplying
the sale price per share of PLATINUM Common Stock by the Exchange Ratio of
0.448. Based on the last reported sale price of PLATINUM Common Stock on
February 18, 1998 and March 27, 1998, and on the number of Common
9
<PAGE>
Shares outstanding as of such dates, the aggregate value of the PLATINUM
Common Stock to be issued in respect of all outstanding Common Shares would
be approximately $167.0 million and $153.9 million, respectively.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "PSLRA"):
(i) certain statements regarding possible or assumed future results of
operations of PLATINUM or Mastering contained in this Proxy
Statement/Prospectus, including any forecasts, projections and descriptions
of anticipated cost savings or other synergies and any statements regarding
the development of possible or assumed future results of operations of
businesses, the markets for PLATINUM or Mastering, anticipated capital
expenditures, regulatory developments, competition or the effects of the
Merger;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions; and
(iii) other statements contained herein regarding matters that are not
historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements; factors that could cause actual results to differ
materially include, but are not limited to PLATINUM's ability to develop and
market existing and acquired products for the IT infrastructure market;
PLATINUM's ability to successfully integrate its acquired products, services
and businesses and continue its acquisition strategy; PLATINUM's ability to
adjust to changes in technology, customer preferences, enhanced competition
and new competitors in the IT infrastructure and professional services
markets; currency exchange rate fluctuations, collection of receivables,
compliance with foreign laws and other risks inherent in conducting
international business, risks associated with conducting a consulting services
business; general economic and business conditions, which may reduce or delay
customers' purchases of PLATINUM's products and services; charges and costs
related to acquisitions; and PLATINUM's ability to protect its proprietary
software rights from infringement or misappropriation, to maintain or enhance
its relationships with relational database vendors, and to attract and retain
key employees and those factors discussed under "Risk Factors." Mastering
stockholders are cautioned not to place undue reliance on such statements,
which speak only as of the date thereof.
All subsequent written and oral forward-looking statements attributable to
Mastering or PLATINUM or persons acting on its or their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither Mastering nor PLATINUM undertakes any obligation
to release publicly any revisions to such forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
10
<PAGE>
RISK FACTORS
The following risk factors should be considered by holders of Common Shares
in evaluating whether to approve and adopt the Merger Agreement and thereby
become holders of PLATINUM Common Stock. These factors should be considered in
conjunction with the other information contained in this Proxy
Statement/Prospectus and the Appendices hereto.
NET LOSSES; ABILITY TO SATISFY DEBT OBLIGATIONS
PLATINUM has experienced operating and net losses in 1995, 1996 and 1997.
There can be no assurance that PLATINUM will not continue to incur operating
and net losses. PLATINUM's future operating results will depend upon a number
of business factors, including other factors discussed in these "Risk
Factors," as well as general economic conditions. Furthermore, prior to a
given year or other fiscal period, PLATINUM hires sales and product
development personnel and makes other decisions which will result in increased
expenses in such year or other period, based upon anticipated revenues for
such year or other period. Due to the seasonality and concentration of
PLATINUM's revenues at the end of fiscal periods, particularly the fourth
quarter, PLATINUM's lack of backlog and PLATINUM's cost structure, if revenue
targets are not met, PLATINUM's operating results would be materially
adversely affected. See "--Seasonality and Variability of Quarterly Operating
Results." No assurances can be given that any of PLATINUM's revenue
expectations will be fulfilled, and PLATINUM's business, results of operations
and financial condition will be materially adversely affected if these
expectations are not fulfilled. If anticipated revenues and income are not
achieved, PLATINUM's ability to pay interest on, or ultimately pay the
principal amount of, its indebtedness could become impaired. As of February
28, 1998, PLATINUM had outstanding long-term obligations and acquisition-
related payables of approximately $300.9 million, requiring PLATINUM to make
payments of principal and interest of approximately $35.0 million and $36.0
million in 1998 and 1999, respectively. If PLATINUM is unable to meet its cash
requirements out of cash flow from operations and its available borrowings,
there can be no assurance that it will be able to obtain alternative financing
or that it will be permitted to do so under the terms of its existing
financing arrangements. In the absence of such financing, PLATINUM's ability
to respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or increased working capital requirements may be adversely
affected.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND MARKETS
PLATINUM expects that the market for IT software products will continue to
be subject to frequent and rapid changes in technology and customer
preferences. Substantially all of PLATINUM's products have maintained their
commercial viability for a significant period of time, as evidenced by the
fact that PLATINUM has discontinued very few of its products. However, the
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
timing of releases of new products and enhancements of existing products by
PLATINUM varies depending on customer demand and emerging technology.
PLATINUM's growth and future financial performance will depend upon its
ability to develop and introduce new products and enhancements of existing
products that accommodate the latest technological advances and customer
requirements. There can be no assurance that additional new products will be
successfully developed or marketed by PLATINUM, that any new products will
achieve market acceptance, or that other software vendors will not develop and
market products which are superior to PLATINUM's products or that such
products will not achieve greater market acceptance. Furthermore, customers
may delay purchases in anticipation of technological changes. PLATINUM's
ability to develop and market software infrastructure products and other new
products depends upon its ability to attract and retain qualified employees.
Any failure by PLATINUM to anticipate or respond adequately to the changes in
technology and customer preferences, to develop and introduce new products in
a timely fashion, or to attract and retain qualified employees, could
materially adversely affect PLATINUM's business, results of operations and
financial condition.
11
<PAGE>
EXECUTION RISK
PLATINUM and Mastering believe that important benefits to be realized from
the Merger will be the integration of their strategies and product lines. The
anticipated benefits of the Merger may not be achieved unless PLATINUM's and
Mastering's product offerings are successfully integrated in a timely manner,
and the combined company could be materially adversely affected if these
expectations are unfulfilled. The difficulties of such integration may
initially be increased by the necessity of coordinating geographically
separated organizations and integrating personnel with disparate business
backgrounds and corporate cultures. The integration of Mastering into PLATINUM
will require the dedication of management resources that will temporarily
detract from attention to the daily business of the combined company. This
integration process may cause an interruption of, or a loss of momentum in,
the activities of either or both of PLATINUM's or Mastering's businesses,
which could have a material adverse effect on the revenues and operating
results of the combined company, at least in the near term. Other recent
acquisitions, as well as the rapid growth in PLATINUM's business, have
strained management resources and may impose additional difficulties on the
integration of Mastering into PLATINUM. Additionally, changes that may be made
relating to the operations or management of Mastering may have a material
adverse effect on the revenues and operating results of the combined company.
Upon consummation of the Merger, PLATINUM expects to incur charges,
currently estimated to be approximately $10.0 million, in connection with the
combination of the companies. This amount is a preliminary estimate only and
is therefore subject to change. There can be no assurance that PLATINUM will
not incur additional charges to reflect costs associated with the Merger, nor
can there be any assurance that PLATINUM will realize the anticipated benefits
of the Merger.
RELIANCE ON AND RISKS OF ACQUISITION STRATEGY
PLATINUM expects to continue its strategy of identifying, acquiring and
developing software infrastructure products, services and technologies through
the acquisition of specific products and of businesses which have developed
such products, services and technologies. PLATINUM from time to time engages
in, and is currently engaged in, discussions with potential acquisition
candidates, including discussions relating to acquisitions that may be
material in size and/or scope and which may involve issuances by PLATINUM of a
significant number of shares of PLATINUM Common Stock.
PLATINUM believes that its future growth depends, in part, upon the success
of this acquisition strategy. There can be no assurance that PLATINUM will
successfully identify, acquire on favorable terms or integrate such
businesses, products, services or technologies. PLATINUM may in the future
face increased competition for acquisition opportunities, which may inhibit
PLATINUM's ability to consummate suitable acquisitions and may increase the
costs of completing such acquisitions.
Acquisitions involve a number of special risks and challenges, including the
diversion of management's attention, assimilation of the operations and
personnel of acquired companies, incorporation of acquired products into
existing product lines, adverse short-term effects on reported operating
results, amortization of acquired intangible assets, assumption of liabilities
of acquired companies, possible loss of key employees and difficulty of
presenting a unified corporate image. No assurance can be given that any
potential acquisition by PLATINUM will or will not occur, or that, if an
acquisition does occur, it will not ultimately have a material adverse affect
on PLATINUM or that any such acquisition will succeed in enhancing PLATINUM's
business.
PLATINUM has historically issued PLATINUM Common Stock as consideration for
business acquisitions and expects to continue to do so in the future. There
can be no assurances that such issuances will not be dilutive to the
PLATINUM's stockholders. Additionally, PLATINUM has recorded charges for
acquired in-process technology and merger costs in connection with certain of
its past acquisitions, which materially reduced operating and net income for
the periods in which the acquisitions were recorded. PLATINUM expects to
continue to incur such charges in connection with future acquisitions, which
could materially reduce operating and net income in the periods in which such
acquisitions are consummated.
12
<PAGE>
HIGHLY COMPETITIVE MARKETS
The market for PLATINUM's products is highly competitive. PLATINUM expects
to encounter enhanced competition and new competitors as it continues to
penetrate the software infrastructure market, including competition from
relational database vendors and systems software companies. Many of PLATINUM's
current and prospective competitors have significantly greater financial,
technical and marketing resources than PLATINUM. Competitive pressure could
cause PLATINUM's products to lose market acceptance or result in significant
price erosion, with a material adverse effect upon PLATINUM's results of
operations.
A variety of external and internal factors could adversely affect PLATINUM's
ability to compete in the software infrastructure market. Such factors include
the following: relative functionality, integration, performance and
reliability of the products offered by PLATINUM and its competitors; the
success and timing of new product development efforts; changes affecting the
hardware, operating systems or database systems which PLATINUM currently
supports; the level of demonstrable economic benefits for users relative to
cost; relative quality of customer support and user documentation; ease of
installation; vendor reputation, experience and financial stability; and
price.
PLATINUM also encounters competition from a broad range of firms in the
market for professional services. Many of PLATINUM's current and prospective
competitors in the professional services market have significantly greater
financial, technical and marketing resources than PLATINUM. The competitive
factors affecting the market for PLATINUM's professional services include the
following: breadth and quality of services offered, vendor reputation and the
ability to retain qualified technical personnel.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
PLATINUM's success is heavily dependent upon its proprietary software
technology. PLATINUM relies on a combination of contractual rights,
trademarks, trade secrets, patents and copyright laws to establish or protect
its proprietary rights in its products. PLATINUM's license agreements restrict
a customer's use of PLATINUM's software and prohibit disclosure to third
persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of PLATINUM's software products.
PLATINUM registers its product names and other trademarks in the United States
and certain foreign countries. There can be no assurance that the steps taken
by PLATINUM in this regard will be adequate to deter misappropriation of its
proprietary rights or independent third party development of functionally
equivalent technologies. Although PLATINUM does not believe that it is
materially infringing on intellectual property rights of others, there can be
no assurance that such claims will not be successfully asserted against
PLATINUM in the future or that any attempt to protect its technology will not
be challenged.
DEPENDENCE ON DB2
A significant portion of PLATINUM's revenues will continue to be derived
from products that enhance the performance and functionality of IBM's DB2
relational database management software, which operates on IBM and compatible
mainframe computer systems running the MVS operating system. A decline or a
perceived decline in IBM's commitment to DB2 or a decline in the market's
acceptance and utilization of DB2 would have an adverse effect on PLATINUM,
and such adverse effect could be material. Also, if IBM were to enhance DB2 or
its DB2 utilities so as to render PLATINUM's products obsolete or unnecessary,
or devote more resources to developing and marketing IBM's own DB2 tools and
utilities, PLATINUM's business could be materially adversely affected.
DEPENDENCE ON RELATIONSHIPS WITH RELATIONAL DATABASE VENDORS
PLATINUM believes that in order to address its markets, PLATINUM must
develop, maintain and enhance close associations with, and obtain access to
the technical personnel of, leading relational database vendors. This may
become increasingly difficult due to competition among such vendors. PLATINUM
has entered into alliances with, among others, Oracle Systems Corp., Sybase,
Inc. and Informix Software, Inc. There can be no
13
<PAGE>
assurance that PLATINUM will be able to maintain existing relationships or
enter into new relationships with such vendors. PLATINUM's failure to do so
would have an adverse effect on its business, results of operations and
financial condition, and such adverse effect could be material.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
PLATINUM's revenues and results of operations will be subject to
fluctuations based upon general economic conditions. If there were a general
economic downturn or a recession in the United States or certain other
markets, PLATINUM believes that certain of its customers might reduce or delay
their purchases of PLATINUM's products or services, leading to a reduction in
PLATINUM's revenues. The factors that might influence current and prospective
customers to reduce their IT budgets under these circumstances are beyond
PLATINUM's control. In the event of an economic downturn, PLATINUM's business,
results of operations and financial condition could be materially adversely
affected. There can be no assurance that growth in the markets for PLATINUM's
products and services will occur or that such growth will result in increased
demand for PLATINUM's products and services.
RISKS ASSOCIATED WITH A FIXED EXCHANGE RATIO DESPITE POTENTIAL CHANGES IN
STOCK PRICES
The Exchange Ratio is fixed and will not be adjusted in the event of any
increases or decreases in the price of either PLATINUM Common Stock or the
Common Shares. The prices of PLATINUM Common Stock and of the Common Shares at
the Effective Time may vary from their prices on the date of this Proxy
Statement/Prospectus. The price of PLATINUM Common Stock has historically been
volatile. Various factors could cause the market price of PLATINUM Common
Stock to fluctuate, perhaps substantially. See "--Volatility of PLATINUM Stock
Price." Various factors, including without limitation, changes in the
business, operations or prospects of Mastering, assessments of the likelihood
that the Merger will be consummated and general market and economic conditions
could cause the market price of the Common Shares to fluctuate. STOCKHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR PLATINUM COMMON STOCK AND
THE COMMON SHARES. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKET
FOR PLATINUM COMMON STOCK.
SEASONALITY AND VARIABILITY OF QUARTERLY OPERATING RESULTS
PLATINUM has experienced a seasonal pattern in its operating results, with
the fourth quarter typically having the highest total revenues and operating
income. Further, revenues for PLATINUM's fourth quarters have historically
been higher than those for the first quarters of the following years. Because
operating expenses continued to increase in the first quarters of those years,
PLATINUM realized substantially lower operating margins and net income
(excluding the effect of charges for acquired in-process technology and merger
costs) for such quarters. PLATINUM expects this pattern to continue for the
foreseeable future. PLATINUM believes the seasonality of its revenues results
primarily from the budgeting cycles of its software product customers and the
structure of PLATINUM's sales commission and bonus programs.
PLATINUM operates with relatively little order backlog, and substantially
all of its software product revenues in each quarter result from sales made in
that quarter. Consequently, if near term demand for PLATINUM's products
weakens or if sales do not close in any quarter as anticipated, PLATINUM's
results of operations for that quarter would be adversely, and perhaps
materially, affected. In addition, the timing and amount of PLATINUM's
revenues are subject to a number of factors that make estimation of operating
results prior to the end of a quarter extremely uncertain. Historically, a
substantial majority of PLATINUM's quarterly software products revenues has
been recorded in the third month of any given quarter, with a concentration of
such revenues in the last week of that third month, further increasing the
difficulty of predicting operating results.
PLATINUM's operating results may vary significantly from quarter to quarter
depending on other factors such as the size and timing of customer orders,
price and other competitive conditions in the industry, the timing of new
product announcements and releases by PLATINUM and its competitors, the
ability of PLATINUM to
14
<PAGE>
develop, introduce and market new and enhanced versions of PLATINUM's products
on a timely basis, changes in PLATINUM's level of operating expenses, changes
in PLATINUM's sales incentive plans, budgeting cycles of its customers,
customer order deferrals in anticipation of enhancements or new products
offered by PLATINUM or its competitors, the cancellation of licenses during
the warranty period or nonrenewal of maintenance agreements, product life
cycles, software bugs and other risks discussed herein. See "--Rapid
Technological Change; Dependence on New Products and Markets" and "--Highly
Competitive Markets."
RISKS OF INTERNATIONAL SALES
The risks inherent in conducting international business generally include
exposure to currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collection and the burdens of complying with a wide
variety of foreign laws. Approximately 32%, 30% and 29% of PLATINUM's revenues
in 1995, 1996 and 1997, respectively, were attributable to international
sales. Exchange rate fluctuations can have a material adverse effect on the
total level of foreign sales and the profitability of those sales. During the
past several years, PLATINUM has changed the primary means of international
distribution of its products from a network of independent distributors to
wholly-owned PLATINUM subsidiaries. PLATINUM may encounter difficulties in
integrating and managing these new overseas subsidiaries. See "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS OF CONSULTING SERVICES BUSINESS
PLATINUM is subject to the risks associated with a consulting services
business, including dependence on its reputation with existing customers,
volatility of workload and dependence on ability to attract and retain
qualified technical personnel. Also, a substantial portion of PLATINUM's
consulting services revenue may be derived from the performance of services
under fixed-price contracts. There can be no assurance that PLATINUM can
consistently perform in a profitable manner under these contracts,
particularly in the field of software development, where cost overruns are
commonplace.
SUBSTANTIAL LEVERAGE
On December 16, 1997, PLATINUM issued $150,000,000 of convertible
subordinated notes, which bear interest at 6.25% annually and mature on
December 15, 2002. As a result of this additional indebtedness, the Company's
principal and interest obligations increased substantially. The degree to
which the Company is leveraged could materially and adversely affect the
Company's ability to obtain financing for working capital, acquisitions or
other purposes and could make it more vulnerable to industry downturns and
competitive pressures.
DEPENDENCE ON KEY PERSONNEL
Competition for qualified personnel in the software industry is intense, and
there can be no assurance that PLATINUM will be able to attract and retain a
sufficient number of qualified employees. PLATINUM's success depends to a
significant degree upon the continued contributions of its key management,
marketing, product development, professional services and operational
personnel, including key personnel of acquired companies. As the business of
PLATINUM grows, it may become increasingly difficult for it to hire, train and
assimilate the number of new employees required. In addition, it is possible
that the business changes or uncertainty brought about by recent acquisitions
may cause key employees to leave PLATINUM, and certain key members of the
management of acquired companies may not continue with PLATINUM. Any
difficulty in attracting and retaining key employees could have a material
adverse effect on PLATINUM's business, results of operations and financial
condition.
PLATINUM's success to date has depended in large part on the skills and
efforts of Andrew J. Filipowski, PLATINUM's President and Chief Executive
Officer, and Paul L. Humenansky, PLATINUM's Executive Vice President-Product
Development and Chief Operations Officer. Although PLATINUM has entered into a
non-competition agreement with Mr. Humenansky, it has not entered into non-
competition agreements with Mr. Filipowski or any of its other key personnel,
nor does PLATINUM have "key man" life insurance policies covering these
individuals.
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VOLATILITY OF PLATINUM'S STOCK PRICE
The price of PLATINUM Common Stock has historically been volatile. PLATINUM
believes factors such as quarterly fluctuations in results of operations,
announcements of new products and acquisitions by PLATINUM or by its
competitors, changes or anticipated changes in earnings estimates by analysts,
changes in accounting treatments or principles and other factors may cause the
market price of the PLATINUM Common Stock to fluctuate, perhaps substantially.
The market price of the PLATINUM Common Stock may be affected by PLATINUM's
ability to meet or exceed analysts' or "street" expectations, and any failure
to meet or exceed such expectations could have a material adverse effect on
the market price of the PLATINUM Common Stock. In addition, stock prices for
many technology companies fluctuate widely for reasons which may be unrelated
to operating results. These fluctuations, as well as general economic,
political and market conditions, may adversely affect the market price of the
PLATINUM Common Stock in the future. In the past, following periods of
volatility in the market price of a company's securities, class action
securities litigation has often been instituted against such company. Any such
litigation instigated against PLATINUM could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on PLATINUM's business, results of operations and financial
condition. See "Comparative Per Share Market Price Data--PLATINUM."
ANTITAKEOVER EFFECT OF RIGHTS AGREEMENT, CHARTER AND STATUTORY PROVISIONS
PLATINUM has entered into a rights agreement (the "Rights Agreement"), which
provides that, in the event that 15% or more of the outstanding shares of
PLATINUM Common Stock are acquired by a person or group of persons, the holder
of each outstanding share of PLATINUM Common Stock, other than such acquiring
person(s), shall have the right to purchase from PLATINUM additional shares of
PLATINUM Common Stock having a market value equal to two times the exercise
price of such right. In addition, PLATINUM's Restated Certificate of
Incorporation, as amended, provides that the Board of Directors shall be
classified with respect to the terms for which its members shall hold office
by dividing the members into three classes. PLATINUM is also subject to
Section 203 of the Delaware General Corporation Law, which, in general,
imposes restrictions upon acquirers of 15% or more of the PLATINUM Common
Stock. The Rights Agreement and these other provisions may have the effect of
delaying, deferring or preventing a change of control of PLATINUM, even if
such event would be beneficial to stockholders. See "Description of Capital
Stock of PLATINUM."
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THE MEETING
TIME, PLACE AND DATE
The Meeting will be held on April 21, 1998 at The Chicago Club, 81 East Van
Buren Street, Chicago, Illinois, 60605, commencing at 10:00 a.m. (local time).
PURPOSE OF THE MEETING
At the Meeting, the holders of Common Shares will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and the Merger,
pursuant to which, among other things, at the Effective Time, and subject to
and upon the terms and conditions of the Merger Agreement, each outstanding
Common Share will be converted into 0.448 shares of PLATINUM Common Stock, and
Mastering will become a wholly-owned subsidiary of PLATINUM.
RECORD DATE; SHARES ENTITLED TO VOTE
The Mastering Board has fixed the close of business on March 27, 1998 as the
Record Date for the determination of stockholders entitled to receive notice
of and to vote at the Meeting and any postponement or adjournment thereof. On
the Record Date, there were 13,877,656 Common Shares issued and outstanding.
At the close of business on the Record Date, directors and executive officers
of Mastering and their affiliates beneficially owned and had the right to vote
an aggregate of 7,933,458 Common Shares (approximately 57.7% of the Common
Shares outstanding).
VOTING AND REVOCATION OF PROXIES
The proxy accompanying this Proxy Statement/Prospectus is solicited on
behalf of the Mastering Board for use at the Meeting. Stockholders are
requested to complete, date and sign the accompanying proxy and return it
promptly. All proxies that are properly executed and returned will be voted at
the Meeting in accordance with any directions noted thereon. IF NO DIRECTION
IS INDICATED, PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER. Proxies will be voted in the discretion of the
holders of the proxy with respect to any other business that may properly come
before the Meeting and all matters incidental to the conduct of the Meeting.
It is not expected that any matter other than those referred to herein will be
brought before the Meeting.
Any stockholders signing and delivering a proxy may revoke it at any time
before it is voted by submitting a later dated proxy with respect to the same
shares or by delivering to Mastering's Secretary a written revocation. Any
stockholder attending the Meeting in person may also revoke his or her proxy
and vote his or her shares at the Meeting. Attendance at the Meeting will not
in and of itself constitute a revocation of a proxy.
VOTE REQUIRED
Stockholders are entitled to one vote per share on all matters to be
considered at the Meeting. A majority of the shares entitled to vote present,
in person or by proxy, at the Meeting shall constitute a quorum. The
affirmative vote of holders of a majority of the Common Shares issued and
outstanding (voting in person or by proxy) is required to approve the Merger
Agreement and the Merger.
ABSTENTIONS AND BROKER NON-VOTES
The election inspectors will count shares represented by proxies that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
Meeting held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on a particular
matter) only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum. Such abstentions and broker
non-votes will have the effect of votes against the proposal to approve the
Merger Agreement and the Merger.
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THE MERGER
GENERAL
At the Effective Time and subject to and upon the terms and conditions of
the Merger Agreement and the applicable provisions of the DGCL, PT Acquisition
will be merged with and into Mastering, with Mastering surviving as a wholly-
owned subsidiary of PLATINUM. As a result of the Merger, the separate
corporate existence of PT Acquisition will cease and Mastering will succeed to
all the rights and be responsible for all the obligations of PT Acquisition in
accordance with the DGCL. For the Merger to be consummated, it must be
approved by the Mastering stockholders and the other conditions specified in
the Merger Agreement must be satisfied or waived. The discussion in this Proxy
Statement/Prospectus of the Merger and the description of the principal terms
and conditions of the Merger Agreement are subject to and qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference. Mastering stockholders are urged to carefully read the Merger
Agreement.
The Merger will become effective when a certificate of merger (the
"Certificate of Merger"), executed in accordance with the relevant provisions
of the DGCL, is accepted for filing by the Secretary of State of the State of
Delaware. The filing of the Certificate of Merger will occur as soon as
practicable following the satisfaction or waiver of the conditions set forth
in the Merger Agreement. See "THE MERGER AGREEMENT--Conditions to the Merger."
CONVERSION OF COMMON SHARES
Each Common Share outstanding immediately prior to the Effective Time (other
than shares owned directly or indirectly by PLATINUM or Mastering, which will
be cancelled) shall at the Effective Time be automatically converted into
0.448 shares of PLATINUM Common Stock. Cash will be paid in lieu of any
fractional share of PLATINUM Common Stock. The Exchange Ratio will be
appropriately adjusted in the event of any reclassification, stock split or
stock dividend with respect to PLATINUM Common Stock, any change or conversion
of PLATINUM Common Stock into other securities or any other dividend or
distribution with respect to PLATINUM Common Stock (or if a record date with
respect to any of the foregoing should occur) prior to the Effective Time.
BACKGROUND OF THE MERGER
In February 1997, Mr. Andrew Filipowski, the Chairman and Chief Executive
Officer of PLATINUM as well as a director of Mastering, met with Mr. Terence
Graunke, the Chairman and Chief Executive Officer of Mastering, regarding a
possible business combination between the two companies. PLATINUM indicated
that Mastering's interactive development and computer training businesses
would complement PLATINUM's existing systems integration and education
divisions. PLATINUM's proposal contemplated a stock-for-stock merger that
would be accounted for as a pooling of interests. Following the meeting,
PLATINUM and Mastering entered into a confidentiality agreement and commenced
preliminary due diligence investigations of each other. The companies explored
the possible transaction on a preliminary basis for several weeks. The parties
ultimately terminated their preliminary discussions as a result of valuation
issues.
In July 1997, the Mastering Board decided to sell the smaller of its two
main businesses, the interactive development business. The Mastering Board
reached this conclusion principally because of the division's continued
unprofitability, the unpredictability of the unit's revenues, and the concern
that the division's losses were masking the positive aspects of Mastering's
growing computer training business, as well as confusing institutional
investors and research analysts who were following Mastering's Common Shares.
On July 29, 1997, Mastering publicly announced that it intended to sell its
interactive and outdoor media businesses. Mastering also stated that it was
engaged in preliminary negotiations to sell the interactive business to
Omnicom Group, Inc. ("Omnicom"). Shortly after this public announcement,
PLATINUM proposed that Mastering sell the interactive business to PLATINUM
rather than to Omnicom. After a number of meetings between representatives of
PLATINUM and Mastering, the Mastering Board determined to proceed with the
sale to Omnicom because
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of the Board's conclusion that Omnicom's proposal (including a contemplated
earn-out) was financially superior to PLATINUM's proposal and that the Omnicom
transaction was highly likely to close. Mastering's sale of the interactive
business to Omnicom was consummated on September 26, 1997.
During the Fall of 1997, the Mastering Board, as part of its ongoing review
of its business plans, began to study opportunities to accelerate the growth
of its computer training business by pursuing acquisition candidates. To this
end, in November 1997, Mastering engaged an outside advisor to assist
Mastering in evaluating possible acquisition candidates.
Also during the Fall of 1997, Mastering began to pursue a strategy of
penetrating the market for larger dollar national accounts in addition to the
small individual sales typically made by Mastering's telesales
representatives. During this time, Mastering was also taking steps to expand
its business internationally, initially into Europe. While Mastering was
beginning to build an outside direct sales force to supplement its telesales
group and beginning to develop an international presence by planning several
seminars in Europe, the Mastering Board and Mastering senior management
determined that a combination with a larger strategic partner could
potentially accelerate these plans. As a result, the Mastering Board
authorized the senior management to study this possibility.
In December 1997, while Mastering was continuing to evaluate acquisition
candidates, Mastering engaged Piper Jaffray Inc. ("Piper Jaffray") as its
financial advisor to assist Mastering in identifying strategic partners that
had relationships with national information technology accounts and/or an
international presence. Mastering's accountants had advised it that because of
its July 1997 decision to dispose of its interactive development business, it
would be difficult for Mastering to be a party to a business combination to be
accounted for as a pooling of interests for at least six months from such
date. Accordingly, Mastering instructed Piper Jaffray to solicit indications
of interest only from parties ineligible for a pooling-of-interests
transaction until February 1998. During the months of December 1997 and
January and February 1998, Piper Jaffray solicited indications of interest
from approximately 25 companies meeting Mastering's criteria. In December
1997, one of the companies solicited by Piper Jaffray submitted a proposal for
a stock-for-stock merger that would be accounted for as a purchase. Mastering
declined to pursue the proposal because of its determination that the proposal
did not provide adequate value to its stockholders.
On February 1, 1998, Mr. Terence Graunke, Mr. Marc Pinto, the Executive Vice
President and Chief Financial Officer of Mastering, Mr. Thomas Graunke, an
Executive Vice President of Mastering, and a representative of Piper Jaffray
met with Mr. Filipowski, Mr. John Shakleton, the President of PLATINUM
solutions, inc., a wholly-owned subsidiary of PLATINUM, and a representative
of PLATINUM's financial advisor. At the meeting, the parties discussed on a
preliminary basis the terms and structure (including possible exchange ratios)
of a merger that would qualify for pooling of interests accounting treatment
and would be tax free to the stockholders of Mastering.
In the evening of February 2, 1998, the Mastering Board met with its
financial and legal advisors to consider the possible transaction with
PLATINUM. At that meeting, Mr. Terence Graunke announced that Mr. Filipowski
and Mr. James Cowie, who is also a director of both PLATINUM and Mastering,
would recuse themselves from all Mastering Board meetings held to discuss the
potential PLATINUM transaction. At the meeting, the Mastering Board considered
certain issues raised by the PLATINUM proposal. The Mastering Board also
reviewed Mastering's current business plans and financial results as well as
strategic alternatives to a merger transaction. The senior management of
Mastering and representatives of Piper Jaffray updated the Mastering Board on
the continuing solicitation of third parties for indications of interest in a
business combination. At the conclusion of the meeting, the Mastering Board
authorized the senior management to proceed with its discussions with
PLATINUM.
On February 3, 1998, legal counsel for PLATINUM delivered to Mastering and
its legal counsel a draft merger agreement. The draft agreement contemplated a
business combination involving a merger of a wholly-owned subsidiary of
PLATINUM into Mastering, with such merger resulting in Mastering becoming a
wholly-
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owned subsidiary of PLATINUM and the outstanding shares of Mastering common
stock being exchanged for shares of PLATINUM common stock at an unspecified
fixed exchange ratio.
On February 5, 1998, Mastering's legal counsel delivered to PLATINUM and its
legal counsel comprehensive comments on the initial draft of the merger
agreement. On February 3, 4 and 5, 1998, the parties conducted due diligence
reviews of each other. The senior managements of PLATINUM and Mastering held
discussions on numerous issues, including the exchange ratio and termination
provisions.
On February 5, 1998, the Mastering Board met with its financial and legal
advisors to review the status of negotiations with PLATINUM and certain
significant terms of the proposed merger agreement and proposed ancillary
agreements.
During the week of February 9, 1998, the parties continued their discussions
on the financial terms of the proposed merger, including the exchange ratio,
as well as termination rights, the ability of Mastering to respond to third
party offers, conditions to closing and the structure and amount of
termination fees. These negotiations also included discussions regarding
PLATINUM's desire for non-competition agreements from certain senior managers
of Mastering. During this time, the parties continued their due diligence
reviews, and legal counsel for the parties exchanged revised merger agreement
drafts and comments. On February 13, 1998, Mr. Pinto and Mastering's legal
counsel met with Mr. Larry Freedman, the Senior Vice President and General
Counsel of PLATINUM, and PLATINUM's outside legal counsel to discuss
outstanding issues.
From February 14 through February 16, the parties and their respective legal
counsel held numerous discussions regarding outstanding issues.
On February 17, 1998, the Mastering Board again met with its financial and
legal advisors. At this meeting, the directors received an update on the
status of negotiations and the financial and legal terms of the proposed
merger. The Mastering Board also received presentations from Piper Jaffray and
its independent accountants. After the presentations by its advisors, the
Mastering Board authorized the senior management to continue its negotiations
with PLATINUM. Following the Board meeting, the senior management of PLATINUM
and Mastering discussed the final, unresolved issues between the companies.
The Mastering Board reconvened on the evening of February 17th to receive a
further update on the negotiations from the Mastering senior management.
In the afternoon of February 18, 1998, the Mastering Board met with its
financial and legal advisors to review the proposed final terms of the merger
agreement. After a review of the financial and legal issues, Piper Jaffray
delivered an opinion that the proposed exchange ratio of 0.448, as of February
18, 1998, was fair from a financial point of view to the holders of Mastering
Common Shares. The Mastering Board then determined that the Merger, upon the
terms and conditions set forth in the draft merger agreement but subject to
the satisfactory resolution of one final legal issue, was fair to, and in the
best interests of, the stockholders of Mastering and approved and adopted the
draft merger agreement. Following the Mastering Board meeting, the parties
resolved the final outstanding legal issue and executed the Merger Agreement
and ancillary documents after the close of trading in their respective
securities. The parties promptly issued a press release announcing the
transaction later that afternoon.
In mid-March 1998, Mr. Terence Graunke received an unsolicited telephone
call from a representative of an investment banking firm acting on behalf of a
third party which had previously expressed an interest in a business
combination with Mastering. The financial advisor proposed a stock-for-stock
merger, to be accounted for as a pooling of interests, in which the Mastering
stockholders would receive the third party's stock. The financial advisor
proposed a preliminary range of values to be received by the Mastering
stockholders that was nominally higher than the value of the Exchange Ratio on
February 18, 1998, the last trading day before public announcement of the
proposed Merger. After a discussion with the Mastering Board (excluding the
PLATINUM Directors), Mastering declined to pursue discussions with this third
party because of the Mastering directors' view that the third party's
preliminary proposal, based on the long-term prospects of PLATINUM, was not
financially superior to the proposed Merger. In addition, the directors
considered the preliminary indication of the two largest stockholders of
Mastering (one of whom is Mr. Terence Graunke and the other is Frontenac VI
Limited Partnership, which has a representative on the Mastering Board) that
such stockholders still supported the proposed Merger.
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RECOMMENDATION OF THE MASTERING BOARD; REASONS FOR THE MERGER
At special meetings of the Mastering Board (excluding the PLATINUM
Directors) held on February 2, 5, 17 and 18, 1998, Mastering's management and
representatives of Piper Jaffray made presentations concerning the business
and prospects of Mastering and the potential combination of PLATINUM and
Mastering. The Mastering Board (excluding the Platinum Directors) also
received presentations concerning, and reviewed the terms of, the Merger
Agreement with members of Mastering's management and its financial and legal
advisors and discussed the accounting treatment of the Merger with its
independent accountants. At the special meeting held on February 18, 1998, the
Mastering Board (excluding the Platinum Directors) unanimously determined that
the Merger, upon the terms and conditions set forth in the Merger Agreement,
was fair to and in the best interests of the stockholders of Mastering.
ACCORDINGLY, THE MASTERING BOARD (EXCLUDING THE PLATINUM DIRECTORS)
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF THE OUTSTANDING COMMON SHARES VOTE
IN FAVOR OF THE MERGER AND THE MERGER AGREEMENT AT THE MEETING.
In reaching its determination, the Mastering Board (excluding the Platinum
Directors) consulted with Mastering's management, as well as its financial and
legal advisors, and considered a number of factors, including, but not limited
to, the following:
(i) the strategic and financial alternatives available to Mastering,
including remaining a separate company and pursuing its existing growth
strategy;
(ii) the consideration to be received by Mastering's stockholders,
including the fact that the Exchange Ratio of 0.448 shares of PLATINUM
Common Stock for each share of Mastering common stock represented a premium
over the then current market price of Mastering common stock;
(iii) the terms and conditions of the proposed combination of PLATINUM
and Mastering, including: (a) the absence of any voting or option
agreements from Mastering stockholders and the absence of any option
agreement from Mastering, (b) the absence of significant restrictions on
Mastering's ability to consider unsolicited, superior acquisition proposals
from third parties following the execution of the Merger Agreement and
Mastering's ability, subject to certain conditions, to provide information
to, and enter into negotiations with, such third parties, (c) the right of
Mastering to terminate the Merger Agreement upon the receipt of an offer
determined by the Mastering Board in its good faith reasonable judgment to
be a superior proposal, (d) the right of Mastering to terminate the Merger
Agreement upon the occurrence of a material adverse change in PLATINUM or
in the event the average PLATINUM stock price is less than $22.50 per share
during certain time periods, and (e) the size and structure of the
termination fees, which the Mastering Board believed would not prevent
competing business combination proposals from third parties;
(iv) the results of Mastering's two-month process of identifying
strategic partners and (within Mastering's strategic and accounting
requirements) soliciting indications of interest from third parties,
including the absence of any superior proposals;
(v) the strategic fit between PLATINUM and Mastering, including the
complementary nature of Mastering's information technology training
business with PLATINUM's education division and the possible related
synergies;
(vi) PLATINUM's and Mastering's respective businesses, financial
condition, results of operations and prospects;
(vii) the analysis and recommendation of Mastering's management regarding
the Merger;
(viii) the opportunity for Mastering stockholders to receive PLATINUM
Common Stock in a transaction that is tax-deferred for United States
federal income tax purposes (except for cash in lieu of a fractional share
of Platinum Common Stock) and thus continue to participate in the growth of
the business conducted by PLATINUM and Mastering after the Merger and in
the potential appreciation in the value of PLATINUM Common Stock without
paying current United States federal income tax;
(ix) the expected accounting treatment of the Merger as a pooling of
interests;
(x) the likelihood that holders of Mastering common stock would have
greater liquidity in their holdings in the combined entity following the
Merger; and
(xi) the presentations of Piper Jaffray delivered to the Mastering Board
on February 17 and 18, 1998, including the written opinion of Piper Jaffray
dated February 18, 1998 that the Exchange Ratio was fair,
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from a financial point of view, to the holders of Common Shares as of the
date of such opinion. A copy of Piper Jaffray's written opinion setting
forth the assumptions made, matters considered and limitations on the
review undertaken by Piper Jaffray in rendering its opinion is attached to
this Proxy Statement/Prospectus as Appendix B (and is incorporated herein
by reference), and the holders of Mastering Common Shares are urged to read
such opinion carefully in its entirety. See "--Opinion of Financial
Advisors."
The foregoing discussion of the information and factors considered and given
weight by the Mastering Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Mastering Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Mastering
Board may have given different weights to different factors. For a discussion
of the interests of certain members of Mastering management and the Mastering
Board in the Merger, see "--Interests of Certain Persons in the Merger."
PLATINUM'S REASONS FOR THE MERGER
PLATINUM's management believes the Merger will significantly expand
PLATINUM's educational program capabilities, enabling PLATINUM to deliver
effective certification courses and training solutions for high demand topics
such as Windows NT(TM), Windows 95(TM) and internet/intranet technologies.
Further, PLATINUM's management believes that PLATINUM will benefit from the
addition of highly-trained Mastering personnel, including a telesales group
and a computer-based training development team with multimedia expertise.
PLATINUM's management believes the Merger will reinforce PLATINUM's position
as a leading provider of products and services to help manage and improve IT
infrastructures.
OPINION OF MASTERING'S FINANCIAL ADVISOR
On December 24, 1997, Mastering and Piper Jaffray executed an engagement
letter (the "Piper Jaffray Engagement Letter") pursuant to which Piper Jaffray
was engaged to act as Mastering's financial advisor. Pursuant to the Piper
Jaffray Engagement Letter, Mastering retained Piper Jaffray to provide
financial advisory and investment banking services in connection with a
possible strategic transaction, including a potential strategic combination,
and to render an opinion as to the fairness of any such transaction, from a
financial point of view, to the holders of Common Shares. See "--Background of
the Merger."
On February 17, 1998, the Mastering Board met to evaluate the proposed
Merger, at which time Piper Jaffray gave a presentation on the financial terms
of the Merger. On February 18, 1998, the Mastering Board met again and
approved the Merger. At this meeting, Piper Jaffray delivered to the Mastering
Board its oral opinion, which opinion was subsequently confirmed in writing
(the "Piper Jaffray Opinion"), that as of February 18, 1998 and based on the
matters described therein, the Exchange Ratio was fair, from a financial point
of view, to the holders of Common Shares. Piper Jaffray noted that its
presentation on the financial terms of the Merger was based on the closing
stock price of PLATINUM on February 13, 1998. Piper Jaffray confirmed to the
Mastering Board on February 18, 1998 that the conclusions reached in the Piper
Jaffray Opinion did not change based on the closing stock price of PLATINUM on
February 17, 1998. No limitations were imposed by Mastering on the scope of
Piper Jaffray's investigations or the procedures to be followed by Piper
Jaffray in rendering the Piper Jaffray Opinion, except that certain
limitations were imposed by the Mastering Board on Piper Jaffray with respect
to the solicitation of other indications of interests from third parties, as
described under "Background of the Merger." The Exchange Ratio was determined
through negotiations between the managements of Mastering and PLATINUM.
Although Piper Jaffray did assist the management of Mastering in those
negotiations, Piper Jaffray was not asked by, and did not recommend to,
Mastering that any specific exchange ratio constituted the appropriate
exchange ratio for the holders of Common Shares in the Merger. In furnishing
the Piper Jaffray Opinion, Piper Jaffray was not engaged as an agent or
fiduciary of Mastering's stockholders or any other third party.
The full text of the Piper Jaffray Opinion, which sets forth, among other
things, assumptions made, matters considered and limitations on the review
undertaken, is attached hereto as Appendix B and is incorporated herein
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by reference. Stockholders of Mastering are urged to read the Piper Jaffray
Opinion in its entirety. The Piper Jaffray Opinion was prepared for the
benefit and use of the Mastering Board in its consideration of the Merger and
does not constitute a recommendation to stockholders of Mastering as to how
they should vote at the Meeting in connection with the Merger. The Piper
Jaffray Opinion does not address the relative merits of the Merger and any
other transactions or business strategies discussed by the Mastering Board of
Directors as alternatives to the Merger Agreement or, except with respect to
the fairness of the Exchange Ratio, from a financial point of view, to the
holders of Common Shares, the underlying business decision of the Mastering
Board to proceed with or effect the Merger. The summary of the Piper Jaffray
Opinion set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the Piper Jaffray Opinion.
In connection with the preparation of the Piper Jaffray Opinion, Piper
Jaffray, among other things, (i) reviewed the draft dated February 14, 1998,
of the Merger Agreement and discussed material changes to the Merger Agreement
with the management of Mastering on February 17 and February 18, 1998; (ii)
reviewed the Report on Form 10-K for Mastering for the year ended December 31,
1996; (iii) reviewed the Report on Form 10-Q for Mastering for the periods
ended March 31, 1997, June 30, 1997 and September 30, 1997; (iv) reviewed the
earnings release issued by Mastering for the year ended December 31, 1997; (v)
reviewed the earnings release issued by PLATINUM for the year ended December
31, 1997; (vi) reviewed the Reports on Form 10-K for PLATINUM for the three
years ended December 31, 1996; (vii) reviewed the Reports on Form 10-Q for
PLATINUM for the periods ended March 31, 1997, June 30, 1997 and September 30,
1997; (viii) reviewed financial forecasts prepared by Mastering's management
for the years ending December 31, 1998 through 2002 ("Five-Year Financial
Forecasts"); (ix) visited the headquarters of Mastering and conducted
discussions with members of senior management of Mastering, including the
Chief Executive Officer, the President of Mastering Computers and the
Executive Vice President and Chief Financial Officer; (x) conducted
discussions with members of senior management of PLATINUM, including the Chief
Executive Officer and Chief Financial Officer; (xi) reviewed the historical
prices and trading activity for PLATINUM Common Stock; (xii) performed a
discounted cash flow analysis on the Five-Year Financial Forecasts; (xiii)
reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions which Piper Jaffray deemed
relevant; (xiv) compared certain financial data of Mastering with certain
financial and securities data of companies deemed similar to Mastering or
representative of the business sector in which it operates; and (xv) reviewed
such other financial data, performed such other analyses and considered such
other information as Piper Jaffray deemed necessary and appropriate under the
circumstances.
In conducting its review and arriving at the Piper Jaffray Opinion, Piper
Jaffray relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Mastering and PLATINUM or
otherwise made available to Piper Jaffray and did not assume responsibility
independently to verify such information. Piper Jaffray further relied upon
the assurances of Mastering's and PLATINUM's management that the information
provided was prepared on a reasonable basis in accordance with industry
practice and with respect to financial planning data, reflected the best
currently available estimates and good faith judgments of Mastering's and
PLATINUM's management as to the expected future financial performance of
Mastering and PLATINUM and that such parties were not aware of any information
or facts that would make the information provided to Piper Jaffray incomplete
or misleading. Without limiting the generality of the foregoing, for the
purpose of the Piper Jaffray Opinion, Piper Jaffray assumed that neither
Mastering nor PLATINUM was a party to any pending transaction, including
external financing, recapitalizations, acquisitions or merger discussions,
other than the Merger or in the ordinary course of business. Piper Jaffray
also assumed that the Merger would be free of Federal tax to Mastering,
PLATINUM, and the holders of Common Shares and that the Merger would be
accounted for as a pooling of interests under generally accepted accounting
principles. In arriving at the Piper Jaffray Opinion, Piper Jaffray assumed
that all the necessary regulatory approvals and consents required for the
Merger would be obtained in a manner that would not change the purchase price
for Mastering. Piper Jaffray also noted that Mr. Filipowski, a director of
Mastering, was the Chief Executive Officer of PLATINUM.
In arriving at the Piper Jaffray Opinion, Piper Jaffray did not perform any
appraisals or valuations of specific assets or liabilities of Mastering or
PLATINUM and was not furnished with any such appraisals or valuations.
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Without limiting the generality of the foregoing, Piper Jaffray did not
undertake any independent analysis of any pending or threatened litigation,
possible unasserted claims or other contingent liabilities, to which
Mastering, PLATINUM or any of their respective affiliates was a party or may
be subject and, at Mastering's direction and with its consent, the Piper
Jaffray Opinion made no assumption concerning and therefore did not consider,
the possible assertion of claims, outcomes or damages arising out of any such
matters. Although developments following the date of the Piper Jaffray Opinion
may affect the Piper Jaffray Opinion, Piper Jaffray assumed no obligation to
update, revise or reaffirm the Piper Jaffray Opinion.
The following is a summary of the material financial analyses performed by
Piper Jaffray in connection with rendering the Piper Jaffray Opinion:
Comparable Company Analysis. Piper Jaffray compared certain financial
information and valuation ratios relating to Mastering to corresponding
publicly-available data and ratios from a group of selected publicly traded
companies deemed comparable to Mastering. The comparable companies selected
included six publicly traded companies in the business of training and
education of IT professionals with market capitalizations greater than $50
million, including: Apollo Group, ARIS Corporation, CBT Group plc, Learning
Tree International, Inc., New Horizons Worldwide, Inc., and Sylvan Learning
Systems, Inc.
The analysis with respect to Mastering produced multiples of selected
valuation data based upon closing stock prices of the comparable companies as
of February 13, 1998, which were then compared to the equity value of
Mastering of $12.49 per share implied by the Exchange Ratio. The multiples
included in the analysis were: (i) market price per share to earnings per
share recorded over the latest twelve months of the comparable companies
ranging from 45.6x to 82.1x, with a mean and median of 59.2x and 56.1x,
respectively, and a ratio of 50.0x for Mastering; (ii) market price per share
to 1998 calendar earnings per share estimates of the comparable companies
ranging from 21.7x to 53.7x, with a mean and median of 36.6x and 34.0x,
respectively, and for research analyst estimates for Mastering a ratio of
37.8x; (iii) market price per share to 1999 calendar earnings per share
estimates of the comparable companies ranging from 23.8x to 39.4x, with a mean
and median of 29.9x and 26.5x, respectively, and for research analyst
estimates for Mastering of 29.7x; (iv) market capitalization of the selected
company, plus such company's debt, less such company's cash ("Company Value")
to revenue recorded over the latest twelve months for comparable companies
ranging from 1.5x to 15.5x, with a mean and median of 6.2x and 5.3x,
respectively, and a ratio of 3.7x for Mastering; and (v) Company Value to
calendar 1998 revenue estimate for comparable companies ranging from 2.0x to
11.1x, with a mean and median of 5.1x and 3.9x, respectively, and an estimate
for Mastering of 2.7x, based on a Piper Jaffray research analyst's estimates.
Company Value for Mastering was based upon the implied purchase price per
share multiplied by the number of fully-diluted shares outstanding, plus
outstanding debt less cash held. Earnings estimates for comparable companies
were based on consensus earnings per share estimates taken from First Call, an
investor service that monitors earnings estimates for publicly traded
companies.
Comparable Transaction Analysis. Using publicly available information, Piper
Jaffray analyzed the ratio of Company Value to revenue recorded over the last
twelve months and the ratio of the product of the total number of shares of
Mastering outstanding, on a fully diluted basis multiplied by the implied
value of $12.49 per share (the "Equity Value") to net income over the last
twelve months, in nine selected transactions involving private and publicly
traded IT professional training and education companies, including (dates
indicate the date each transaction was completed): Medic Computer Systems,
Inc./Misys plc (November 26, 1997); ELS Educational Services, Inc./Berlitz
International (Benesse Corp.) (August 31, 1997); Renaissance Solutions,
Inc./Registry, Inc. (July 31, 1997); National Education Corp./Harcourt
General, Inc. (July 10, 1997); BHC Financial, Inc./Fiserv, Inc. (May 30,
1997); American Research Group/Global Knowledge Network, Inc. (January 31,
1997); Covey Leadership Center/Franklin Quest (January 31, 1997); CyCare
Systems, Inc./HBO & Co. (August 22, 1996); Westcott Communications, Inc./K-III
Communications Corp. (June 3, 1996). An analysis of the comparable
transactions produced multiples of selected valuation data with respect to the
purchased companies as follows: Company Value to revenues recorded over the
last twelve months ranging from 1.4x to 7.7x, with a mean and a median of 3.3x
and 2.9x, respectively, and a multiple for the Merger of 3.7x and Equity Value
to net income over the last twelve months ranging from not meaningful to
41.5x, with a mean and median of 26.1x and 30.9x, respectively, and a multiple
for the Merger of 55.4x. Estimated multiples paid in the
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comparable transactions were based on information obtained from public
filings, public company disclosures, press releases, industry and popular
press reports, databases and other sources.
No company, transaction or business used in the Comparable Company Analysis
or Comparable Transaction Analysis as a comparison is identical to Mastering
or the Merger. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the comparable companies, comparable transactions or the business segment,
company or transactions to which they are being compared.
Premiums Paid Analysis. Piper Jaffray reviewed certain publicly traded IT
merger and acquisition transactions to determine the premiums paid,
represented by the difference between the transaction values and the market
prices for the target companies one day, one week, and one month prior to the
announcement (each, an "Announcement") of such comparable transaction. This
analysis indicated premiums as follows: (i) one day before the Announcement,
premiums ranging from -10.6% to 90.9%, with a mean and a median of 30.7% and
29.8%, respectively, and a premium for the Merger of 21.3%; (ii) one week
before the Announcement, premiums ranging from -6.4% to 99.3%, with a mean and
a median of 36.0% and 35.1%, respectively, and a premium for the Merger of
24.9%; and (iii) one month before the Announcement, premiums ranging from -
6.8% to 146.7%, with a mean and a median of 46.7% and 39.2%, respectively and
a premium for the Merger of 31.5%. Estimated premiums paid in the comparable
transactions were based on information obtained from public filings, public
company disclosures, press releases, industry and popular press reports,
databases and other sources.
Pro Forma Earnings Analysis--No Synergy Adjustments. Piper Jaffray analyzed
pro forma effects resulting from the impact of the Merger on the projected EPS
of the combined company for the calendar years 1998 and 1999, per management
and research analyst estimates, without taking into account certain operating
cost synergies that the combined company may realize following consummation of
the Merger. The results of the pro forma earnings analysis suggested that the
Merger could be non-dilutive to the combined company's EPS in the calendar
year 1999. The actual results achieved by the combined company after the
Merger may vary from projected results and the variations may be material.
Pro Forma Earnings Analysis--Synergy Adjustments. Piper Jaffray analyzed pro
forma effects resulting from the impact of the Merger on the EPS of the
combined company, per management and research analyst estimates, for the
calendar years 1998 and 1999 after taking into account certain operating cost
synergies that the combined company may realize following consummation of the
Merger. The results of the pro forma earnings analysis suggested that the
Merger could be non-dilutive to the combined company's EPS in the calendar
year 1998 and 1999. The actual results achieved by the combined company after
the Merger may vary from projected results and the variations may be material.
Contribution Analysis. Piper Jaffray analyzed the respective contributions
of Mastering and PLATINUM to the estimated total sales, operating income and
net income for the years ended December 31, 1998 and 1999 per management
estimates, and the respective contributions of Mastering and PLATINUM to the
estimated total sales, operating income and net income for the years ended
December 31, 1998 and 1999 per research analyst estimates. The analysis per
management's estimates indicated that (i) in calendar year 1998, PLATINUM
would contribute approximately 93.0% of total sales, approximately 92.7% of
operating income and approximately 91.5% of net income, and Mastering would
contribute approximately 7.0% of total sales, approximately 7.3% of operating
income and approximately 8.5% of net income, of the combined company, (ii) in
calendar year 1999, PLATINUM would contribute approximately 92.1% of total
sales, approximately 91.4% of operating income and approximately 90.6% of net
income, and Mastering would contribute approximately 7.9% of total sales,
approximately 8.6% of operating income and approximately 9.4% of net income,
of the combined company. The analysis per research analyst estimates indicated
that (i) in calendar year 1998, PLATINUM would contribute approximately 93.7%
of total sales, approximately 93.2% of operating income and approximately
92.8% of net income, and Mastering would contribute approximately 6.3% of
total sales, approximately 6.8% of operating
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income and approximately 7.2% of net income, of the combined company, (ii) in
calendar year 1999, PLATINUM would contribute approximately 93.2% of total
sales, approximately 94.2% of operating income and approximately 94.4% of net
income, and Mastering would contribute approximately 6.8% of total sales,
approximately 5.8% of operating income and approximately 5.6% of net income,
of the combined company. Based on capitalizations of Mastering and PLATINUM as
of February 13, 1998, stockholders of Mastering and PLATINUM would own
approximately 9.2% and 90.8%, respectively, of the combined company upon
consummation of the Merger.
Discounted Cash Flow Analysis. Piper Jaffray estimated the present value of
the projected future cash flows of Mastering on a stand-alone basis using
internal financial planning data prepared by management of Mastering for the
years ending December 31, 1998 through December 31, 2002. Piper Jaffray
applied terminal value multiples of forecasted 2002 earnings before interest
and taxes of 8.0x, 10x and 12.0x. In all cases, Piper Jaffray used a range of
discount rates from 20% to 30%. This analysis yielded a range of estimated
present values of Mastering's equity value from $9.51 per share to $15.75 per
share, compared to the Mastering equity value of $12.49 per share implied by
the Exchange Ratio based on the closing price of PLATINUM Common Stock on
February 13, 1998.
Other Factors and Comparative Analyses. In rendering its opinion, Piper
Jaffray considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of: (i) the
history of trading prices and volume for Common Shares from March 21, 1996
through February 13, 1998, and PLATINUM Common Stock from February 16, 1996
through February 13, 1998; and (ii) selected published analysts' reports on
each of Mastering and PLATINUM, including analysts' estimates as to the
earnings growth potential of Mastering and PLATINUM.
While the foregoing summary describes certain analyses and factors that
Piper Jaffray deemed material in its presentation to the Mastering Board of
Directors, it is not a comprehensive description of all analyses and factors
considered by Piper Jaffray. The preparation of a fairness opinion is a
complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Piper Jaffray believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Piper Jaffray Opinion. Several analytical methodologies were
employed and no one method of analysis should be regarded as critical to the
overall conclusion reached by Piper Jaffray. Each analytical technique has
inherent strengths and weaknesses, and the nature of the available information
may further affect the value of particular techniques. The conclusions reached
by Piper Jaffray are based on all analyses and factors taken as a whole and
also on application of Piper Jaffray's own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Piper Jaffray therefore gives no opinion as to the value
or merit standing alone of any one or more parts of the analysis it performed.
In performing its analyses, Piper Jaffray considered general economic, market
and financial conditions and other matters, many of which are beyond the
control of Mastering and PLATINUM. The analyses performed by Piper Jaffray are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, analyses relating to the value of a business do not purport to be
appraisals or to reflect the prices at which the business actually may be
purchased. Furthermore, no opinion is being expressed as to the prices at
which shares of PLATINUM Common Stock may trade at any future time.
Mastering engaged Piper Jaffray pursuant to the Piper Jaffray Engagement
Letter on December 24, 1997. Contingent upon consummation of a transaction,
the Piper Jaffray Engagement Letter provides that, for its services, Piper
Jaffray is entitled to receive a fee equal to the following: (i) one percent
of the aggregate consideration paid to Mastering and/or its shareholders in
connection with the Merger in the event the purchase price is less than or
equal to $13 per Common Share; (ii) one and one quarter percent of the
aggregate consideration paid to Mastering and/or its shareholders in
connection with the Merger in the event the purchase price is greater than $13
per share, but less than $16 per Common Share; or (iii) one and one half
percent of the
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aggregate consideration paid to Mastering and/or its shareholders in
connection with the Merger in the event the purchase price is greater than $16
per Common Share. A payment of $500,000 (which constitutes part of Piper
Jaffray's fee equal to a percentage of the total sale price described above)
became due and payable to Piper Jaffray upon delivery of its fairness opinion
to the Mastering Board. The remainder of the Piper Jaffray fee is due and
payable upon consummation of the Merger. Mastering has also agreed to
reimburse Piper Jaffray for its out of pocket expenses and to indemnify and
hold harmless Piper Jaffray and its affiliates and any person, director,
employee or agent acting on behalf of Piper Jaffray or any of its affiliates,
or any person controlling Piper Jaffray or its affiliates for certain losses,
claims, damages, expenses and liabilities relating to or arising out of
services provided by Piper Jaffray as financial advisor to Mastering. The
terms of the fee arrangement with Piper Jaffray, which Mastering and Piper
Jaffray believe are customary in transactions of this nature, were negotiated
at arm's length between Mastering and Piper Jaffray, and the Mastering Board
was aware of such fee arrangements.
Piper Jaffray was retained based on Piper Jaffray's experience as a
financial advisor in connection with mergers and acquisitions and in
securities valuations generally, as well as Piper Jaffray's investment banking
relationship and familiarity with Mastering. Piper Jaffray has provided
financial advisory and investment banking services to Mastering from time to
time.
Piper Jaffray is a nationally recognized investment banking firm. As part of
its investment banking business, Piper Jaffray is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. Piper Jaffray may actively trade the
equity securities of Mastering and PLATINUM for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. Piper Jaffray maintains a market in Common
Shares and regularly publishes research reports regarding the IT training
industry and the business and securities of Mastering and other publicly
traded companies in the IT training industry.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Mastering Board with respect to the
Merger, stockholders of Mastering should be aware that members of Mastering
management and Board of Directors have certain interests in the Merger as
holders of options to purchase Common Shares (with currently unexercisable
options vesting upon a change in control of Mastering) that are in addition to
the interests of the stockholders of Mastering generally.
Set forth below is a table showing the total number of options and the
number of currently unexercisable options which will vest upon a change in
control held by the executive officers and directors of Mastering:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF UNEXERCISABLE
TOTAL OPTIONS WHICH
NAME OPTIONS WILL VEST
---- --------- -------------
<S> <C> <C>
Terence M. Graunke................................. 929,600 457,500
Thomas R. Graunke.................................. 555,000 453,750
Marc Pinto......................................... 421,100 254,300
Marko A. Rukavina III.............................. 311,628 156,250
Paul G. Yovovich................................... 115,000 115,000
Casey Cowell....................................... 84,800 55,000
Paul D. Carbery.................................... 34,800 5,000
James E. Cowie..................................... 34,800 5,000
Andrew J. Filipowski............................... 34,800 5,000
Peter I. Mason..................................... 19,800 0
</TABLE>
While each of the executive officers and directors of Mastering remains a
consultant pursuant to the arrangements described below and generally for a
period of three months thereafter, the options held by them will remain
exercisable.
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In addition, PLATINUM has entered into an agreement with Terence Graunke
pursuant to which (i) the employment agreement between Mr. Graunke and
Mastering terminates as of the Effective Time (which, among other things, will
eliminate the requirement to pay severance to Mr. Graunke under certain
circumstances pursuant to such agreement); (ii) for the period commencing at
the Effective Time and ending on the third anniversary of the Effective Time,
Mr. Graunke has agreed to be available to act as a consultant to PLATINUM at a
fee of $250 per consulting hour; (iii) Mr. Graunke will not compete with the
business of Mastering or solicit customers or employees of Mastering for the
period commencing at the Effective Time and ending on the third anniversary of
the Effective Time; and (iv) PLATINUM will pay Mr. Graunke $900,000 as
consideration for the foregoing items. In addition, the parties agreed to use
commercially reasonable efforts to modify the foregoing arrangements so as to
maximize the after-tax value of the compensation received by Mr. Graunke,
whether under such arrangements or otherwise; provided, however, neither
PLATINUM nor Mastering is obligated to increase the total payment obligation
under all of such arrangements.
PLATINUM has entered into an agreement with Thomas Graunke pursuant to which
(i) the employment agreement between Mr. Graunke and Mastering terminates as
of the Effective Time (which, among other things, will eliminate the
requirement to pay severance to Mr. Graunke under certain circumstances
pursuant to such agreement); (ii) Mr. Graunke will continue as an employee of
Mastering to assist with the integration of Mastering's business for ninety
(90) days after the Effective Time, and, if agreed to by the parties, for
additional 30-day periods thereafter; (iii) for the period commencing at
termination of the employment arrangement described in clause (ii) and ending
on the third anniversary of the Effective Time, Mr. Graunke has agreed to be
available to act as a consultant to PLATINUM at a fee of $200 per consulting
hour; (iv) Mr. Graunke will not compete with the business of Mastering or
solicit customers or employees of Mastering for the period commencing at the
Effective Time and ending on the third anniversary of the Effective Time; (v)
PLATINUM will pay Mr. Graunke $750,000 as consideration for the foregoing
items. In addition, the parties agreed to use commercially reasonable efforts
to modify the foregoing arrangements so as to maximize the after-tax value of
the compensation received by Mr. Graunke, whether under such arrangements or
otherwise; provided, however, neither PLATINUM nor Mastering is obligated to
increase the total payment obligation under all of such arrangements.
PLATINUM has entered into an agreement with Marc Pinto pursuant to which (i)
the employment agreement between Mr. Pinto and Mastering will terminate as of
the Effective Time (which, among other things, will eliminate the requirement
to pay severance to Mr. Pinto under certain circumstances pursuant to such
agreement), except that certain noncompetition and nonsolicitation covenants
in Mr. Pinto's employment agreement (as such covenants will be amended by the
agreement with PLATINUM to expand the scope of the business covered and to
extend the duration of the noncompete covenant) will continue for up to 36
months after the Effective Time; (ii) Mr. Pinto will continue as an employee
of Mastering to assist with the integration of Mastering's business for ninety
(90) days after the Effective Time and, if agreed to by the parties, for
additional 30-day periods thereafter; (iii) for the period commencing at
termination of the employment arrangement described in clause (ii) and ending
on the third anniversary of the Effective Time, Mr. Pinto has agreed to be
available to act as a consultant to PLATINUM at a fee of $150 per consulting
hour; and (iv) PLATINUM will pay Mr. Pinto $300,000 as consideration for the
foregoing items. In addition, PLATINUM agreed to use its commercially
reasonable efforts to reduce the impact, if any, of the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest
or penalties with respect to such excise tax in connection with any payment,
acceleration or other benefit received or to be received by Mr. Pinto that is
in connection with a change in control of Mastering (whether pursuant to the
terms of such agreement or any other plan, arrangement or agreement with
PLATINUM or Mastering).
Each of Paul Carbery, Casey Cowell, James Cowie, Peter Mason and Paul
Yovovich, directors of Mastering, has agreed to be available to act as a
consultant to PLATINUM for the period commencing at the Effective Time and
ending on the third anniversary of the Effective Time at a fee of $100 per
consulting hour.
Mr. Filipowski and Mr. Cowie are directors of each of PLATINUM and
Mastering. Mr. Filipowski is also the President and Chief Executive Officer of
PLATINUM. Mr. Filipowski holds options to purchase 34,800
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Common Shares (which were granted to him in his capacity as a director of
Mastering) and, through two investment partnerships of which he is a
principal, indirectly owns approximately 22,000 Common Shares. Mr. Cowie holds
options to purchase 34,800 Common Shares (granted to him in his capacity as a
director of Mastering). Messrs. Filipowski and Cowie did not participate in
the deliberations of the Mastering Board or the Board of Directors of PLATINUM
with respect to the Merger. PLATINUM Ventures owns a total of approximately
335,000 Common Shares. Mr. Filipowski is the President, Chief Executive
Officer and a stockholder of PLATINUM Ventures Partners, Inc., the general
partner of PLATINUM Ventures, and is a limited partner of each of the PLATINUM
Ventures. Additionally, all of the other executive officers and directors of
PLATINUM indirectly own an aggregate of more than 20,000 Common Shares.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax consequences
of the Merger. This summary is not a complete description of all the tax
consequences relevant to a decision whether to vote in favor of the Merger
Agreement and the Merger. The discussion does not address the tax consequences
that may be relevant to particular categories of stockholders subject to
special treatment under certain federal income tax laws, such as dealers in
securities, banks, insurance companies and tax-exempt organizations. Each
stockholder's individual circumstances may affect the tax consequences of the
Merger to him or her. No information is provided herein with respect to the
tax consequences of the Merger under foreign, state or local laws or the tax
consequences of transactions effected prior to, concurrently with, or after
the Merger (whether or not such transactions are undertaken in connection with
the Merger). The consequences set forth below are, and the opinions referred
to below will be, based on the Internal Revenue Code of 1986, as amended (the
"Code"), currently applicable United States Treasury regulations promulgated
thereunder, judicial authority, and administrative positions of the Internal
Revenue Service, all of which are subject to change either prospectively or
retroactively. Any such changes could affect the accuracy of the consequences
set forth below and the conclusions reached in such opinions.
Material U.S. Federal Income Tax Consequences. Subject to the limitations
and qualifications referred to herein, the material U.S. federal income tax
consequences of the Merger are as follows:
(i) the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and Mastering, PT Acquisition and PLATINUM 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 PLATINUM, PT Acquisition or
Mastering as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of Mastering
upon the exchange of their Common Shares solely for shares of PLATINUM
Common Stock pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional shares of PLATINUM Common Stock;
(iv) the aggregate tax basis of the shares of PLATINUM Common Stock
received solely in exchange for Common Shares pursuant to the Merger
(including fractional shares of PLATINUM Common Stock for which cash is
received) will be the same as the aggregate tax basis of the Common Shares
exchanged therefor;
(v) the holding period for shares of PLATINUM Common Stock received
solely in exchange for Common Shares pursuant to the Merger will include
the holding period of the Common Shares exchanged therefor, provided such
Common Shares were held as a capital asset by the stockholder at the
Effective Time; and
(vi) a stockholder of Mastering who receives cash in lieu of a fractional
share of PLATINUM 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.
The correctness of the consequences described above depend on the accuracy
as of the date hereof, and the continued accuracy as of the Effective Time (as
if made as of the Effective Time), of certain facts and of certain
representations of PLATINUM and Mastering, including representations in
certain certificates dated on or about the date hereof delivered by PLATINUM
and Mastering.
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The consequences described above may not be applicable to stockholders of
Mastering who, for U.S. federal income tax purposes, are nonresident alien
individuals, foreign corporations, foreign partnerships, foreign trusts or
foreign estates, or who acquired their Common Shares pursuant to the exercise
of employee stock options or otherwise as compensation.
Conditions to Closing. It is a condition to PLATINUM's obligation to
consummate the Merger that PLATINUM receive an opinion from its counsel,
Katten Muchin & Zavis, and it is a condition to Mastering's obligation to
consummate the Merger that Mastering receive an opinion from its counsel,
Sidley & Austin, in each case dated as of the Effective Time, to the effect
that, among other things, the Merger will constitute a reorganization under
Section 368(a) of the Code (the "Tax Opinions"). The Tax Opinions will neither
bind the Internal Revenue Service nor preclude the Internal Revenue Service
from adopting a contrary position. The Tax Opinions will be subject to certain
assumptions and qualifications and will be based on the truth and accuracy of
certain representations of PLATINUM and Mastering, including representations
in certain certificates each dated as of the Effective Date to be delivered to
counsel by PLATINUM and Mastering. An opinion of counsel only represents
counsel's best legal judgment, and has no binding effect or official status of
any kind.
A successful Internal Revenue Service challenge to the status of the Merger
as a reorganization under Section 368(a) of the Code would result in the
Mastering stockholders recognizing taxable gain or loss with respect to each
Common Share surrendered equal to the difference between the stockholder's tax
basis in such Common Share and the fair market value, as of the Effective
Time, of the PLATINUM Common Stock received in exchange therefor. In such
event, a stockholder's aggregate tax basis in the PLATINUM Common Stock so
received would equal its fair market value and the holding period for such
stock would begin the day after the Merger.
Stock Options. Holders of Mastering Stock Options will receive Substitute
Options as described below under "THE MERGER AGREEMENT--Substitution of
Options." The holder of a Mastering Stock Option that is converted into a
Substitute Option should not recognize gain or loss solely as a result of such
conversion. Such holder would, however, generally recognize ordinary
compensation income on the date such Substitute Option is exercised in an
amount equal to the excess of the aggregate fair market value on such date of
the shares of PLATINUM Common Stock acquired upon such exercise (plus any cash
received in lieu of a fractional share) over the aggregate exercise price for
such shares.
EACH HOLDER OF COMMON SHARES OF MASTERING OR MASTERING STOCK OPTIONS IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO HIM OR HER, AND ALSO AS TO ANY STATE, LOCAL,
FOREIGN OR OTHER TAX CONSEQUENCES.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. Under this method of accounting, the assets and liabilities of
PLATINUM and Mastering will be combined based on the respective carrying
values of the accounts in the historical financial statements of each entity.
Results of operations of the combined company will include revenues and
expenses of PLATINUM and Mastering for the entire fiscal period in which the
combination occurs, and the historical results of operation of the separate
companies for fiscal years prior to the Merger will be combined and reported
as the results of operations of the combined company.
The receipt by each of PLATINUM and Mastering of a letter from its
respective independent public accountants with respect to pooling of interests
satisfactory to the other party is a condition precedent to the obligation of
each of Mastering and PLATINUM to consummate the Merger. Certain events,
including certain
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transactions with respect to PLATINUM Common Stock or Common Shares by
affiliates of PLATINUM or Mastering, respectively, may prevent the Merger from
qualifying as a pooling of interests for accounting and financial reporting
purposes. To support the treatment of the Merger as a pooling of interests,
the affiliates of Mastering and PLATINUM have entered into agreements imposing
certain resale limitations on their stock. See "--Certain Federal Securities
Law Consequences; Affiliates Agreements."
REGULATORY APPROVALS
The Merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations thereunder, which
provide that certain acquisition transactions (including the Merger) may not
be consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the
Federal Trade Commission (the "FTC"), and certain waiting period requirements
have been satisfied. Mastering and PLATINUM have filed the required
information and materials with the Antitrust Division and the FTC and, on
March 27, 1998, received notice of early termination of the applicable waiting
period. Termination of the waiting period does not preclude the Antitrust
Division, the FTC, or any other party from challenging or seeking to delay or
enjoin the Merger on antitrust or other grounds. There can be no assurance
that any such challenge, if made, would not be successful; however, neither
Mastering nor PLATINUM believes that the Merger will violate the antitrust
laws. Any such action taken or threatened prior to the consummation of the
Merger could, under certain circumstances, relieve Mastering and PLATINUM of
their respective obligations to consummate the Merger. See "The Merger
Agreement--Conditions to the Merger."
CERTAIN FEDERAL SECURITIES LAW CONSEQUENCES; AFFILIATES AGREEMENTS
The PLATINUM Common Stock to be issued in the Merger has been registered
under the Securities Act, thereby allowing such shares to be freely traded
without restriction; provided however that shares held by stockholders of
Mastering or PLATINUM who are deemed to control, be controlled by or be under
common control with Mastering or PLATINUM, respectively ("Affiliates"), will
not be freely tradeable under the Securities Act. Affiliates of Mastering may
not sell their shares of PLATINUM Common Stock acquired in the Merger except
pursuant to (i) an effective registration statement under the Securities Act
covering such shares, (ii) the resale provisions of Rule 145 promulgated under
the Securities Act or (iii) another applicable exemption from the registration
requirements of the Securities Act. In general, Rule 145, as currently in
effect, imposes restrictions on the manner in which such Affiliates may make
resales of PLATINUM Common Stock and also on the number of shares of PLATINUM
Common Stock that such Affiliates, and others (including persons with whom the
Affiliates act in concert), may sell within any three-month period. These
restrictions will generally apply for at least a period of one year after the
Merger (or longer if the person is an Affiliate of PLATINUM).
Each Affiliate has been informed that the treatment of the Merger as a
pooling of interests for accounting purposes and as a tax-free reorganization
under the Code is dependent upon the accuracy of certain representations and
warranties made by such Affiliate and compliance with the Affiliates Agreement
(as defined below). The pooling of interests method of accounting generally
will not be challenged on the basis of sales of shares by Affiliates of the
acquiring or acquired company if the Affiliates do not dispose of, or
otherwise reduce their risk with respect to, any of the shares of the
acquiring or acquired company that the Affiliates own or shares of a
corporation they receive in connection with a merger during the period
beginning 30 days before the consummation of the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined enterprise have been published.
All Affiliates of PLATINUM and Mastering have delivered a written agreement
(the "Affiliates Agreement") pursuant to which they have agreed, among other
things, that, (i) during the 30 days prior to the Effective Time, they will
not sell, transfer or otherwise dispose of or reduce their risk with respect
to any Common Shares or any shares of PLATINUM Common Stock held by them and
(ii) until such time as financial results covering at least 30 days of post-
Merger combined operations of Mastering and PLATINUM have been published by
PLATINUM, they will not sell, transfer or otherwise dispose of or reduce their
risk with to respect
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to any shares of PLATINUM Common Stock received by them pursuant to the Merger
or any other shares of the capital stock of PLATINUM. During the periods
described above, subject to providing written notice to PLATINUM and certain
other restrictions, and to the extent permitted under the pooling of interests
accounting rules and applicable securities laws, Affiliates will be permitted
to sell up to 10% of the PLATINUM Common Stock received by them or Common
Shares owned by them or make charitable contributions or bona fide gifts of
the PLATINUM Common Stock received by them or Common Shares owned by them,
subject to the same restrictions. Legends restricting the transfer of such
shares of PLATINUM Common Stock will be placed on all certificates
representing such shares.
NASDAQ NATIONAL MARKET LISTING
The shares of PLATINUM Common Stock to be issued in the Merger (including
the issuance of shares of PLATINUM Common Stock issuable upon exercise of
Substitute Options) will be listed on the Nasdaq National Market.
If the Merger is consummated, the Common Shares will no longer be traded on
Nasdaq and will be deregistered under the Exchange Act.
NO APPRAISAL OR DISSENTERS' RIGHTS
Holders of Common Shares will not be entitled to any dissenters' or
appraisal rights under the DGCL in connection with the Merger.
THE MERGER AGREEMENT
Following is a summary of certain provisions of the Merger Agreement. The
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix A and incorporated herein by reference.
Statements in this Proxy Statement/Prospectus with respect to the terms of the
Merger are qualified in their entirety by reference to the Merger Agreement.
Mastering stockholders are urged to read the full text of the Merger
Agreement.
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger and without any further
action on the part of Mastering or PT Acquisition or any holder of any of the
following securities:
(i) each issued and outstanding share of Common Stock of PT Acquisition
will be converted into one Common Share of Mastering as the surviving
corporation;
(ii) all Common Shares owned by PLATINUM, PT Acquisition or Mastering or
by any direct or indirect subsidiary of PLATINUM or Mastering will be
canceled; and
(iii) each Common Share issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled as described in
subparagraph (ii) above) will be converted into 0.448 (the "Exchange
Ratio") shares of PLATINUM Common Stock.
All Common Shares converted as provided in subparagraph (iii) of the
preceding paragraph will no longer be outstanding and will automatically be
canceled and retired; and each holder of a Mastering Certificate representing
immediately prior to the Effective Time any such Common Shares will cease to
have any rights with respect thereto, except the right to receive, as
hereinafter described: (i) certificates representing the number of whole
shares of PLATINUM Common Stock into which such Common Shares have been
converted, (ii) cash in lieu of any fractional share of PLATINUM Common Stock
and (iii) certain dividends and other distributions. See "--Exchange Agent;
Procedures for Exchange of Mastering Certificates."
Holders of Common Shares who dissent from the Merger are not entitled to
rights of appraisal under Section 262 of the DGCL by virtue of Sections
262(b)(1) and (2) thereof.
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SUBSTITUTION OF OPTIONS
Not later than the Effective Time, each Mastering Stock Option which is
outstanding immediately prior to the Effective Time pursuant to Mastering's
stock option plans (other than any "stock purchase plan" within the meaning of
Section 423 of the Code) in effect on the date of the Merger Agreement (the
"Mastering Stock Plans") shall become and represent an option to purchase the
number of shares of PLATINUM Common Stock (a "Substitute Option") (decreased
to the nearest whole share) determined by multiplying (i) the number of Common
Shares subject to such Mastering Stock Option immediately prior to the
Effective Time by (ii) the Exchange Ratio, at an exercise price per share of
PLATINUM Common Stock (rounded up to the nearest tenth of a cent) equal to the
exercise price per Common Share immediately prior to the Effective Time
divided by the Exchange Ratio. PLATINUM shall pay cash to holders of Mastering
Stock Options in lieu of issuing fractional shares of PLATINUM Common Stock
upon the exercise of Substitute Options for shares of PLATINUM Common Stock,
unless in the judgment of PLATINUM such payment would adversely affect the
ability to account for the Merger under the pooling of interests method. After
the Effective Time, each Substitute Option shall be exercisable upon the same
terms and conditions as were applicable under the related Mastering 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).
NO FRACTIONAL SHARES
No certificates representing a fractional share of PLATINUM Common Stock
will be issued upon the surrender of Mastering Certificates for exchange. In
lieu of any such fractional share, each holder of Common Shares who would
otherwise have been entitled thereto upon the surrender of Mastering
Certificates for exchange (after aggregating all fractional shares of PLATINUM
Common Stock to be received by such holder) will be paid an amount in cash
(without interest), rounded to the nearest whole cent, equal to the product of
(i) the fractional share to which such holder would otherwise be entitled,
multiplied by (ii) the average of the closing (last) prices for a share of
PLATINUM Common Stock, as reported on Nasdaq (as reported in The Wall Street
Journal, Midwest Edition), for the most recent ten (10) days that the shares
of PLATINUM Common Stock have traded ending on the trading day immediately
prior to the Effective Time.
ADJUSTMENT OF EXCHANGE RATIO
In the event of any reclassification, stock split or stock dividend with
respect to PLATINUM Common Stock, any change or conversion of PLATINUM Common
Stock into other securities or any other dividend or distribution with respect
to PLATINUM 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, will be made to the Conversion Exchange
Ratio.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF MASTERING CERTIFICATES
The Harris Trust and Savings Bank will act as Exchange Agent under the
Merger Agreement. Promptly after the Effective Time, PLATINUM will make
available to the Exchange Agent, through such reasonable procedures as
PLATINUM may adopt, the shares of PLATINUM Common Stock issuable pursuant to
the Merger Agreement in exchange for the outstanding Common Shares, and cash
sufficient for payment in lieu of a fractional share of PLATINUM Common Stock.
Promptly after the Effective Time, the Exchange Agent will cause to be
mailed to each holder of record of a certificate or certificates (the
"Mastering Certificates") which immediately prior to the Effective Time
represented outstanding Common Shares whose shares were converted into shares
of PLATINUM Common Stock pursuant to the Merger Agreement, (i) a letter of
transmittal specifying that delivery shall be effected, and risk of loss and
title to the Mastering Certificates shall pass, only upon delivery of the
Mastering Certificates to the Exchange Agent, such letter of transmittal to be
in such customary form and have such other provisions as PLATINUM may
reasonably specify, and (ii) instructions for use in effecting the surrender
of the Mastering
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Certificates in exchange for certificates representing shares of PLATINUM
Common Stock. Upon surrender of a Mastering Certificate for cancellation to
the Exchange Agent or to such other agent as may be appointed by PLATINUM,
together with such letter of transmittal, duly completed and validly executed,
the holder of such Mastering Certificate will be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
PLATINUM Common Stock into which the shares represented by the surrendered
Mastering Certificate will have been converted at the Effective Time pursuant
to the Merger Agreement, payment in lieu of fractional shares and certain
dividends and other distributions in accordance with the Merger Agreement, and
the Mastering Certificate so surrendered will forthwith be canceled. Until so
surrendered, each outstanding certificate that, prior to the Effective Time,
represented a Common Share 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 whole shares of
PLATINUM Common Stock into which such Common Shares will have been so
converted and the right to receive an amount in cash in lieu of the issuance
of a fractional share of PLATINUM Common Stock.
No dividends or other distributions declared or made after the date of the
Merger Agreement with respect to PLATINUM 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 PLATINUM Common Stock represented
thereby until the holder of record of such Mastering Certificate surrenders
such Mastering Certificate. Subject to applicable law, following surrender of
any such Mastering Certificate, there will be paid to the record holder of the
certificates representing whole shares of PLATINUM 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 PLATINUM 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 theretofore payable with respect to
such shares of PLATINUM 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 PLATINUM Common Stock to which such holder is entitled.
If any certificate for shares of PLATINUM Common Stock is to be issued in a
name other than that in which the Mastering Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance
therefor that the Mastering 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 PLATINUM or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of PLATINUM Common Stock in any name
other than that of the registered holder of the Mastering Certificate, or (ii)
established to the satisfaction of PLATINUM or any agent designated by it that
such tax has been paid or is not payable.
All shares of PLATINUM Common Stock issued in accordance with the terms of
the Merger Agreement (including any cash paid in respect thereof) will be
deemed to have been issued in full satisfaction of all rights pertaining to
the Common Shares, and there will be no further registration of transfers on
the records of the Surviving Corporation of Common Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Mastering Certificates are presented to the Surviving Corporation for
any reason, they will be canceled and exchanged as provided in the Merger
Agreement.
REPRESENTATIONS AND COVENANTS
Under the Merger Agreement, PLATINUM and Mastering made certain
representations and warranties that each is duly organized and validly
existing and that each has authority to enter into the Merger Agreement.
PLATINUM and Mastering also made a number of representations and warranties to
each other, including those regarding: (i) their respective capital structure;
(ii) corporate power and authority; (iii) required Commission filings and
financial statements; (iv) the absence of certain changes or events; (v) the
absence of undisclosed
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liabilities; (vi) pooling of interests accounting treatment; (vii) the absence
of litigation; (viii) the Proxy Statement/Prospectus; (ix) taxes; (x) employee
benefits; (xi) intellectual property; (xii) Board approval; (xiii) the absence
of broker's and finders' fees; (xiv) the receipt of a fairness opinion; and
(xv) governmental authorizations.
Mastering also made certain representations regarding, among other things:
(i) restrictions on business activities; (ii) the absence of liens and
encumbrances; (iii) the absence of certain agreements, contracts and
commitments; (iv) the absence of any material breach of certain contracts; (v)
insurance; (vi) labor matters; (vii) certain payments; (viii) relationships
with related persons; (ix) bank accounts; (x) certain change of control
payments; and (xi) state antitakeover statutes. All representations and
warranties of Mastering and PLATINUM will terminate as of the Effective Time.
Under the Merger Agreement, the parties make certain agreements and
covenants with respect to actions to be taken in connection with the Merger.
Each of Mastering and PLATINUM agrees to use its reasonable commercial effects
to (i) cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests; (ii) deliver to the other party the
letter of its independent public accountant regarding the accounting treatment
of the Merger; (iii) deliver or cause to be delivered to the other party an
executed Affiliates Agreement from each of its Affiliates; (iv) comply with
all legal requirements imposed on it with respect to the consummation of the
Merger (including, on the part of PLATINUM, all federal and state securities
laws applicable to the issuance of the PLATINUM Common Stock pursuant to the
Merger); and (v) effectuate the transactions contemplated by the Merger
Agreement and fulfill or cause to be fulfilled each of the conditions
precedent to the consummation of the Merger. PLATINUM further agreed, subject
to compliance with pooling of interests accounting treatment and the
requirements of any applicable laws, to take such reasonable actions as are
necessary or appropriate to allow eligible employees of Mastering or its
subsidiaries to participate in the employee benefit programs of PLATINUM (or
in similar alternative programs) as soon as is reasonably practicable after
the Effective Time.
CONDUCT OF MASTERING'S BUSINESS PRIOR TO THE MERGER
Under the Merger Agreement, Mastering agreed, during the period from the
date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement pursuant to its terms and the Effective
Time, except to the extent that PLATINUM otherwise consents in writing, that
Mastering will carry on its business in the usual, regular and ordinary course
in substantially the same manner as theretofore conducted, to timely pay its
debts and taxes when due, subject to good faith disputes over such debts or
taxes, to pay or perform other material obligations when due, and to use
commercially reasonable efforts consistent with past practices and policies to
preserve intact Mastering's present business organizations, to 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 Mastering, to the end that
Mastering's goodwill and ongoing business be unimpaired at the Effective Time.
Among other things, Mastering agreed that, except as expressly provided for in
the Merger Agreement, it will not, without the prior written consent of
PLATINUM, which consent will not be unreasonably withheld or delayed: (i)
except as required by Mastering's employee benefit plans, accelerate, amend or
change the period of exercisability of options or restricted stock, or
authorize cash payments in exchange for any options granted under the employee
stock plans of Mastering or reprice options granted under any of such plans;
(ii) except as required by Mastering's employee benefit plans, grant any
severance or termination pay (a) to any executive officer or (b) to any other
employee except payments made in connection with the termination of employees
who are not executive officers in amounts consistent with Mastering's policies
and past practices or pursuant to written agreements outstanding, or policies
existing, on the date of the Merger Agreement and as previously disclosed in
writing to PLATINUM or pursuant to written agreements consistent with
Mastering's past agreements under similar circumstances; (iii) enter into
partnership agreements, joint development agreements, or strategic alliance
agreements; (iv) 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
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of, in lieu of or in substitution for shares of the capital stock of
Mastering; (v) repurchase or otherwise acquire, directly or indirectly, any of
its capital stock; (vi) with certain exceptions, 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 Mastering to issue any such shares or
other convertible securities; (vii) cause, permit or propose any amendments to
Mastering's Certificate of Incorporation or Bylaws or amend any material
contract; (viii) sell, lease, license, encumber or otherwise dispose of any of
Mastering's properties or assets which are material, individually or in the
aggregate, to its business, except in the ordinary course of business; (ix)
incur any indebtedness for borrowed money, other than certain borrowings in
the ordinary course of business, consistent with past practice, or guarantee
any such indebtedness or issue or sell any debt securities or warrants or
rights to acquire debt securities of Mastering or guarantee any debt
securities of others; (x) commence any litigation other than for (a) routine
collection of bills, (b) for software piracy or (c) in such cases where
Mastering in good faith determines that failure to commence suit would result
in the material impairment of a valuable aspect of Mastering's business; (xi)
pay, discharge or otherwise satisfy in an amount in excess of $100,000
($250,000 in the aggregate) any claim, liability or obligation, other than in
the ordinary course of business; (xii) revalue any of Mastering's assets other
than in the ordinary course of business; (xiii) materially alter any tax
election or tax accounting method; or (xiv) intentionally take any action
which would be reasonably likely to interfere with accounting for the Merger
as a pooling of interests.
NO SOLICITATION
The Merger Agreement provides that from the date of the Merger Agreement
until the Effective Time or the earlier termination of the Merger Agreement,
subject to certain exceptions described below, Mastering 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 in negotiations with, (iii) afford
any access to the properties, books or records of Mastering 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 PLATINUM and its affiliates, agents and representatives), in
connection with any Acquisition Proposal. Under the Merger Agreement, an
"Acquisition Proposal" means any proposal relating to the possible acquisition
of Mastering, whether by way of merger, purchase of capital stock of Mastering
representing 25% or more of the voting power or equity of Mastering, purchase
of all or substantially all of the assets of Mastering and its subsidiaries,
taken as a whole, or otherwise. Additionally, subject to certain exceptions
described below, Mastering 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
PLATINUM).
Notwithstanding the foregoing, prior to the approval of the Merger Agreement
by the stockholders of Mastering at the Meeting, Mastering may furnish
information concerning Mastering to any third party (but shall not encourage
the request for such information); provided that (i) such third party has made
an Acquisition Proposal, or indicated an interest in making an Acquisition
Proposal, and the Mastering Board determines, in its good faith reasonable
judgment, that such Acquisition Proposal, if consummated, is reasonably likely
to constitute a Superior Proposal (as defined below), (ii) any non-public
information is provided pursuant to a confidentiality agreement at least as
restrictive as the confidentiality agreement between Mastering and PLATINUM
and (iii) Mastering notifies PLATINUM within twenty four hours of any
disclosure of non-public information to such third party, with a description
of the information to be disclosed. If Mastering receives a bona fide
Acquisition Proposal which the Mastering Board in its good faith reasonable
judgment determines, after consultation with its independent financial
advisors, would result in a transaction more favorable to the stockholders of
Mastering 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 Mastering Board (based upon
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the advice of independent financial advisors), is reasonably capable of being
financed by such person, entity or group and which is likely to be consummated
(a "Superior Proposal"), nothing contained in the Merger Agreement shall
prevent the Mastering Board from accepting or approving such Superior Proposal
or the Mastering Board, its directors, officers, employees, representatives,
investment bankers, agents or affiliates from recommending such Superior
Proposal to Mastering's stockholders; and in such case, the Mastering Board
may amend, withhold or withdraw its recommendation of the Merger or terminate
the Merger Agreement.
Mastering must (i) notify PLATINUM 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 PLATINUM 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.
INDEMNIFICATION
The Merger Agreement provides that, after the Effective Time, PLATINUM must,
and must cause Mastering as the surviving corporation to, indemnify, defend
and hold harmless (and advance expenses to) all past and present officers,
directors and employees of Mastering and of its subsidiaries to the same
extent such persons are indemnified as of the date of the Merger Agreement by
Mastering pursuant to any agreements between Mastering and any such person and
Mastering's Restated Certificate of Incorporation (the "Mastering Charter")
and Bylaws, 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 will be
conclusively determined by the written opinion of reputable disinterested
legal counsel selected by the Mastering Board. Any heirs or legal
representatives entitled to the benefits of such indemnification will be
deemed express third party beneficiaries of such indemnification.
CONDITIONS TO THE MERGER
In addition to the approval of the Merger Agreement by the stockholders of
Mastering, the obligations of PLATINUM and Mastering to consummate the Merger
will be subject to the satisfaction of a number of other conditions including,
among others: (i) effectiveness of the Registration Statement; (ii) the
absence of any stop order suspending the effectiveness of the Registration
Statement or any proceeding by the Commission for that purpose or any similar
proceeding in respect of the Proxy Statement; (iii) the absence of any
temporary restraining order, preliminary or permanent injunction or other
court order or other legal or regulatory restraint preventing the consummation
of the Merger; (iv) the expiration or termination of the applicable Hart-
Scott-Rodino Antitrust Improvements Act waiting period; (v) the receipt of
each party's respective accountant's letter in form and substance reasonably
satisfactory to the other party; and (vi) the authorization for listing on the
Nasdaq National Market of the shares of PLATINUM Common Stock issuable to
stockholders of Mastering pursuant to the Merger. Additionally, the
obligations of PLATINUM and Mastering will also be conditioned upon, among
others: (i) the accuracy as of the date of the Merger Agreement (with limited
exceptions) in all material respects of the representations and warranties
made by the other party; (ii) performance in all material respects by the
other party of its agreements and covenants; (iii) the receipt of all
necessary third party consents; (iv) the absence of any Material Adverse
Effect (as defined in the Merger Agreement) on PLATINUM or Mastering; (v)
executed Affiliates Agreements and (vi) the receipt of certain tax opinions.
The obligations of PLATINUM to consummate the Merger are also subject to the
following: (i) each of Terence M. Graunke, Thomas R. Graunke, Jay Sperco and
Marko A. Rukavina III will have executed Non-Competition/Non-Solicitation
Agreements; (ii) Mastering will have delivered to PLATINUM evidence that
Mastering 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 (x) a third party commences a hostile tender or exchange offer for
Mastering that the Mastering Board determines to contest, (y) a third party
commences litigation challenging the Merger or (z) 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 (x) above))
37
<PAGE>
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 Mastering's stockholders, in connection with the
preparation, negotiation and execution of the Merger Agreement and the
completion of the transactions contemplated hereby, but excluding the fees and
expenses of Piper Jaffray pursuant to the Piper Jaffray Engagement Letter;
(iii) if requested by PLATINUM, (x) Mastering will have delivered to PLATINUM
agreements in form and substance reasonably acceptable to PLATINUM and duly
executed by the parties to such agreements, clarifying certain non-competition
covenants or agreements to which Mastering or one of its subsidiaries is a
party or by which it is bound ("Clarification Agreements") and (y) neither
Mastering nor any of its subsidiaries will have paid, or agreed to pay, any
amounts to obtain any such Clarification Agreements; (iv) Mastering's
consolidated revenue for the three-month period ending March 31, 1998 (as set
forth in its earnings release for such period) will 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 Mastering's financial
statements for the year ended December 31, 1997; and (v) Terence M. Graunke
will have subleased from Mastering all real property leased at 676 N. Michigan
in Chicago, Illinois and assumed all obligations of Mastering to be performed
after the Effective Time under such lease.
The obligations of Mastering to consummate the Merger are also subject to
the following: If between the date of the Merger Agreement and the Effective
Time, PLATINUM or any of its subsidiaries enters 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 PLATINUM Acquisition"), then the obligations of Mastering to
consummate and effect the Merger Agreement and the transactions contemplated
thereby shall be subject to the satisfaction at or prior to the Effective Time
(or such earlier date selected by Mastering subsequent to its being informed
of the Qualifying Subsequent PLATINUM Acquisition) of the following additional
condition, which may be waived, in writing, exclusively by Mastering:
Mastering will have received a written opinion from Piper Jaffray dated as of
the Effective Time (or such earlier date selected by Mastering subsequent to
its being informed of the Qualifying Subsequent PLATINUM Acquisition) that,
after taking into account the Qualifying Subsequent PLATINUM Acquisition, the
Exchange Ratio contemplated by the Merger Agreement is fair to Mastering's
stockholders from a financial point of view.
On March 16, 1998, PLATINUM announced that it had entered into a definitive
agreement to acquire Logic Works, Inc., which represents a Qualifying
Subsequent PLATINUM Acquisition. Accordingly, at any time prior to the
Effective Time, the Mastering Board has the right (which may be waived by
Mastering at any time in its sole discretion and without notice to any person
other than PLATINUM) to request a new fairness opinion from Piper Jaffray
which takes into account the potential acquisition of Logic Works, Inc.
TERMINATION
The Merger Agreement may be terminated by (i) by mutual written consent of
Mastering and PLATINUM; (ii) by either party if (a) there has been a material
breach by the other party of any representation, warranty, covenant or other
agreement set forth in the Merger Agreement and such breach has not been cured
within ten (10) business days after written notice (provided that the party
seeking termination is not in material breach of the terms of the Merger
Agreement; and provided further that no cure period is required for a breach
which by its nature cannot be cured), (b) the Merger is not approved by
Mastering's stockholders, (c) the Merger is not consummated by the Final Date
(as defined below) and the party seeking termination has not caused the delay
by willfully failing to fulfill any material obligation under the Merger
Agreement, (d) there is a final, non-appealable order of a Federal or state
court in effect preventing consummation of the Merger or there is 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
PLATINUM's ownership or operation of all or a material portion of Mastering's
business, or compel
38
<PAGE>
PLATINUM to dispose of or hold separate all or a material portion of the
business or assets of Mastering or PLATINUM, or (e) Mastering's Board of
Directors accepts or approves a Superior Proposal, or recommends a Superior
Proposal to Mastering's stockholders, provided that Mastering shall provided
to PLATINUM three (3) business days' prior written notice that Mastering may
accept or approve a Superior Proposal; (iii) by PLATINUM if the Board of
Directors of Mastering adversely amends, withholds or withdraws its
recommendation of the Merger or the Merger is not submitted to Mastering's
stockholders (provided that PLATINUM is not in material breach of the Merger
Agreement); or (iv) by Mastering if the average value of a share of PLATINUM
Common Stock (over ten trading days), at any time from the date on which the
Registration Statement is declared effective and prior to the date of
Mastering's Stockholder's Meeting, is less than $22.50 or PLATINUM adopts a
plan of complete or partial liquidation or dissolution or plan of merger or
consolidation in which PLATINUM would become a subsidiary of any other person.
The term "Final Date" means July 31, 1998, except that if the Merger shall
not have been consummated solely due to the waiting period (or any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act not having
expired or been terminated, then such date shall be extended to August 31,
1998.
EXPENSES AND TERMINATION FEE
Whether or not the Merger is consummated, each party will bear its own costs
and expenses in connection with the Merger Agreement and the transactions
provided for therein. However, if there is a claim, dispute, disagreement or
other conflict involving the enforcement of Article V of the Merger Agreement,
the prevailing party will be reimbursed by the other party for all reasonable
attorneys' fees and costs and expenses associated with such conflict. Further,
if the Merger Agreement is terminated because Mastering is unable to obtain
for PLATINUM the Clarification Agreements by the Final Date, then Mastering
must pay, or reimburse PLATINUM, for its Expenses (as hereinafter defined),
provided PLATINUM is not then in material breach of the terms of the Merger
Agreement.
If the Merger Agreement is terminated because the Mastering Board amends,
withholds or withdraws its recommendation of the Merger, or because the
Mastering stockholders do not approve the Merger, then, so long as PLATINUM is
not in material breach of the terms of the Merger Agreement, Mastering must
pay to PLATINUM, within five (5) business days following PLATINUM's written
request therefor, the aggregate sum of $1,000,000 plus the reasonable out-of-
pocket expenses of PLATINUM, 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 the Merger
Agreement and the Merger ("Expenses;" provided that in no event shall
aggregate Expenses payable by Mastering to PLATINUM in connection with the
termination of Merger Agreement exceed $1,500,000) by wire transfer of
immediately available funds to an account designated by PLATINUM. In addition,
if (i) within nine months after such termination, Mastering 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 the Merger Agreement but prior to the termination of the Merger
Agreement or (ii) within six months after such termination, Mastering or any
of its subsidiaries enters into an definitive agreement for the consummation
of an Acquisition Proposal with any person or entity, then Mastering must pay
to PLATINUM, within five (5) businesses days following PLATINUM's written
request therefor, $3,000,000 by wire transfer of immediately available funds
to an account designated by PLATINUM, provided that PLATINUM is not then in
material breach of the terms of this Agreement.
If the Merger Agreement is terminated because the Mastering Board accepts or
approves a Superior Proposal or recommends a Superior Proposal to the
stockholders of Mastering, then so long as PLATINUM is not then in material
breach of the terms of the Merger Agreement, Mastering must pay to PLATINUM,
prior to the termination of the Merger Agreement, the aggregate sum of
$4,000,000, plus Expenses, by wire transfer of immediately available funds to
an account designated by PLATINUM.
EMPLOYEE BENEFITS
PLATINUM has agreed to cause Mastering as the surviving corporation from and
after the Effective Time to honor all employee benefit plans and arrangements
and all employee agreements applicable to Mastering
39
<PAGE>
employees until such time as it may offer to employees who remain employed by
Mastering employee benefit and fringe benefit plans, programs, policies and
arrangements that PLATINUM maintains for its similarly situated employees.
AMENDMENT OF MERGER AGREEMENT
The Merger Agreement may be amended at any time by execution of an
instrument in writing signed on behalf of each of the parties thereto.
EXTENSION; WAIVER
At any time prior to the Effective Time, any party to the Merger Agreement
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 thereto, (ii) waive
any inaccuracies in the representations and warranties made to such party
contained in the Merger Agreement or in any document delivered pursuant
thereto and (iii) waive compliance with any of the agreements or conditions
for the benefit of such party contained in the Merger Agreement. However, any
agreement on the part of a party to the Merger Agreement to any such extension
or waiver will be valid only if set forth in an instrument in writing signed
on behalf of such party.
COMPARATIVE PER SHARE MARKET PRICE DATA
MASTERING
The principal trading market for the Common Shares is Nasdaq under the
symbol "MASC."
The table below sets forth, for the periods indicated, the reported high and
low sales prices for the Common Shares, as reported on Nasdaq.
<TABLE>
<CAPTION>
PRICE PER PRO FORMA PRICE
COMMON SHARE PER COMMON SHARE(1)
--------------- -------------------
FISCAL PERIOD HIGH LOW HIGH LOW
------------- ------- ------- -------------------
<S> <C> <C> <C> <C>
1996
Quarter ended March 31(2).............. $14.750 $13.000 $ 8.400 $ 5.040
Quarter ended June 30.................. 22.125 13.125 8.400 5.712
Quarter ended September 30............. 19.500 8.625 7.112 4.144
Quarter ended December 31.............. 10.750 5.500 6.944 4.760
1997
Quarter ended March 31................. 13.750 7.125 8.008 4.872
Quarter ended June 30.................. 11.500 6.750 6.636 4.704
Quarter ended September 30............. 11.250 7.250 11.200 5.656
Quarter ended December 31.............. 10.750 8.000 13.804 9.016
1998
Quarter beginning January 1 (through
March 27, 1998)....................... 12.000 8.500 13.944 9.912
</TABLE>
- --------
(1) Determined by multiplying the applicable prices for PLATINUM Common Stock
by the Exchange Ratio. As of February 18, 1998, the last trading day
before the announcement of the Merger, the last reported sales price on
Nasdaq for the Common Shares was $9.50. On March 27, 1998, the latest
practicable trading day before the printing of this Proxy
Statement/Prospectus, the last reported sales price on Nasdaq for the
Common Shares was $10.6875. Based on the last reported sale price of
PLATINUM Common Stock on February 18, 1998 and March 27, 1998, and on the
number of Common Shares outstanding as of such dates, the aggregate value
of the PLATINUM Common Stock to be issued in respect of all outstanding
Common Shares would be approximately $167.0 million and $153.9 million,
respectively.
40
<PAGE>
(2) The Common Shares started trading on March 21, 1996.
As of March 27, 1998, there were approximately 175 record holders of Common
Shares. Mastering has not paid any cash dividends on its Common Shares in the
last two fiscal years and does not currently intend to pay any cash dividends
in the foreseeable future. Mastering currently intends to retain its earnings,
if any, for the continued growth of its business.
PLATINUM
PLATINUM Common Stock is traded on Nasdaq under the symbol "PLAT." The table
below sets forth, for the periods indicated, the high and low sales prices for
the PLATINUM Common Stock, as reported on Nasdaq.
<TABLE>
<CAPTION>
FISCAL PERIOD HIGH LOW
------------- -------- --------
<S> <C> <C>
1996
Quarter ended March 31.................................... $18.7500 $11.2500
Quarter ended June 30..................................... 18.7500 12.7500
Quarter ended September 30................................ 15.8750 9.2500
Quarter ended December 31................................. 15.5000 10.6250
1997
Quarter ended March 31.................................... 17.8750 10.8750
Quarter ended June 30..................................... 14.8125 10.5000
Quarter ended September 30................................ 25.0000 12.6250
Quarter ended December 31................................. 30.8125 20.1250
1998
Quarter beginning January 1 (through March 27, 1998)...... 31.1250 22.1250
</TABLE>
As of February 18, 1998, the last trading day before the announcement of the
Merger, the last reported sales price on Nasdaq for the PLATINUM Common Stock
was $27.125. On March 27, 1998, the latest practicable trading day before the
printing of this Proxy Statement/Prospectus, the last reported sales price on
Nasdaq for the PLATINUM Common Stock was $24.75.
As of March 23, 1998, there were approximately 923 record holders of
PLATINUM Common Stock. PLATINUM has not paid dividends on the PLATINUM Common
Stock, and the PLATINUM Board intends to continue a policy of retaining
earnings to finance its growth and for general corporate purposes. PLATINUM
does not anticipate paying any dividends in the foreseeable future.
41
<PAGE>
PLATINUM SELECTED CONSOLIDATED FINANCIAL DATA (1)
The selected consolidated financial data set forth below has been derived
from the historical financial statements of PLATINUM. The selected
consolidated financial data should be read in conjunction with "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and PLATINUM's consolidated financial statements and related notes
thereto included elsewhere herein. See "Available Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 623,503 $468,065 $326,411 $243,607 $190,623
Operating income
(loss)................. (115,792)(2) (79,404)(3) (127,377)(4) (517)(5) 3,062(6)
Net income (loss)....... (117,784)(2) (64,922)(3) (111,567)(4) (1,562)(5) 126(6)
Net income (loss) per
share.................. $ (1.90)(2) $ (1.14)(3) $ (2.50)(4) $ (0.04)(5) $ --(6)
Shares used in per share
calculation............ 62,042 56,968 44,671 41,294 39,375
Other Operating Data:
Ratio of Earnings to
Fixed Charges (7) --(2)(8) --(3)(8) --(4)(8) 7.49(5) 10.47(6)
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
--------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and investments. $ 261,288 $185,673 $136,737 $126,215 $ 71,148
Working capital......... 288,349 217,157 127,990 90,500 43,672
Total assets............ 834,177 618,572 452,267 273,333 176,064
Long-term obligations
and acquisition-related
payables, less current
portion................ 285,144 118,305 11,389 9,080 3,465
Total stockholders'
equity................. $ 243,560 $295,760 $290,213 $160,126 $ 93,350
</TABLE>
- --------
(1) The selected consolidated financial data give retroactive effect to the
acquisitions of ATR as of January 31, 1997 and I&S as of February 28,
1997, each of which has been accounted for as a pooling of interests for
financial reporting purposes. As a result, the financial position and
results of operations are presented as if the combining companies had been
consolidated for all periods presented.
(2) Reflects a pre-tax charge for acquired in-process technology of
$67,904,000 relating to PLATINUM's acquisitions of GEJAC and ProMetrics,
the purchase of certain product technologies and other intangible assets
from Intel and the purchase of certain other product technologies. Also
reflects a pre-tax charge for merger costs of $8,927,000 relating to
PLATINUM's acquisitions of ATR, I&S and Vayda and a pre-tax charge of
$57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of
$48,456,000 relating to PLATINUM's acquisitions of AST, Software
Alternatives, Grateful Data and VREAM; substantially all of the assets of
Access Manager; and certain product technologies. Also reflects a pre-tax
charge for merger costs of $5,782,000 relating primarily to PLATINUM's
acquisitions of Prodea, Paradigm and Axis.
(4) Reflects a pre-tax charge for acquired in-process technology of
$88,493,000 relating primarily to PLATINUM's acquisitions of ASC, SQL,
Reltech, Protellicess, AIB and BMS and the net assets of ViaTech,
BrownStone and ProtoSoft and to certain product acquisitions. Also
reflects a pre-tax charge for merger costs of $30,819,000 relating to
PLATINUM's acquisitions of SII, Answer, Locus, Altai, Trinzic and Softool.
(5) Reflects a pre-tax charge for acquired in-process technology of
$24,594,000 relating primarily to PLATINUM's acquisitions of Dimeric and
the net assets of Aston Brooke and AutoSystems.
(6) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to PLATINUM's acquisition of Datura and a pre-tax
charge of $4,659,000 relating to Trinzic and Locus restructuring costs.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of rental expense which
represents interest).
(8) Earnings available for fixed charges of $(89,933,000), $(72,342,000) and
$(122,465,000) were inadequate to cover fixed charges of $9,130,000,
$1,825,000 and $782,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
42
<PAGE>
MASTERING SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical financial data for
Mastering for each of the five years in the period ended December 31, 1997,
which data has been derived from Mastering's audited consolidated financial
statements. Such Mastering selected historical financial data should be read
in conjunction with "Mastering Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements, including the notes thereto, and other financial
information contained elsewhere herein. See "Available Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,(A)
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.................... $40,966 $21,018 $10,168 $6,787 $3,895
Operating expenses......... 37,149 21,574 9,720 6,567 4,156
Net income (loss) from
continuing operations..... 3,606 520 518 203 (264)
Net income from continuing
operations per share
(basic)................... $ .27 $ .04(b)(c) (c) (c) (c)
Weighted average shares
outstanding at year end
(basic)................... 13,535 12,286(b)(c) (c) (c) (c)
<CAPTION>
AS OF DECEMBER 31,(A)
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $64,319 $54,348 $ 5,481 $1,669 $2,338
Total long-term
liabilities............... 255 181 -- 928 --
Mandatory redeemable
convertible preferred
stock..................... -- -- 6,898 -- --
Total stockholders'
equity.................... $55,231 $49,914 $(3,542) $ (705) $ (4)
</TABLE>
- --------
(a) All amounts have been restated to reflect the disposition of the
interactive and outdoor media business segments which occurred in 1997,
and to reflect their treatment as discontinued operations for accounting
purposes.
(b) Net income from continuing operations per share and weighted average
shares outstanding at year end for 1996 are unaudited and pro forma.
(c) Historical income from continuing operations per share is not presented
for periods prior to 1996 as it is not considered relevant given
Mastering's initial public offering in 1996, which resulted in significant
changes to Mastering's capital structure. Share and per share amounts for
1996 assume the conversion of the preferred stock on January 1, 1996
rather than the date of the initial public offering.
43
<PAGE>
PLATINUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below contains certain forward-looking
statements (as such term is defined in Section 21E of the Exchange Act) that
are based on the beliefs of the management of PLATINUM, as well as assumptions
made by, and information currently available to, PLATINUM'S management.
PLATINUM'S actual growth, results, performance and business prospects and
opportunities in 1998 and beyond could differ materially from those expressed
in, or implied by, any such forward-looking statements. See "Summary--
Cautionary Statement Regarding Forward-Looking Statements" on page 10 for a
discussion of risks, uncertainties and other factors that could cause or
contribute to such material differences.
GENERAL
PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their IT infrastructures, which consist of data, systems and applications.
PLATINUM's products and services help IT infrastructure departments, primarily
in large and data-intensive organizations, minimize risk, improve service
levels and leverage information to make better business decisions. As an
integral part of PLATINUM's growth strategy, it has consummated a number of
significant business combinations, including acquisitions of SII, Answer,
Locus, Altai, Trinzic, Softool, Prodea, Paradigm, Axis, ATR and I&S, each of
which has been accounted for using the pooling-of-interests method. As a
result, PLATINUM's consolidated financial statements are presented as if
PLATINUM and such acquired companies had been consolidated for all periods
presented. Information regarding PLATINUM in this Management's Discussion and
Analysis of Financial Condition and Results of Operations gives retroactive
effect to these acquisitions. In addition, PLATINUM has consummated a number
of acquisitions accounted for as purchases, in which cases the acquired
businesses have been included in PLATINUM's results of operations beginning
with the effective dates of the acquisitions.
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated: (1) line items from
PLATINUM's consolidated statements of operations expressed as a percentage of
revenues, and (2) the percentage changes in these line items from the prior
period.
<TABLE>
<CAPTION>
PERCENTAGE OF YEAR-TO-YEAR
TOTAL REVENUES PERCENTAGE CHANGE
------------------ -----------------
YEARS ENDED
DECEMBER 31, 1997 1996
------------------ COMPARED COMPARED
1997 1996 1995 TO 1996 TO 1995
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software products...................... 57% 52% 49% 46% 54%
Maintenance............................ 20 22 23 22 34
Professional services.................. 23 26 28 16 33
--- --- ---
Total revenues........................ 100 100 100 33 43
--- --- ---
Costs and expenses:
Professional services.................. 20 25 28 10 26
Product development and support........ 30 33 29 21 65
Sales and marketing.................... 37 39 35 25 60
General and administrative............. 10 9 11 58 15
Restructuring charges.................. 9 -- -- * --
Merger costs........................... 2 1 9 54 (81)
Acquired in-process technology......... 11 10 27 40 (45)
--- --- ---
Total costs and expenses.............. 119 117 139 35 21
--- --- ---
Operating loss......................... (19) (17) (39) * *
Other income, net...................... 3 1 1 219 27
--- --- ---
Loss before income taxes............... (16) (16) (38) * *
Income taxes........................... 3 (2) (4) * *
--- --- ---
Net loss............................... (19)% (14)% (34)% *% *%
=== === ===
</TABLE>
- --------
*Not meaningful.
44
<PAGE>
REVENUES
PLATINUM's revenues are derived from three sources: (1) license and upgrade
fees for licensing PLATINUM's proprietary and other parties' software products
and providing additional processing capacity on already-licensed products, (2)
maintenance fees for maintaining, supporting and providing updates and
enhancements to software products, and (3) revenues from PLATINUM's
professional services business. Total revenues for 1997 were $623,503,000, an
increase of $155,438,000, or 33%, over 1996 total revenues of $468,065,000.
Total revenues in 1996 increased $141,654,000, or 43%, over 1995 revenues of
$326,411,000.
PLATINUM has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in 1997, 1996 or
1995. PLATINUM estimates that sales to repeat customers represented over 90%
of its revenues generated in 1997.
Revenues from domestic (U.S.) customers represented 71%, 70% and 68% of
PLATINUM's total revenues in 1997, 1996 and 1995, respectively. Domestic
revenues are generated primarily by PLATINUM's direct sales force (which
visits customer sites to assist with trials, demonstrate product features and
close sales transactions) and inside sales force (which predominantly supports
the direct sales force by developing sales leads and arranging product
evaluations), as well as a telemarketing organization. Since January 1, 1997,
PLATINUM has organized its domestic direct sales force by regions throughout
the United States. PLATINUM formerly combined the domestic and Canadian sales
forces to represent the North American sales force. The Canadian sales team is
now part of PLATINUM's international sales force.
Revenues from international customers, principally in Western Europe,
represented 29%, 30% and 32% of PLATINUM's total revenues in 1997, 1996 and
1995, respectively. PLATINUM generates the majority of its international
revenues through a network of wholly-owned subsidiaries, primarily utilizing a
direct sales force. Over the past two years, PLATINUM has invested
significantly in the global marketplace, increasing its focus on international
sales efforts and expanding its international operations.
The table below sets forth, for the periods indicated, PLATINUM's primary
sources of revenues expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
---------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software products:
Licenses.................................. 41% 39% 46%
Upgrades.................................. 16 13 3
--------- --------- ---------
Total software products................. 57 52 49
--------- --------- ---------
Maintenance................................ 20 22 23
Professional services...................... 23 26 28
--------- --------- ---------
Total revenues.......................... 100% 100% 100%
========= ========= =========
</TABLE>
Software Products. Software products revenues represented 57%, 52% and 49%
of total revenues in 1997, 1996 and 1995, respectively. In 1997, software
products revenues increased 46% to $357,223,000 from $243,938,000 in 1996, as
a result of increases of 48%, 56%, 25% and 48%, respectively, experienced by
PLATINUM's database management, systems management, application infrastructure
management, and data warehousing and decision support business units. From
1995 to 1996, software product revenues increased 54% from $158,597,000.
PLATINUM believes the growth in software products revenues over the past three
years has resulted from the continued marketplace acceptance of PLATINUM's
products across all business units and PLATINUM's aggressive expansion of its
sales and marketing efforts. PLATINUM has continuously increased its product
offerings over the past three years, in part through the acquisitions of
businesses and technologies, which also contributed to the growth in software
products revenues. The substantial majority of the increases in
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software products revenues in 1997 and 1996 resulted from increases in the
volume of sales of existing products. A smaller, but still significant,
portion of the increases related to sales of newly introduced products, while
only a small percentage was attributable to price increases. During 1996 and
1997, PLATINUM expanded its customer base, increased sales of product bundles
and integrated product suites, and executed increasingly larger sales
transactions. Additionally, TransCentury, PLATINUM's Year 2000 product suite,
which was first introduced in the third quarter of 1996, contributed
significantly to the growth in revenues of the data warehousing and decision
support business unit during 1997. PLATINUM's database management (principally
DB2-related products), systems management, application infrastructure
management and data warehousing and decision support business units
represented 40%, 30%, 10% and 20%, respectively, of total software products
revenues in 1997; 40%, 29%, 11% and 20%, respectively, of total software
products revenues in 1996; and 38%, 29%, 11% and 22%, respectively, of total
software products revenues in 1995.
Maintenance. Maintenance revenues in 1997 increased 22% over 1996 to
$125,245,000, and 1996 maintenance revenues of $102,364,000 represented an
increase of 34% over 1995 maintenance revenues of $76,498,000. Maintenance
revenues are derived from recurring fees charged to perpetual license
customers and the implicit first-year maintenance fees bundled in certain
software product sales. PLATINUM provides maintenance customers with technical
support and product enhancements. Maintenance revenues are deferred and
recognized ratably over the term of the agreement. The increases during 1997
and 1996 were primarily attributable to the expansion of PLATINUM's installed
customer base, from which maintenance fees are derived. Because maintenance
fees are implicit in certain new software product licenses, the increase in
software licensing transactions also contributed to the increase in
maintenance revenues. In 1997, PLATINUM's database management, systems
management, application infrastructure management, and data warehousing and
decision support business units represented 45%, 23%, 13% and 19%,
respectively, of total maintenance revenues.
Professional Services. Professional services revenues are associated with
PLATINUM's consulting services business and educational programs. In 1997,
professional services revenues increased 16% over 1996 to $141,035,000 from
$121,763,000 in 1996. From 1995 to 1996, professional services revenues
increased 33% from $91,316,000. The growth in professional services revenues
during 1997 was primarily attributable to an increase in billable consultants,
as well as a higher ratio of billable hours to total hours worked. To a much
lesser extent, increases in rates charged per billable hour contributed to
this growth. Additionally, the revenues generated by PLATINUM's new specialty
consulting services practices, established near the end of 1996, contributed
to the increase in professional services revenues during 1997. The increase in
professional services revenues during 1996 was primarily due to the addition
of established consulting practices through various acquisitions, as well as
the growth experienced within these acquired businesses.
COSTS AND EXPENSES
Total expenses for 1997 were $739,295,000, an increase of 35% over 1996
expenses of $547,469,000, which represented an increase of 21% over 1995
expenses of $453,788,000. Total expenses increased in 1997 due to greater
variable expenses related to higher revenue results, as well as increased
costs, including training and system-support expenses, associated with the
integration of recently acquired companies. Additionally, a restructuring
charge recorded in the second quarter of 1997 (as discussed below under "--
Restructuring Charges") contributed to the increase in total expenses.
Excluding restructuring charges, merger costs acquired in-process technology
charges and the integration-related charges in 1997 discussed under "--General
and Administrative" below, total expenses for 1997 were $591,632,000, an
increase of $98,401,000, or 20%, compared to $493,231,000 for 1996. Total
expenses, excluding merger costs and acquired in-process technology charges,
increased 47% in 1996 as compared to $334,476,000 in 1995. Total expenses,
excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges, represented 95%, 105% and 102% of
total revenues for 1997, 1996 and 1995, respectively. As a percentage of total
revenues, total expenses, excluding restructuring charges, merger costs,
acquired in-process technology charges and the integration-related charges,
decreased in 1997, as compared to 1996, primarily due to overall cost
containment efforts and the savings realized from the restructuring plan.
During 1996 and 1995, PLATINUM incurred significant costs in supporting its
development laboratories and in building the infrastructure to support the
significantly larger combined company that resulted from
46
<PAGE>
PLATINUM's acquisitions in those years. These costs were primarily associated
with the expansion of the inside and outside sales forces, hiring of product
developers and support technicians plus key management personnel, training all
personnel in IT infrastructure systems issues and new products, providing
additional financial and technical support to the international subsidiaries
established in those years, translating product materials into numerous
foreign languages, and augmenting internal support systems. Greater commission
and bonus expenses associated with the increase in revenues during 1996, as
compared to 1995, also contributed to the increase in total expenses in 1996.
Professional Services. Costs of professional services increased to
$127,499,000 in 1997, from $116,133,000 in 1996 and $92,374,000 in 1995. The
increases in these expenses during 1997 and 1996 were related to salaries and
other direct employment expenses resulting from PLATINUM's continued hiring to
support this business, as well as the costs incurred to integrate the numerous
consulting practices acquired over the past three years. Greater commission
and bonus expenses associated with higher professional services revenues in
each year also contributed to the increases. Costs of professional services
represented 90%, 95% and 101% of professional services revenues in 1997, 1996
and 1995, respectively. During 1997, as part of PLATINUM's overall
restructuring plan, PLATINUM realigned its professional services business
through the consolidation of redundant functions. The savings realized from
the restructuring plan, as well as the increased productivity of the
consulting staff, contributed to the decrease in professional services
expenses as a percentage of professional services revenues in 1997.
Product Development and Support. Product development and support expenses
increased to $187,383,000 in 1997, from $155,277,000 in 1996 and $94,027,000
in 1995. The increases in these expenses in 1997 and 1996 were primarily
attributable to an increase in the number of product development and support
personnel, from approximately 1,215 at December 31, 1995 to approximately
1,400 at December 31, 1996 and approximately 1,625 at December 31, 1997, and
to other higher employee-related expenses associated with expanded product
offerings in each year, as well as continued product integration and
internationalization efforts in 1997 and, to a lesser extent, 1996; increased
allocated charges for office space and overhead; an increase in information
technology costs to support the expanded development efforts and product
offerings; higher bonuses and royalty expenses related to greater revenues;
and higher travel expenses in 1997 and 1996 associated with PLATINUM's product
integration efforts and expanded product offerings. Product development and
support expenses represented 30%, 33% and 29%, of total revenues in 1997, 1996
and 1995, respectively. During 1997, PLATINUM began consolidating certain
product development and support efforts to coincide with its product
integration focus. As a result of these consolidation efforts, PLATINUM
reduced product development and support expenses as a percentage of total
revenues during 1997.
In 1997, 1996 and 1995, PLATINUM capitalized $41,143,000, $27,246,000 and
$13,591,000, respectively, of internal software development costs, net of
related amortization expense, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Product development and
support expenses plus capitalized internal software development costs, net of
related amortization expense, were $228,526,000 in 1997, $182,523,000 in 1996
and $107,618,000 in 1995, which amounted to 47%, 53% and 46%, respectively, of
software product and maintenance revenues for these years.
Sales and Marketing. Sales and marketing expenses increased to $228,387,000
in 1997, from $182,597,000 in 1996 and $113,978,000 in 1995. The increase in
sales and marketing expenses during 1997 was primarily attributable to the
significant expansion of the domestic and international outside sales force
and higher commission expenses relating to the increase in software products
revenues. During 1996, as compared to 1995, PLATINUM incurred higher
commission expenses associated with the increase in software products revenues
and greater marketing costs associated with PLATINUM's expanded product line.
Sales and marketing expenses represented 37%, 39% and 35% of total revenues in
1997, 1996 and 1995, respectively. During the second quarter of 1997, PLATINUM
realigned its inside sales force to be more compatible with its strategy of
providing
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<PAGE>
complete IT infrastructure solutions and to correspond with the restructuring
plan. This realignment resulted in a significant reduction in the inside sales
force. PLATINUM also consolidated certain remote sales facilities.
Consequently, sales and marketing expenses as a percentage of total revenues
decreased during 1997. The increase in sales and marketing expenses as a
percentage of total revenues in 1996, as compared to 1995, was primarily
attributable to costs associated with the significant expansion of the
domestic and international outside and inside sales forces and the
telemarketing organization.
General and Administrative. General and administrative expenses increased to
$61,876,000 in 1997, from $39,224,000 in 1996 and $34,097,000 in 1995. General
and administrative expenses represented 10%, 9% and 11% of total revenues in
1997, 1996 and 1995, respectively. The increase in general and administrative
expenses during 1997 was primarily due to total charges of $13,513,000
recorded during the second quarter of 1997 for write-offs of certain assets,
as well as severance and other employee-related expenses, related to the
integration procedures discussed below. In conjunction with the restructuring
plan executed during the second quarter of 1997, PLATINUM performed additional
integration procedures related to past acquisition activity. PLATINUM
evaluated the fair value of assets recorded through prior acquisitions and
identified certain trade receivables, prepaid expenses and intangible assets
that had no future value. The respective balances of these assets were
written-off during the second quarter of 1997. Additionally, PLATINUM expensed
severance and other employee benefits, including guaranteed bonuses, for
certain employees of acquired companies who were terminated as a result of the
integration efforts, but not specifically as part of the restructuring plan.
The increase in general and administrative expenses in 1997 was also
attributable to the costs associated with integrating recently acquired
businesses and maintaining the infrastructure to support the restructured
company, including administrative system upgrade expenses and associated
consulting fees, as well as the amortization of intangible assets relating to
PLATINUM's convertible debt offerings (see "--Liquidity and Capital
Resources"). Total general and administrative expenses in 1997, excluding the
charges related to the integration efforts, were $48,363,000, representing 8%
of total revenues. PLATINUM believes the decrease in general and
administrative expenses as a percentage of total revenues, excluding the
integration charges, was the result of PLATINUM's overall cost containment
efforts, as well as the savings realized by the restructuring plan.
The increase in general and administrative expenses in 1996 was primarily
related to salaries and other direct employment expenses attributable to an
expanded administrative staff both in the U.S. and in international
subsidiaries, amortization of excess of cost over net assets acquired related
to PLATINUM's acquisitions accounted for as purchases, and increased
professional fees. During 1996, a concerted effort to consolidate redundant
administrative functions at PLATINUM's various domestic locations resulted in
a reduction in these expenses as a percentage of total revenues.
Restructuring Charges. During the second quarter of 1997, PLATINUM executed
a restructuring plan to consolidate its sales, marketing, business development
and product development operations to achieve cost efficiencies through the
elimination of redundant functions. These redundancies resulted primarily from
businesses acquired over the last three years. PLATINUM also realigned its
business units and inside sales force to redirect focus on its strongest
product lines and better integrate the efforts of certain product development
teams. As part of the plan, PLATINUM reduced its worldwide work force by
approximately 10%, eliminating approximately 400 positions, primarily in the
areas of product development and support, marketing and inside sales and, to a
lesser extent, professional services and administration.
PLATINUM recorded a one-time charge of $57,319,000 during the second quarter
of 1997 related to the restructuring plan. The restructuring charge included
the following expenses: $24,032,000 for facility-related costs, including a
reserve for estimated lease obligations associated with the closing of office
facilities; $3,510,000 for write-offs of excess equipment, furniture and
fixtures; $19,413,000 for write-offs of capitalized software costs and other
intangible assets related to the termination of development efforts for
certain discontinued products, as well as penalties for the cancellation of
distributorship agreements for such products; and $10,364,000 for severance
and other employee-related costs of the terminated staff. Of the $57,319,000
restructuring charge, PLATINUM paid out approximately $15,322,000 and wrote
off $19,687,000 of non-cash
48
<PAGE>
charges during 1997. Consequently, PLATINUM had $22,310,000 of accrued
restructuring costs recorded as of December 31, 1997. PLATINUM anticipates
that approximately $6,300,000 of these costs will be paid out during 1998.
PLATINUM estimates that annual restructuring payments will be approximately
$3,300,000 to $4,000,000 for the years 1999 through 2002 and that the
remaining approximately $1,300,000 of cash disbursements related to the
restructuring plan will be paid out in 2003.
PLATINUM currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in 1998 and subsequent years as a result
of the restructuring, without an adverse impact on revenues. However, there
can be no assurance as to the ultimate effects of the restructuring on
PLATINUM's operating results.
Merger Costs. Merger costs were $8,927,000, $5,782,000 and $30,819,000 in
1997, 1996 and 1995, respectively. Merger costs relate to acquisitions
accounted for as poolings of interests and include investment banking and
other professional fees, employee severance payments, costs of closing excess
office facilities and various other expenses. PLATINUM from time to time
engages in, and is currently engaged in, discussions relating to acquisitions
that may be material in size and/or scope and may involve issuances by
PLATINUM of a significant number of shares of PLATINUM Common Stock. PLATINUM
continues to pursue merger and acquisition opportunities, because it believes
that acquisitions are an essential part of PLATINUM's strategy to compete
effectively in its rapidly evolving marketplace. PLATINUM expects to incur
merger costs in connection with future acquisitions accounted for as poolings
of interests. These costs will be expensed in the periods in which the
transactions are consummated. See "--Recent Developments" for a description of
certain pending acquisitions.
Acquired In-Process Technology. Acquired in-process technology charges were
$67,904,000, $48,456,000 and $88,493,000 in 1997, 1996 and 1995, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method. In
these cases, portions of the purchase prices were allocated to acquired in-
process technology.
Prior to completing these acquisitions, PLATINUM conducted reviews in order
to determine the fair market value of the organizations and technologies to be
acquired. These reviews consisted of an evaluation of existing products,
research and development in process (projects that had not reached
technological feasibility and had no alternative future use), customers,
financial position and other matters. The acquired in-process research and
development represents unique and emerging technologies, the application of
which is limited to PLATINUM's IT infrastructure strategy. Accordingly, these
acquired technologies have no alternative future use. PLATINUM believes it has
budgeted adequate research and development resources to complete the
contemplated projects over time periods generally ranging from six to 18
months from the dates of acquisition.
PLATINUM has already devoted substantial resources to the development of
products from research and development purchased in 1997. PLATINUM estimates
that up to an additional 12 months and approximately $9,000,000 in cash
expenditures will be required to develop commercially viable products from
this acquired research and development. With respect to research and
development acquired prior to 1997, PLATINUM has either completed the
development of commercially viable products or discontinued the product
development efforts.
PLATINUM expects to continue to incur charges for acquired in-process
technology in connection with future acquisitions, which will reduce operating
and net income for the periods in which the acquisitions are consummated.
OPERATING LOSS
For the reasons discussed above, PLATINUM incurred an operating loss of
$115,792,000 in 1997, as compared to an operating loss of $79,404,000 in 1996
and an operating loss of $127,377,000 in 1995. PLATINUM had operating margins
of (19)%, (17)% and (39)% in 1997, 1996 and 1995, respectively. The
significant restructuring charges, merger costs, acquired in-process
technology charges and integration-related charges incurred in these years
contributed significantly to the operating losses and negative operating
margins
49
<PAGE>
experienced by PLATINUM. Excluding restructuring charges, merger costs,
acquired in-process technology charges and the integration-related charges in
1997 discussed under "--General and Administrative" above, PLATINUM would have
reported operating income of $31,871,000 in 1997, an operating loss of
$25,166,000 in 1996 and an operating loss of $8,065,000 in 1995. Excluding
such charges, PLATINUM would have reported operating margins of 5%, (5)% and
(2)% in 1997, 1996 and 1995, respectively. During 1997, PLATINUM improved its
operating margin, excluding restructuring charges, merger costs, acquired in-
process technology charges and the integration-related charges, through cost
containment efforts and the savings realized from the restructuring plan.
PLATINUM's operating margin, excluding merger costs and acquired in-process
technology charges, decreased in 1996, as compared to 1995, due primarily to
the significant costs incurred to integrate the numerous acquisitions
consummated during 1996 and 1995. Because acquisitions remain an important
part of PLATINUM's growth strategy, PLATINUM expects to continue to incur
acquisition-related charges, as well as expenses related to the integration of
acquired businesses, which could materially adversely affect operating results
in the periods in which such acquisitions are consummated and in subsequent
periods.
OTHER INCOME
Other income was $16,729,000 in 1997 as compared to $5,237,000 in 1996 and
$4,130,000 in 1995. The increase in other income in 1997, as compared to 1996,
was primarily attributable to unrealized holding gains that resulted from the
reclassification of certain available-for-sale securities into the trading
classification; unrealized holding gains on trading securities, the market
values of which increased during 1997; and realized gains on the sales of
investment securities. The increase in other income during 1996, as compared
to 1995, was primarily attributable to realized gains on the sales of
investment securities and unrealized holding gains on trading securities.
Because unrealized holding gains and losses for trading securities are
reflected in pre-tax earnings, fluctuations in the market value of these
securities are continuously recorded as additions to, or deductions from,
other income until the securities are sold. The increase in other income
during 1997, as compared to 1996, was partially offset by interest expense on
PLATINUM's convertible subordinated notes issued in November 1996 and December
1997. To a lesser extent, the interest expense on the convertible subordinated
notes issued in November 1996 reduced the increase in other income in 1996, as
compared to 1995. See "--Liquidity and Capital Resources."
INCOME TAXES
PLATINUM recognized income tax expense of $18,721,000 in 1997, and income
tax benefits of $9,245,000 in 1996 and $11,680,000 in 1995. The income tax
expense recorded in 1997 included an amount of $13,651,000 based on PLATINUM's
28% effective tax rate, plus an additional $5,070,000 recorded in the second
quarter of 1997 to reduce PLATINUM's deferred tax asset balance. PLATINUM
reduced its deferred tax asset balance so that it would reflect an asset
amount that will, more likely than not, be realized in future periods.
PLATINUM has available approximately $294,715,000 of net operating loss
carryforwards and $14,000,000 of tax credit carryforwards, which are available
to reduce future Federal income taxes, if any, through the year 2012. Some of
PLATINUM's tax carryforwards are subject to limitations as to the amounts that
may be used in any particular future year.
NET LOSS
For the reasons discussed above, PLATINUM incurred a net loss of
$117,784,000 in 1997, as compared to $64,922,000 in 1996 and $111,567,000 in
1995. The significant restructuring charges, merger costs and acquired in-
process technology charges incurred in these years contributed significantly
to the net losses experienced by PLATINUM. See "--Operating Loss" above.
RECENT DEVELOPMENTS
On January 2, 1998, PLATINUM entered into an agreement and plan of merger,
pursuant to which PLATINUM has agreed to acquire Learmonth and Burchett
Management Systems PLC ("LBMS"), a leading
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provider of process management solutions. Under the terms of this acquisition,
LBMS will become a wholly-owned subsidiary of PLATINUM. PLATINUM has agreed to
exchange approximately 2,745,000 shares of Common Stock for all of the
outstanding common shares of LBMS and has offered to exchange options to
purchase approximately 468,000 shares of Common Stock for the outstanding LBMS
options. This acquisition, which is expected to be consummated in the second
quarter of 1998, is subject to the sanction of the English High Court, the
approval of the shareholders of LBMS and customary legal and regulatory
conditions.
On February 18, 1998, PLATINUM entered into the Merger Agreement, pursuant
to which Mastering would become a wholly-owned subsidiary of PLATINUM as
described in this Proxy Statement/Prospectus.
On March 14, 1998, PLATINUM entered into an agreement and plan of merger,
pursuant to which PLATINUM has agreed to acquire Logic Works, Inc. ("Logic"),
a leading provider of data modeling tools. Under the terms of this
acquisition, Logic will become a wholly-owned subsidiary of PLATINUM. PLATINUM
has agreed to exchange approximately 7,240,095 shares of PLATINUM Common Stock
for all of the outstanding common stock of Logic and to assume stock options
which will convert into options to purchase approximately 1,325,716 shares of
PLATINUM Common Stock. This acquisition, which is expected to be consummated
in mid-1998, is subject to the filing of a registration statement with the
Securities and Exchange Commission, the approval of the stockholders of Logic
and customary legal and regulatory conditions.
The LBMS, Mastering and Logic transactions are expected to be accounted for
as poolings of interests. Costs incurred in connection with these transactions
will be expensed in the periods in which they are consummated.
LIQUIDITY AND CAPITAL RESOURCES
PLATINUM's cash, cash equivalents and investments were $261,288,000 and
$185,673,000 as of December 31, 1997 and 1996, respectively. For the year
ended December 31, 1997, cash and cash equivalents increased $37,355,000, from
$140,783,000 at the beginning of the year to $178,138,000 at the end of the
year. This increase was attributable primarily to net proceeds of $144,967,000
from the sale of $150,000,000 principal amount of 6.25% convertible
subordinated notes due 2002 (the "1997 Notes") and net cash provided by
operating activities of $32,586,000. The positive cash flow from operating
activities was reduced by an increase in trade and installment receivables,
net of proceeds from the sale of installment receivables. Previously, PLATINUM
reported trade and installment receivables on a gross basis and the sale of
installment receivables as a financing activity. Of the $191,266,000 of cash
provided by financing and operating activities, $153,911,000 was used in
investing activities. The principal components of investing activities were
purchases of marketable securities and the investment of resources in
purchased and developed software. For 1996, cash and cash equivalents
increased from $115,809,000 at the beginning of the year to $140,783,000 at
the end of the year, with the primary sources of cash being sales of
installment receivables and the net proceeds from the sale of $115,000,000
principal amount of 6.75% convertible subordinated notes due 2001 (the "1996
Notes"). For 1995, cash and cash equivalents increased from $80,110,000 at the
beginning of the year to $115,809,000 at the end of the year, with the
principal source of cash being the net proceeds from a public offering of
Common Stock.
In recent years, PLATINUM's sources of liquidity have primarily been funds
from capital markets and sales of installment receivables. PLATINUM believes
the funding available to it from these sources, as well as cash flows from
operations, will be sufficient to satisfy its working capital and debt service
requirements for the foreseeable future. PLATINUM's capital requirements are
primarily dependent on management's business plans regarding the levels and
timing of investments in existing and newly acquired businesses and
technologies. These plans and the related capital requirements may change
based upon various factors, such as PLATINUM's strategic opportunities,
developments in PLATINUM's markets, the timing of closing and integrating
acquisitions and the conditions of financial markets.
PLATINUM had trade and installment accounts receivable, net of allowances,
of $264,686,000 and $200,399,000 as of December 31, 1997 and 1996,
respectively. PLATINUM sells software products and services
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<PAGE>
to customers in diversified industries and geographic regions and, therefore,
has no significant concentration of credit risk. Historically, a substantial
amount of PLATINUM's revenues have been recorded in the third month of any
given quarter, with a concentration of such revenues in the last week of the
third month. This trend results in a high balance of accounts receivable
relative to reported revenues at the end of any quarterly reporting period.
PLATINUM sells a significant portion of its installment receivables to third
parties. Installment receivables represent amounts collectible on long-term
financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years, with
interest payable on the license and upgrade portions only. Over the past two
years, PLATINUM executed an increasingly greater number and higher dollar
value of sales transactions having long-term financing arrangements, primarily
attributable to sales of product bundles and integrated product suites.
Consequently, PLATINUM's volume of installment receivable sales increased
significantly over the past two years. However, PLATINUM expects to reduce the
volume of installment receivable sales, as a percentage of total revenues, in
1998 as compared to 1997.
PLATINUM receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of an amount representing
the interest to be earned by the finance company. The finance company collects
customer remittances over the term of the agreement. Proceeds from the sale of
receivables were $206,916,000, $129,328,000 and $2,903,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accounts receivable sold with
recourse were $19,373,000 and $2,993,000 for the years ended December 31, 1996
and 1995, respectively, and as of December 31, 1996 and 1995, potential
obligations for accounts receivable sold with recourse were $16,817,000 and
$5,177,000, respectively. There were no accounts receivable sold with recourse
for the year ended December 31, 1997, and as of December 31, 1997, there were
no remaining potential recourse obligations for accounts receivable sold with
recourse. PLATINUM has an agreement with a third party that provides for
potential recourse obligations in the form of a loss pool based on the
performance of the related accounts receivable portfolio. Under the terms of
that agreement, potential recourse obligations at December 31, 1997 and 1996
were $14,600,000 and $9,300,000, respectively. There were no potential
recourse obligations in the form of a loss pool as of December 31, 1995. Based
on the credit ratings of the underlying obligors to the accounts receivable
and the performance history of the accounts receivable portfolio, PLATINUM has
assessed the exposure related to these recourse obligations and determined the
potential liability to be minimal.
PLATINUM's installment receivables are recorded net of unamortized discounts
and deferred maintenance fees. When these receivables are sold, PLATINUM
reduces the gross installment receivable balance. Additionally, PLATINUM
reclassifies the deferred maintenance, which was previously reflected as a
reduction of the related installment receivable balance, to an obligation. The
deferred maintenance is recognized into income ratably over the term of the
maintenance agreement.
PLATINUM had long-term acquisition-related payables of $18,320,000 and
$2,502,000 and other long-term obligations of $266,824,000 and $115,803,000 as
of December 31, 1997 and 1996, respectively. The significant increase in long-
term obligations from December 31, 1996 to December 31, 1997 was attributable
to the 1997 Notes issued by PLATINUM in December 1997. The 1997 Notes bear
interest at 6.25% annually and mature on December 15, 2002. The holders of the
1997 Notes have the option to convert them into shares of Common Stock, at any
time prior to maturity, at a conversion price of $36.05 per share. PLATINUM
received proceeds, net of issuance costs, of $144,967,000 from the offering of
the 1997 Notes. PLATINUM completed an offering of convertible subordinated
notes due November 15, 2001 in November 1996 (the "1996 Notes"). The 1996
Notes bear interest at 6.75% annually, and the holders of the 1996 Notes have
the option to convert them into shares of Common Stock, at any time prior to
maturity, at a conversion price of $13.95 per share. PLATINUM received
proceeds, net of issuance costs, of $110,783,000 from the offering of the 1996
Notes. PLATINUM currently has total debt service obligations of approximately
$35,000,000 for 1998, consisting primarily of obligations to pay interest on
the 1996 Notes and the 1997 Notes, as well as acquisition-related payables.
Based on current outstanding indebtedness, PLATINUM estimates its debt service
requirements to be approximately
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$36,000,000, $18,000,000, $132,000,000 and $160,000,000 for 1999, 2000, 2001
and 2002, respectively, which amounts include the outstanding principal
balance of the 1996 Notes in 2001 and the outstanding principal balance of the
1997 Notes in 2002.
PLATINUM currently has an unsecured bank line of credit of $55,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of March 10, 1998, PLATINUM had no
outstanding borrowings under this line of credit, but had aggregate letters of
credit outstanding for approximately $2,598,000, with expiration dates ranging
from April 1998 to May 1999. These letters of credit reduce the available line
of credit balance. Under this credit agreement, PLATINUM has agreed: (i) to
maintain a ratio of current assets to current liabilities of at least 1.0 to
1.0; (ii) to maintain a tangible net worth of not less than $100,000,000; and
(iii) not to permit its ratio of total liabilities to tangible net worth to at
any time exceed 1.0 to 1.0.
FOREIGN CURRENCY EXCHANGE RATES
To date, fluctuations in foreign currency exchange rates have not had a
material effect on PLATINUM's results of operations or liquidity. However,
PLATINUM closely monitors its foreign operations and net asset position to
ascertain the need for hedging foreign currency exchange risk. Since 1997, the
only exposure related to foreign currency exchange for which PLATINUM has
considered hedging appropriate has been related to short-term intercompany
balances. These non-functional currency balances are hedged by purchases and
sales of forward exchange contracts to reduce this exchange rate exposure. At
December 31, 1997, PLATINUM held an aggregate of approximately $26,800,000 in
notional amount of forward exchange contracts. As PLATINUM's operations expand
in international regions outside Western Europe, where PLATINUM's
international operations are currently concentrated, PLATINUM may increasingly
hedge foreign currency exchange risk.
YEAR 2000 CONSIDERATIONS
During 1997, PLATINUM substantially completed the implementation of an
enterprise-wide financial accounting system which is Year 2000 compliant.
Further, PLATINUM has evaluated its internal software and computer systems and
believes its potential liability relating to the Year 2000 problem is minimal.
PLATINUM believes that certain of its customers may allocate a substantial
portion of their 1998 and 1999 IT budgets to products and services addressing
the Year 2000 problem. PLATINUM is unable to determine whether this trend will
negatively impact sales of its traditional product offerings, but believes
that it may lead to increased sales of its Year 2000 products and services.
PLATINUM believes that, in 1997, sales of its Year 2000 products and services
were favorably affected by this trend. All of PLATINUM's current software
product offerings are Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." PLATINUM is required to adopt SFAS No. 130
for periods beginning after December 15, 1997. This statement establishes
standards for reporting comprehensive income and its components in a full set
of general-purpose financial statements. The standard requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The standard is not
expected to have a material impact on PLATINUM's current presentation of
income.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
PLATINUM is required to adopt the disclosures of SFAS No. 131 beginning with
its December 31, 1998 annual financial statements. This statement establishes
standards for the way companies are to report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. PLATINUM is currently
evaluating the impact of this standard on its financial statements.
In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition."
PLATINUM is required to adopt SOP 97-2 on January 1,
53
<PAGE>
1998. SOP 97-2 is intended to reduce diversity in current revenue recognition
practices within the software industry. PLATINUM is currently evaluating the
effects of SOP 97-2 on its operations.
QUARTERLY COMPARISONS
The following tables set forth an unaudited summary of quarterly financial
data. This quarterly information has been prepared on the same basis as the
annual consolidated financial statements and, in management's opinion,
reflects all adjustments necessary for a fair presentation of the information
for the periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
PLATINUM has experienced a seasonal pattern in its operating results, with
the fourth quarter typically having the highest total revenues and operating
income in a given year. For example, 34% and 32% of PLATINUM's total revenues
in 1997 and 1996, respectively, were generated in the fourth quarter. Further,
revenues for the fourth quarter of 1996 were higher than revenues for the
first quarter of 1997. PLATINUM believes the seasonality of its revenue
results primarily from the budgeting cycles of its software product customers
and the structure of PLATINUM's sales commission and bonus programs. In
addition, PLATINUM's software products revenues may vary significantly from
quarter to quarter depending upon other factors, such as the timing of new
product announcements and releases by PLATINUM and its competitors. PLATINUM
operates with relatively little backlog, and substantially all of its software
products revenues in each quarter result from sales made in that quarter.
<TABLE>
<CAPTION>
1997
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues............ $115,623 $136,438 $160,201 $211,241
Operating income (loss)... (33,086)(1) (77,336)(2) 10,553 (15,923)(3)
Net income (loss)......... (25,269)(1) (78,933)(2) 10,160 (23,742)(3)
Net income (loss) per
share.................... $ (0.41)(1) $ (1.28)(2) $ 0.16 $ (0.37)(3)
Shares used in computing
net income (loss) per
share.................... 60,947 61,477 65,328 63,615
<CAPTION>
1996
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues, as
previously reported(4)... $ 82,471 $100,485 $113,430 $142,804
Adjustments(5)............ 6,588 6,712 6,884 8,691
Total revenues.......... 89,059 107,197 120,314 151,495
Operating loss, as
previously reported(4)... (32,374)(6) (10,072) (10,636)(7) (29,411)(8)
Adjustments(5)............ 293 271 209 2,316
Operating loss.......... (32,081)(6) (9,801) (10,427)(7) (27,095)(8)
Net loss, as previously
reported(4).............. (24,504)(6) (5,791) (7,693)(7) (29,974)(8)
Adjustments(5)............ 283 235 208 2,314
Net loss................ (24,221)(6) (5,556) (7,485)(7) (27,660)(8)
Net loss per share, as
previously reported(4)... $ (0.45)(6) $ (0.10) $ (0.14)(7) $ (0.53)(8)
Net loss per share...... (0.43)(6) (0.10) (0.13)(7) (0.48)(8)
Shares used in computing
net loss per share, as
previously reported...... 54,915 55,214 55,678 56,419
Shares used in computing
net loss per share..... 56,341 56,625 57,070 57,823
</TABLE>
- --------
(1) Reflects a pre-tax charge for acquired in-process technology of
$10,417,000 relating to PLATINUM's acquisition of GEJAC and the purchase
of certain product technologies. Also reflects a pre-tax charge for merger
costs of $3,706,000 relating to PLATINUM's acquisitions of ATR and I&S.
54
<PAGE>
(2) Reflects a pre-tax charge for acquired in-process technology of $6,747,000
relating to PLATINUM's acquisition of certain product technologies. Also
reflects a pre-tax charge of $57,319,000 for restructuring costs.
(3) Reflects a pre-tax charge for acquired in-process technology of
$50,740,000 relating to PLATINUM's acquisition of ProMetrics, the purchase
of certain product technologies and other intangible assets from Intel and
the purchase of certain other product technologies. Also reflects a pre-
tax charge for merger costs of $5,221,000 relating primarily to PLATINUM's
acquisition of Vayda.
(4) As previously reported under "Item 7. PLATINUM Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly
Comparisons" in PLATINUM's annual report on Form 10-K for the year ended
December 31, 1996.
(5) Adjustments reflect the effects of the acquisitions of ATR and I&S, each
of which has been accounted for using the pooling-of-interests method. See
Note 2 of the notes to PLATINUM's consolidated financial statements
included elsewhere herein for a more detailed discussion of these
transactions.
(6) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to PLATINUM's acquisition of AST and the purchase of certain
product technologies. Also reflects a pre-tax charge for merger costs of
$5,782,000 relating primarily to PLATINUM's acquisitions of Prodea,
Paradigm and Axis.
(7) Reflects a pre-tax charge for acquired in-process technology of $4,090,000
relating to PLATINUM's acquisitions of Software Alternatives and Grateful
Data.
(8) Reflects a pre-tax charge for acquired in-process technology of
$37,361,000 relating to PLATINUM's acquisitions of VREAM and substantially
all of the assets of Access Manager.
55
<PAGE>
MASTERING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains certain forward-looking
statements (as such term is defined in Section 21E of the Exchange Act) that
are based on the beliefs of the management of Mastering, as well as
assumptions made by, and information currently available to, Mastering's
management. Mastering's actual growth, results, performance and business
prospects and opportunities in 1998 and beyond could differ materially from
those expressed in, or implied by, any such forward-looking statements. See
"Summary--Cautionary Statement Regarding Forward-Looking Statements" on page
10 for a discussion of risks, uncertainties and other factors that could cause
or contribute to such material differences.
The following discussion of the financial condition and results of
operations should be read in conjunction with Mastering's consolidated
financial statements and notes thereto contained elsewhere in this Proxy
Statement/Prospectus.
OVERVIEW
Mastering develops and markets instructor-led training workshops and
computer-based training ("CBT") products primarily for IT professionals. These
training products and services include instructor-led Windows NT(TM), Windows
95(TM), TCP/IP(TM), Internet Information Server(TM) and Exchange(TM) training
workshops as well as Microsoft Certified Professional preparation courses, on-
site workshops held at customers' facilities, CBT software covering a broad
range of information technologies, other software, videos and a newsletter.
Mastering's CBT products are delivered using CD-ROMs, proprietary intranets,
the Internet and the World Wide Web.
Mastering markets and sells its instructor-led and CBT products and services
throughout the United States and in Canada, primarily through its in-house
telesales organization. Training products and services are also sold to
national accounts under long-term contracts, which are sold using outside
salespeople. At the end of 1997, Mastering began marketing its training
products in Europe, with sales of instructor-led training workshops beginning
in the United Kingdom during the first quarter of 1998.
DISPOSITIONS
Mastering approved a plan to dispose of its outdoor media business segment
on May 17, 1997. On September 16, 1997, Mastering sold the assets of its
outdoor media segment for approximately $4.0 million in cash and approximately
$0.5 million in notes receivables.
Mastering announced a plan to sell its interactive business segment on July
29, 1997. On September 26, 1997, Mastering sold the assets of its interactive
business segment for $13.5 million in cash and the right to future payments
contingent on the segment's future earnings.
MERGERS
On February 18, 1998, Mastering entered into the Merger Agreement, pursuant
to which, and subject to the terms and conditions thereof, each Common Share
will be converted into 0.448 of a share of PLATINUM Common Stock. The Merger
is expected to be completed in the second quarter of 1998 (although there can
be no assurance that such transaction will be completed) and accounted for as
a pooling of interests.
GENERAL
Mastering generates revenue from sales of training products and services,
which consist primarily of instructor-led seminars on Microsoft Windows(TM)
operating systems and other IT topics, instructor-led Microsoft Certified
Professional preparation courses, on-site workshops, CBT software covering a
broad range of information technologies, other software, videos and a
newsletter. Revenue from seminars is generally collected in advance and
deferred and is recognized upon commencement of a seminar or a series of
seminars in a given city. In connection with certain seminar offerings,
Mastering also provides its customers with course materials in advance of a
seminar, in which case it recognizes revenue for the value of the materials
upon shipping the materials and the remainder of the revenue upon commencement
of the related seminar or series of seminars. Other product revenue is
generally recognized when the products are shipped to the customer. Failure to
increase
56
<PAGE>
Mastering's existing training revenue in an efficient manner could have a
material adverse effect on Mastering's business, results of operations and
financial condition.
Costs related to conducting training seminars consist primarily of salary
and related benefits for speakers and seminar personnel, rental of seminar
facilities and materials provided to seminar participants, some of which is
deferred until seminar commencement. Costs related to CBT products include
royalties paid to a third-party licensor and costs to duplicate and ship the
CBT product. Failure to increase sales and related infrastructure in an
efficient manner could have a material adverse effect on Mastering's business,
results of operations and financial condition. In addition, there can be no
assurance that Mastering's revenues will continue to grow at a rate that will
support its increasing expense levels.
ANNUAL RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items from
Mastering's statements of operations expressed as a percentage of revenues and
percentage change in the dollar amount of such items compared to the prior
year. All amounts have been restated to reflect the disposition of the
interactive and outdoor media business segments which occurred in 1997.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
PERCENTAGE OF REVENUES (DECREASE)
YEAR ENDED DECEMBER 31, YEAR TO YEAR
------------------------- -------------------
1997 1996 1995 1996:1997 1995:1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue......................... 100.0% 100.0% 100.0% 94.9% 106.7%
Cost of revenue................. 29.3% 25.2% 32.5% 126.4% 60.3%
Marketing and selling expenses.. 43.4% 44.3% 42.6% 91.1% 115.0%
General and administrative
expenses....................... 15.5% 32.0% 19.8% (5.6%) 233.2%
Depreciation and amortization... 2.5% 1.2% 0.7% 307.9% 256.3%
------- ------- -------
Net operating income (loss)..... 9.3% (2.7%) 4.4%
Interest income and other, net.. 4.6% 7.3% 0.7%
------- ------- -------
Income from continuing
operations before income
taxes.......................... 13.9% 4.6% 5.1%
Tax provision................... (5.1%) (2.2%) 0.0%
------- ------- -------
Income from continuing
operations..................... 8.8% 2.4% 5.1%
======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE
Revenue for 1996 was approximately $21.0 million compared to revenue for
1997 of approximately $41.0 million, or a 94.9% increase over the prior year.
The growth from 1996 to 1997 was a result of the increase in the number and
types of seminars hosted, the addition of higher-priced product offerings and
an increase in the average price charged for the seminars along with the
introduction in 1997 of CBT products.
During 1997 Mastering launched new instructor-led topics as well as
certification preparation courses. Mastering's average prices increased for
all topics during 1997; however, there can be no assurance that average
selling prices will continue to increase or that products will not experience
increased pricing pressure in the future. An increase in pricing pressure or
the inability to continue increasing workshop prices could adversely affect
Mastering's results of operations.
The number of customers trained through seminars and CBT media increased
approximately 40% from approximately 68,000 in 1996 to approximately 95,000 in
1997. Seminars hosted increased from approximately 300 in 1996 to over 800 in
1997. There can be no assurance that the number of customers trained or the
number of seminars held will continue to increase. A reduction in the rate of
growth of, or a decrease in, customers trained, seminars hosted or the average
price paid per customer could adversely affect Mastering's results of
operations.
57
<PAGE>
Mastering's results of operations are affected by a wide variety of other
factors that could adversely impact its revenue and profitability, many of
which are beyond Mastering's control. These factors include, but are not
limited to, Mastering's ability to design and introduce new products on a
timely basis, market acceptance of products, customer order patterns, the
timing of product releases from Microsoft, changes in products and services
mix, product performance, obsolescence, returns, technological changes,
competition and competitive pressures on pricing.
COST OF REVENUE
Cost of revenue expenses are primarily comprised of salaries, royalties, CBT
duplication and shipping, room and related seminar-coordination costs and
travel. Cost of revenue for 1996 was approximately $5.3 million compared to
approximately $12.0 million in 1997. Mastering's cost of revenue, as a
percentage of revenue, for 1996 and 1997 was approximately 25.2% and 29.3%,
respectively. The increase reflects the significant investment Mastering made
in developing its infrastructure. Employees engaged in operations related
activities increased from 29 at the end of 1996 to 49 at the end of 1997.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses are primarily comprised of salaries,
commissions and benefits, direct mail and travel costs. Marketing and selling
expenses, as a percentage of revenue, for 1996 and 1997 were approximately
44.3% and 43.4%, respectively. Marketing and selling expenses for 1996 were
approximately $9.3 million compared to approximately $17.8 million in 1997.
The increase from 1996 to 1997 was primarily due to the continued growth of
Mastering's telesales organization and the corresponding increase in marketing
and selling personnel and costs associated with direct-mail campaigns.
Marketing and selling headcount increased from 152 at the end of 1996 to 259
at the end of 1997. Mastering expects to increase marketing and selling
expenses in the future to support expansion of its marketing and sales
efforts.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include costs for the accounting,
registration, legal, information systems and human resource functions, as well
as costs related to some senior executives of Mastering. These costs are
primarily comprised of salaries and benefits, travel and occupancy costs.
General and administrative expenses for 1996 were approximately $6.7 million
compared to $6.3 million in 1997, representing a 5.6% decrease. The $6.7
million in 1996 includes approximately $0.7 million of costs related to
Mastering's acquisition of Mastering Computers and related organizational
realignment. General and administrative expenses, as a percentage of revenue,
for 1996 and 1997 were approximately 32.0% and 15.5%, respectively. Mastering
believes that the infrastructure in place at December 31, 1997 is
substantially sufficient to support the level of operations expected for 1998.
General and administrative headcount increased from 57 at the end of 1996 to
71 at the end of 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for 1996 was approximately $0.3
million compared to $1.0 million for 1997. Depreciation and amortization
expense, as a percentage of revenue, for 1996 and 1997 was approximately 1.2%
and 2.5%, respectively. The increase is primarily related to the significant
investment Mastering has made in its computer equipment, leasehold
improvements and office equipment during 1997.
INTEREST INCOME AND OTHER, NET
Interest Income and Other of approximately $1.5 million and $1.9 million for
1996 and 1997, respectively, primarily represents interest income on the
investment of Mastering's proceeds from its 1996 initial public offering and
proceeds from the 1997 sale of its outdoor media and interactive business
segments.
INCOME TAXES
During 1996, Mastering recorded an income tax benefit for the deferred
income tax asset created by 1995 and 1996 operating losses. Such losses
resulted in a deferred tax asset at December 31, 1996 of approximately $2.3
million.
58
<PAGE>
During 1997, Mastering recorded an approximately $2.1 million tax provision
from continuing operations and an approximate $0.8 million tax benefit from
discontinued operations. In addition, during 1997, Mastering recorded a $1.2
million deferred tax asset resulting from the exercise of non-qualified stock
options by employees. At December 31, 1997, in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109, management has
determined that it is more likely than not that the net deferred tax asset of
approximately $2.4 million as of December 31, 1997 will be realized.
Mastering bases its determination on the significant growth that has
occurred in its IT training business during 1996 and 1997. Mastering's revenue
increased from $21 million in 1996 to $41 million in 1997, a 95% increase.
Income from continuing operations for 1996 was $0.5 million which increased to
$3.6 million in 1997, a 620% increase. Based on its projections, Mastering's
management believes that profitable operations will be sustained in future
periods. However, no assurance can be given that such profitable operations
will in fact be sustained.
Mastering's deferred income taxes result primarily from a net operating loss
carryforward ("NOL"), the use of accelerated depreciation methods for income
tax purposes, amortization differences relating to certain intangible assets,
and certain accrued expenses which are not deductible for income tax purposes
until paid. As of December 31, 1997, Mastering had a tax NOL of approximately
$6.0 million, which expires in 2011.
Management believes that taxable income during the carryforward period will
be sufficient to fully use the NOLs before they expire. Management anticipates
that taxable income during the carryforward period will arise primarily as a
result of Mastering's continued growth in its IT training business and
operating efficiencies which may be gained under Mastering's current
strategies.
DISCONTINUED OPERATIONS
Mastering approved a plan to dispose of its outdoor media business segment
on May 17, 1997. On September 16, 1997, Mastering sold the assets of its
outdoor media business segment for approximately $4.0 million in cash and
approximately $0.6 million in notes receivable. As a result, the operations of
the outdoor media business segment have been accounted for as a discontinued
operation using a measurement date of May 17, 1997. The outdoor media business
segment offered traditional outdoor media advertising at United States ski
resorts. Revenue for the outdoor media business segment for 1996 and 1997 was
approximately $3.9 million and $2.1 million, respectively. Net income (loss)
for the outdoor media segment for 1997 and 1996 was approximately ($0.2)
million and $0.5 million, respectively. The 1997 amount includes approximately
$0.2 million of costs related to the sale.
Mastering announced its intent to sell its interactive business segment on
July 29, 1997. On September 26, 1997, Mastering sold the assets of its
interactive business segment for $13.5 million in cash and the right to future
payments contingent on the segment's future earnings. As a result, the
operations of the interactive segment have been accounted for as a
discontinued operation using a measurement date of July 28, 1997. The
interactive business segment developed and created interactive solutions that
assist companies with corporate communications. Revenue for the interactive
business segment for 1996 and 1997 was approximately $14.3 million and $13.0
million, respectively. Net loss for the interactive business segment for 1996
and 1997 was approximately $4.1 million and $5.1 million, respectively. The
net loss for 1996 includes approximately $0.5 million of costs related to the
1996 acquisition of Graphic Media, Inc.
The net loss for 1997 includes approximately $1.5 million of costs related
to organizational realignment and sale of the interactive business segment.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE
Revenue for 1995 was approximately $10.2 million compared to revenue for
1996 of approximately $21.0 million, or a 106.7% increase over the prior year.
The growth from 1995 to 1996 was a result of the increase in
59
<PAGE>
the number of seminars hosted, the average number of attendees per seminar and
the average price charged for the seminars. The number of customers trained
increased approximately 55% from approximately 44,000 in 1995 to approximately
68,000 in 1996. Seminars hosted increased from approximately 235 in 1995 to
approximately 300 in 1996.
COST OF REVENUE
Cost of revenue, as a percentage of revenue, for 1995 and 1996 was
approximately 32.5% and 25.2%, respectively. Cost of revenue was approximately
$3.3 million in 1995 compared to $5.3 million in 1996. The increase in costs
for 1996 is due to Mastering's continued development of its business and is
consistent with its revenue growth. During 1996, Mastering made substantial
investments in its operating infrastructure, particularly in salary and
related benefits.
MARKETING AND SELLING EXPENSES
Marketing and selling expenses, as a percentage of revenue, for 1995 and
1996 were approximately 42.6% and 44.3%, respectively. Marketing and selling
expenses are primarily comprised of salaries, commissions and benefits, travel
and marketing program costs. Marketing and selling expenses were approximately
$4.3 million in 1995 compared to $9.3 million in 1996. The increase in costs
from 1995 to 1996 was primarily due to the continued growth of Mastering's
business and the corresponding increase in personnel.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include costs for the accounting,
registration, legal, information systems and human resource functions, as well
as costs related to some senior executives of Mastering. These costs are
primarily comprised of salaries and benefits, travel and occupancy costs.
General and administrative expenses, as a percentage of revenue, for 1995 and
1996 were approximately 19.8% and 32.0%, respectively. General and
administrative expenses for 1995 were approximately $2.0 million compared to
$6.7 million in 1996. For 1996 general and administrative expenses include
approximately $0.7 million of costs related to Mastering, Inc.'s acquisition
of Mastering Computers and related organization realignment. In addition, the
increase from 1995 to 1996 is due to the growth of Mastering's business and
development of its infrastructure and the corresponding increase in the number
of executive and administrative personnel.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for 1995 was $0.1 million compared to
$0.3 million in 1996. Depreciation and amortization expense, as a percentage
of revenue, for 1995 and 1996 was approximately 0.7% and 1.2%, respectively.
INTEREST INCOME AND OTHER, NET
Interest Income and Other of approximately $0.1 million and $1.5 million for
1995 and 1996, respectively, primarily represents interest income. The
increase from 1995 to 1996 represents additional interest income on the
investment of Mastering's proceeds from its initial public offering in 1996.
INCOME TAXES
During 1996 Mastering recorded an income tax benefit of approximately $2.3
million. In accordance with the provisions of SFAS No. 109, management of
Mastering determined it was more likely than not that the $2.3 million net
deferred tax asset as of December 31, 1996, would be realized through future
taxable income generated by Mastering.
60
<PAGE>
DISCONTINUED OPERATIONS
Mastering acquired control of the assets and assumed the liabilities of
Production Masters, Inc. ("PMI") as of January 1, 1995 under an operating
agreement. Mastering acquired PMI with the expectation of profitable
operations and potential future shared facilities and products. However, due
to management difficulties, equipment in need of substantial repair, and
significant marketing challenges, Mastering determined to discontinue PMI.
Mastering was required to pay the costs of discontinuing the operations.
Mastering recorded a loss of $0.6 million from discontinued operations for the
year ended December 31, 1995. During 1996 Mastering recorded a gain of $0.2
million from discontinued operations representing the settlement of certain
contingencies relating to the PMI business segment.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited statement of operations
data for each of Mastering's last eight quarters and, in the opinion of
management of Mastering, contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation thereof. All amounts
have been restated to reflect the disposition of the interactive and outdoor
media business segments which occurred in 1997. The operating results for any
quarter are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
1997--THREE MONTHS ENDED 1996--THREE MONTHS ENDED
---------------------------------- ---------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31 MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- ------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $8,862 $ 9,842 $10,876 $11,386 $2,755 $ 3,999 $ 5,747 $8,517
------ ------- ------- ------- ------ ------- ------- ------
Expenses:
Cost of revenue....... 2,578 2,894 3,178 3,342 777 915 1,357 2,247
Marketing and selling
expenses............. 3,384 4,295 4,944 5,155 1,859 2,129 2,567 2,749
General and
administrative
expenses............. 1,884 1,560 1,391 1,512 289 1,564 2,322 2,546
Depreciation and
amortization......... 150 221 275 386 25 47 89 92
------ ------- ------- ------- ------ ------- ------- ------
Total operating
expenses............... 7,996 8,970 9,788 10,395 2,950 4,655 6,335 7,634
------ ------- ------- ------- ------ ------- ------- ------
Net operating income
(loss)................. 866 872 1,088 991 (195) (656) (588) 883
Interest income and
other, net............. 420 435 429 586 59 579 525 374
------ ------- ------- ------- ------ ------- ------- ------
Income (loss) from
continuing operations
before income taxes.... 1,286 1,307 1,517 1,577 (136) (77) (63) 1,257
Tax benefit
(provision)............ (478) (457) (531) (615) -- (79) 102 (484)
------ ------- ------- ------- ------ ------- ------- ------
Income (loss) from
continuing operations.. 808 850 986 962 (136) (156) 39 773
Discontinued operations,
net.................... 199 (1,477) 253 -- 35 (475) (2,875) (97)
------ ------- ------- ------- ------ ------- ------- ------
Net income (loss)....... $1,007 $ (627) $ 1,239 $ 962 $ (101) $ (631) $(2,836) $ 676
====== ======= ======= ======= ====== ======= ======= ======
</TABLE>
Mastering's quarterly operating results may fluctuate due to a variety of
factors, including but not limited to, the addition or loss of a major
customer, the relative mix of higher- and lower-margin products and services,
changes in pricing strategies, costs relating to the expansion of operations,
the costs of acquisitions, capital expenditures, the hiring or loss of
personnel, the opening or closing of offices, fluctuations in the number of
seminars or the number of persons attending seminars and other factors that
are outside Mastering's control.
Mastering is subject to seasonal revenue fluctuations due to the impact of
holidays on Mastering's ability to sell its products and services and conduct
its workshops. Mastering experiences two to three weeks of reduced sales
productivity in its fourth quarter surrounding Thanksgiving and the December
holiday season, when both
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<PAGE>
Mastering employees and potential customers often take vacation. Since at that
time Mastering is typically selling workshops to be held in its first quarter,
this reduced productivity affects first-quarter revenue. Similarly, Mastering
hosts few, if any, workshops during these holiday weeks, which affects fourth-
quarter revenue. The reduced sales productivity also affects fourth-quarter
CBT sales, which are typically shipped and recognized as revenue in the fourth
quarter. These seasonal trends have in the past caused, and in the future
could cause, revenues in the first and fourth quarters of a year to be less,
perhaps substantially so, than revenues for the second and third quarters or
to grow less rapidly than in other quarters. There can be no assurance that
these or other seasonal trends will not have a material adverse effect on
Mastering's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources includes the
impact of discontinued operations in the cash flow amounts, which is
consistent with the presentation in Mastering's consolidated statements of
cash flows. Net cash used in operations for 1996 was approximately $8.0
million and largely reflects the investment made by Mastering to grow its
operating infrastructure. Net cash provided by operations for 1997 was
approximately $4.1 million and includes an increase in accounts payable
largely related to the sales force automation system. Net cash used in
investing activities was approximately $31.2 million for 1996 related
primarily to investments made from the proceeds of Mastering's initial public
offering and the purchase of property and equipment. Net cash provided by
investing activities was approximately $4.2 million for 1997 related to the
proceeds received from the sale of the interactive and outdoor media business
segments offset by the purchase of property and equipment and investments made
in long-term U.S. government backed securities. Purchases of property and
equipment in 1996 and 1997 were due to Mastering's rapid staffing growth and
related office space expansion. Cash flows provided by financing activities
were approximately $45.6 million and $1.1 million in 1996 and 1997,
respectively. The net cash inflow from financing activities in 1996 reflects
the completion of the initial public offering of the Common Shares. The net
cash inflow from financing activities for 1997 reflects the proceeds realized
by Mastering upon the exercise of stock options by employees and the purchase
of stock through the employee stock purchase plan.
As of December 31, 1997, Mastering had approximately $27.9 million of cash,
cash equivalents and short-term investments, which Mastering believes will be
sufficient to meet its currently anticipated cash needs for working capital,
capital expenditures and funds required to make acquisitions, if any, for the
next twelve months and the foreseeable future.
YEAR 2000
Mastering has assessed and continues to assess the impact the Year 2000
issue will have on its reporting systems and operations. Mastering has
determined that its operating and financial software systems (including its
new sales force automation system) will be Year 2000 compliant through the
release of updated software versions. Mastering will test the new systems for
Year 2000 compliance as they are released. In addition, Mastering does not
believe that it is substantially reliant on any one customer or supplier and
therefore does not believe that the Year 2000 compliance of such companies
will have a significant impact on Mastering. Mastering does not anticipate
that the Year 2000 issue will have a significant impact on its financial
position or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS No. 130), Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, gains and
losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is
62
<PAGE>
displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 (SFAS No. 131), Disclosure About Segments of an Enterprise and Related
Information, which supersedes Statement of Financial Accounting Standards No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to
be restated.
ADDITIONAL RISK FACTORS THAT COULD AFFECT RESULTS OF OPERATIONS
Mastering's instructor-led and CBT products and services are subject to
certain additional risks and uncertainties, including the need to anticipate
changes in technology to create training products on a timely basis,
competition from other companies with substantially greater financial,
technical and other resources, relatively low barriers to entry, the growth in
CBT courses offered by others, the need to restrict unauthorized use of
Mastering's products and protect Mastering's proprietary rights, and the risk
that states may seek to regulate Mastering's training products as educational
programs.
Mastering's results of operations are affected by a wide variety of other
factors that could adversely impact its revenue and profitability, many of
which are beyond Mastering's control. These factors include, but are not
limited to, Mastering's ability to design and introduce new products on a
timely basis, market acceptance of products, customer order patterns, the
timing of product releases from Microsoft, changes in products and services
mix, product performance, obsolescence, returns, technological changes,
competition and competitive pressures on pricing.
In addition to the other factors identified herein, the following risk
factors could materially and adversely affect Mastering's future results of
operations and could cause actual events to differ materially from those
predicted in Mastering's forward-looking statements relating to its business.
FLUCTUATIONS IN RESULTS OF OPERATIONS
Mastering has in the past experienced fluctuations in its quarterly results
of operations and anticipates that such fluctuations will continue in the
future. Although Mastering's continuing operations have been profitable in
certain prior quarters, there can be no assurance that such profitability will
continue in the future or that the levels of profitability will not vary
significantly among quarterly periods. Mastering's results of operations may
fluctuate as a result of many factors, including the addition or loss of a
major customer, the relative mix of higher- and lower-margin products and
services, changes in pricing strategies, costs related to the expansion of
operations, the cost of acquisitions, capital expenditures, the hiring or loss
of personnel, general economic conditions and the timing of product
introductions by Microsoft(TM).
Mastering's expense levels are based in significant part on its expectations
regarding future revenues and are fixed to a large extent in the short term.
Accordingly, Mastering may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any significant revenue
shortfall would therefore have a material adverse effect on Mastering's
results of operations.
DEVELOPING MARKET
The market for IT education and training is rapidly evolving. New methods of
delivering training products and services are being developed and offered in
the marketplace. Many of these new training products and
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<PAGE>
services will involve new and different business models. Accordingly,
Mastering's future success will depend upon, among other factors, the extent
to which Mastering is able to develop and implement products and services
which address Mastering's market requirements. There can be no assurance that
Mastering will be successful in meeting changing market needs.
SEASONALITY
Mastering is subject to seasonal revenue fluctuations due to the impact of
holidays on Mastering's ability to sell its products and services and conduct
its workshops. Mastering experiences two to three weeks of reduced sales
productivity in its fourth quarter surrounding Thanksgiving and the December
holiday season, when both Mastering employees and potential customers often
take vacation. Since at that time Mastering is typically selling workshops to
be held in its first quarter, this reduced productivity affects first-quarter
revenue. Similarly, Mastering hosts few, if any, workshops during these
holiday weeks, which affects fourth-quarter revenue. The reduced sales
productivity also affects fourth-quarter CBT sales, which are typically
shipped and recognized as revenue in the fourth quarter. These seasonal trends
have in the past caused, and in the future could cause, revenues in the first
and fourth quarters of a year to be less, perhaps substantially so, than
revenues for the second and third quarters or to grow less rapidly than in
other quarters. There can be no assurance that these or other seasonal trends
will not have a material adverse effect on Mastering's results of operations.
DEPENDENCE ON KEY PERSONNEL
Mastering's future success depends, in large part, on the continued service
of its key management, telesales, financial, product and service development
and operational personnel and on its ability to attract, motivate and retain
highly qualified employees, including management personnel. In particular, the
loss of certain senior management personnel or other key employees could have
a material adverse effect on Mastering's business and results of operations.
Mastering expects to continue to hire additional product and service
development, sales and marketing and support staff and instructors. However,
there can be no assurance that Mastering will be successful in attracting,
retaining or motivating key personnel. The inability to hire and retain
qualified personnel or the loss of the services of key personnel could have a
material adverse effect upon Mastering's current business, new product and
service development efforts and future business prospects.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL DATA
The following unaudited pro forma condensed combined financial data are
qualified in their entirety by reference to, and should be read in conjunction
with, the historical consolidated financial statements of PLATINUM and
Mastering and notes thereto that are included elsewhere in this Proxy
Statement/Prospectus.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1997 1997 ADJUSTMENTS 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $178,138 $18,379 $-- $196,517
Short-term investments
securities.............. 57,597 9,479 -- 67,076
Trade accounts
receivable, net......... 212,731 1,987 -- 214,718
Installment accounts
receivable, net......... 30,043 -- -- 30,043
Other current assets..... 32,679 4,839 -- 37,518
-------- ------- ---- --------
Total current assets... 511,188 34,684 -- 545,872
-------- ------- ---- --------
Non-current investment
securities................ 25,553 20,363 -- 45,916
Property and equipment,
net....................... 77,842 8,443 -- 86,285
Purchased and developed
software, net............. 116,717 -- -- 116,717
Excess of cost over net
assets acquired, net...... 52,759 -- -- 52,759
Non-current installment
receivables, net.......... 21,912 -- -- 21,912
Other assets............... 28,206 829 -- 29,035
-------- ------- ---- --------
Total assets........... $834,177 $64,319 $-- $898,496
======== ======= ==== ========
LIABILITIES AND STOCKHOLD-
ERS' EQUITY
Current liabilities:
Acquisition-related
payables................ $ 15,717 $ -- $-- $ 15,717
Accounts payable......... 16,091 4,616 -- 20,707
Accrued restructuring
costs................... 6,308 -- -- 6,308
Other accrued
liabilities............. 67,030 2,201 -- 69,231
Current maturities of
long-term obligations... 1,319 135 -- 1,454
Deferred revenue......... 116,374 1,881 -- 118,255
-------- ------- ---- --------
Total current liabili-
ties.................. 222,839 8,833 -- 231,672
-------- ------- ---- --------
Acquisition-related
payables.................. 18,320 -- -- 18,320
Deferred revenue........... 60,435 -- -- 60,435
Deferred rent.............. 6,197 -- -- 6,197
Accrued restructuring
costs..................... 16,002 -- -- 16,002
Long-term obligations, net
of current maturities..... 266,824 255 -- 267,079
-------- ------- ---- --------
Total liabilities...... 590,617 9,088 -- 599,705
-------- ------- ---- --------
Total stockholders'
equity.................... 243,560 55,231 -- 298,791
-------- ------- ---- --------
Total liabilities and
stockholders' equity.. $834,177 $64,319 $-- $898,496
======== ======= ==== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
65
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1997 1997 ADJUSTMENTS 1997
------------ ------------ ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products......... $ 357,223 $ -- $-- $ 357,223
Maintenance............... 125,245 -- -- 125,245
Professional services..... 141,035 40,966 -- 182,001
--------- ------- ---- ---------
Total revenues.......... 623,503 40,966 -- 664,469
--------- ------- ---- ---------
Costs and expenses:
Professional services..... 127,499 37,149 -- 164,648
Product development and
support.................. 187,383 -- -- 187,383
Sales and marketing....... 228,387 -- -- 228,387
General and
administrative........... 61,876 -- -- 61,876
Restructuring charges..... 57,319 -- -- 57,319
Merger costs.............. 8,927 -- -- 8,927
Acquired in-process
technology............... 67,904 -- -- 67,904
--------- ------- ---- ---------
Total costs and ex-
penses................. 739,295 37,149 -- 776,444
--------- ------- ---- ---------
Operating income (loss)..... (115,792) 3,817 -- (111,975)
Other income, net........... 16,729 1,870 -- 18,599
--------- ------- ---- ---------
Income (loss) before income
taxes...................... (99,063) 5,687 -- (93,376)
Income taxes................ 18,721 2,081 -- 20,802
--------- ------- ---- ---------
Net income (loss) from
continuing operations...... $(117,784) $ 3,606 $-- $(114,178)
========= ======= ==== =========
Net income (loss) from
continuing operations per
share...................... $ (1.90) $ 0.27 $-- $ (1.68)
========= ======= ==== =========
Shares used in computing net
income (loss) from
continuing operations per
share...................... 62,042 13,535 68,106
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
66
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1996 1996 ADJUSTMENTS 1996
------------ ------------ ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products......... $243,938 $ -- $-- $243,938
Maintenance............... 102,364 -- -- 102,364
Professional services..... 121,763 21,018 -- 142,781
-------- ------- ---- --------
Total revenues.......... 468,065 21,018 -- 489,083
-------- ------- ---- --------
Costs and expenses:
Professional services..... 116,133 21,574 -- 137,707
Product development and
support.................. 155,277 -- -- 155,277
Sales and marketing....... 182,597 -- -- 182,597
General and
administrative........... 39,224 -- -- 39,224
Merger costs.............. 5,782 -- -- 5,782
Acquired in-process
technology............... 48,456 -- -- 48,456
-------- ------- ---- --------
Total costs and ex-
penses................. 547,469 21,574 -- 569,043
-------- ------- ---- --------
Operating loss.............. (79,404) (556) -- (79,960)
Other income, net........... 5,237 1,537 -- 6,774
-------- ------- ---- --------
Income (loss) before income
taxes...................... (74,167) 981 -- (73,186)
Income taxes................ (9,245) 461 -- (8,784)
-------- ------- ---- --------
Net income (loss) from
continuing operations...... $(64,922) $ 520 $-- $(64,402)
======== ======= ==== ========
Net income (loss) from
continuing operations per
share...................... $ (1.14) $ 0.04 $-- $ (1.03)
======== ======= ==== ========
Shares used in computing net
income (loss) from
continuing operations per
share...................... 56,968 12,286 62,472
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
67
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PLATINUM MASTERING
HISTORICAL HISTORICAL PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1995 1995 ADJUSTMENTS 1995
------------ ------------ ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Software products......... $ 158,597 $ -- $-- $ 158,597
Maintenance............... 76,498 -- -- 76,498
Professional services..... 91,316 10,168 -- 101,484
--------- ------- ---- ---------
Total revenues.......... 326,411 10,168 -- 336,579
--------- ------- ---- ---------
Costs and expenses:
Professional services..... 92,374 9,720 -- 102,094
Product development and
support.................. 94,027 -- -- 94,027
Sales and marketing....... 113,978 -- -- 113,978
General and
administrative........... 34,097 -- -- 34,097
Merger costs.............. 30,819 -- -- 30,819
Acquired in-process
technology............... 88,493 -- -- 88,493
--------- ------- ---- ---------
Total costs and ex-
penses................. 453,788 9,720 -- 463,508
--------- ------- ---- ---------
Operating income (loss)..... (127,377) 448 -- (126,929)
Other income, net........... 4,130 70 -- 4,200
--------- ------- ---- ---------
Income (loss) before income
taxes...................... (123,247) 518 -- (122,729)
Income taxes................ (11,680) -- -- (11,680)
--------- ------- ---- ---------
Net income (loss) from
continuing operations...... $(111,567) $ 518 $-- $(111,049)
========= ======= ==== =========
Net income (loss) from
continuing operations per
share...................... $ (2.50) $ 0.11 $-- $ (2.37)
========= ======= ==== =========
Shares used in computing net
income (loss) from
continuing operations per
share...................... 44,671 4,807 46,824
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
NOTE A--DESCRIPTION OF MERGER
On February 18, 1998, PLATINUM signed a definitive agreement to acquire all
of the outstanding capital stock of Mastering in exchange for approximately
6,165,000 shares of PLATINUM Common Stock and to assume stock options which
will convert into options to purchase approximately 2,143,000 shares of
PLATINUM Common Stock. PLATINUM will exchange 0.448 of a share of PLATINUM
Common Stock for each Common Share of Mastering capital stock. Mastering will
become a wholly-owned subsidiary of PLATINUM. The closing of the definitive
merger agreement is subject to approval by the stockholders of Mastering as
well as the satisfaction of conditions customary in such agreements. It is
expected that the acquisition will qualify as a tax-free reorganization and
will be accounted for as a pooling of interests.
The unaudited pro forma combined financial data are not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the periods presented and
should not be construed as representative of future operations.
PLATINUM and Mastering estimate that they will incur merger-related expenses
of approximately $10,000,000, consisting primarily of transaction costs for
financial advisory fees, attorneys, accountants, financial printing and one-
time charges related to the transaction. These nonrecurring expenses will be
charged to operations in the fiscal quarter in which the merger is
consummated. Such charges have not been reflected in the pro forma financial
statements.
The following table summarizes the assumed average shares outstanding used
in computing pro forma net loss per share using the exchange ratio of 0.448
for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
PLATINUM average shares outstanding.............. 62,042 56,968 44,671
Mastering assumed average shares outstanding..... 6,064 5,504 2,153
-------- -------- --------
Pro forma average shares outstanding............. 68,106 62,472 46,824
======== ======== ========
</TABLE>
NOTE B--EARNINGS PER SHARE
Share and per share amounts for 1996 and 1995 reflect actual shares of
Mastering outstanding for purposes of the unaudited pro forma statements of
operations. Due to the significant changes that occurred to Mastering's
capital structure upon its initial public offering in March 1996, Mastering
has not presented such share data except on a pro forma basis, as discussed in
Note 1 to Mastering's consolidated financial statements.
NOTE C--RECLASSIFICATIONS
Certain historical amounts have been reclassified to conform to the pro
forma combined presentation.
NOTE D--SUBSEQUENT EVENTS
See Note 18 to PLATINUM's consolidated financial statements contained herein
which includes a discussion of the transactions entered into by PLATINUM
subsequent to December 31, 1997. Also included is a summary of the pro forma
effects of the proposed acquisitions of Learmonth and Burchett Management
Systems PLC, Mastering and Logic Works, Inc. on revenues and net income (loss)
for the years ended December 31, 1997, 1996 and 1995.
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<PAGE>
PRO FORMA COMBINED COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of PLATINUM
and Mastering and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a pooling-of-interests basis utilizing
the Exchange Ratio discussed in Note (4) below, as if the Merger had been
effective for all periods presented. This data should be read in conjunction
with the selected financial data, the unaudited pro forma condensed combining
financial statements and the separate historical financial statements of
PLATINUM and Mastering and notes thereto, included elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
EQUIVALENT
HISTORICAL MASTERING, INC.
HISTORICAL MASTERING, PRO FORMA PRO FORMA
PLATINUM INC.(2) COMBINED(3) COMBINED(4)
---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Net Income (Loss) Per Share
Years ended December 31:
1997...................... $(1.90) $0.27 $(1.68) $(0.75)
1996...................... (1.14) 0.04 (1.03) (0.46)
1995...................... (2.50) 0.11(5) (2.37) (1.06)
Book Value Per Share:(1)
December 31, 1997......... 3.81 4.03 4.27 1.91
</TABLE>
- --------
(1) Book value per share reflects PLATINUM and Mastering at December 31, 1997
and is computed by dividing stockholders' equity by the number of shares
of common stock outstanding at the respective date.
(2) Historical Mastering per share data reflect basic earnings per share from
continuing operations for each period. See Note B to the pro forma
financial statements.
(3) Pro forma combined per share amounts reflect the Merger.
(4) The equivalent Mastering pro forma combined per share amount is calculated
by multiplying the pro forma combined per share amount by the exchange
ratio of 0.448.
(5) Although historical Mastering income from continuing operations per share
for 1995 is not presented in Mastering's consolidated financial
statements, as it is not considered relevant, net income per share of
Mastering for the year ended December 31, 1995 is presented here solely
for purposes of calculating pro forma combined net loss per share. See
Note B to the pro forma financial statements.
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<PAGE>
INFORMATION REGARDING PLATINUM
The discussion below contains certain forward-looking statements (as such
term is defined in Section 21E of the Exchange Act) that are based on the
beliefs of the management of PLATINUM, as well as assumptions made by, and
information currently available to, PLATINUM's management. PLATINUM's actual
growth, results, performance and business prospects and opportunities in 1998
and beyond could differ materially from those expressed in, or implied by, any
such forward-looking statements. See "Summary--Cautionary Statement Regarding
Forward-Looking Statements" on page 10 for a discussion of risks,
uncertainties and other factors that could cause or contribute to such
material differences.
OVERVIEW
PLATINUM develops, markets and supports software products, and provides
related professional services, that help organizations manage and improve
their IT infrastructures, which consist of data, systems and applications.
PLATINUM's products and services help IT departments, primarily in large and
data intensive organizations, minimize risk, improve service levels, and
leverage information to make better business decisions. PLATINUM's products
typically perform fundamental functions such as automating operations,
maintaining the operating efficiency of systems and applications, and ensuring
data access and integrity. PLATINUM currently develops software products
through its four business units: database management, systems management,
application infrastructure management, and data warehousing and decision
support. Addressing businesses' increasing demand for simplified vendor
relationships and complete solutions to IT problems, PLATINUM's goal is to
become the leading provider of IT infrastructure management solutions by
offering a comprehensive set of "best in class" point products, product
bundles and integrated product suites. PLATINUM also offers a wide array of
professional services, including consulting, systems integration and
educational programs, both in conjunction with and independent of software
product sales.
To achieve its goal, PLATINUM identified key technologies and skill sets
required to better manage the IT infrastructure. Through a combination of an
aggressive acquisition program and vigorous internal product development
efforts, PLATINUM assembled the competencies to create complete infrastructure
management solutions. Devoting substantial resources to integrating its
products and technologies, PLATINUM is now leveraging the breadth of its
product lines and its professional services capabilities to provide complete,
customized solutions for IT infrastructure problems. These solutions include
single products; product suites, which are sets of integrated products drawn
together from multiple business units of PLATINUM; and product bundles, which
are sets of software applications that are packaged together but do not
necessarily have the level of integration that defines a suite; as well as
design and implementation services provided by PLATINUM's professional
services staff. These solutions also include ongoing product upgrades,
maintenance and support, sometimes pursuant to multi-year contracts.
Evidencing the increasing demand from PLATINUM's customers for comprehensive
solutions, PLATINUM completed 102 transactions of over $1 million during 1997,
as compared to 55 such transactions during 1996 and only two such transactions
during 1995. Each of these large transactions included licenses for software
product bundles or suites, along with future upgrades and maintenance;
software consulting services; or both product licenses and related consulting
services.
PLATINUM is focusing on the development of products and services that offer
its customers maximum flexibility and functionality. PLATINUM's products are
designed to permit a customer to either purchase prepackaged integrated suites
or to choose individual products and later add other products as needed. The
cornerstone of PLATINUM's integration efforts is POEMS (PLATINUM Open
Enterprise Management Services), an internally developed set of shared
components that give PLATINUM's products a common look and feel, common
installation and distribution and common communication, data and events
handling. POEMS integration is built into individual products so that, as
customers purchase additional PLATINUM products, the newly acquired and
previously installed products can begin working together immediately. In
February 1998, PLATINUM released for general availability its ProVision suite
of integrated systems and database management tools, which is PLATINUM's most
significant POEMS-enabled integrated offering of products to date. ProVision
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<PAGE>
initially includes nine tools within the following key IT management
disciplines: job management, performance management and analysis, software
distribution, problem resolution, security, database utilities, and database
administration.
PLATINUM is also creating solutions for the needs of specific industries, as
well as general business needs. PLATINUM also is enabling its products and
suites for application with intranets and the internet and offers a broad set
of solutions for the Year 2000 problem. Additionally, in late 1996, PLATINUM
formed specialty consulting practice groups within its professional services
business unit, including groups dedicated to Year 2000 solutions and
internet/intranet technologies.
MARKET OVERVIEW
Companies today rely on their IT infrastructures to keep their businesses
operating efficiently. As organizations have moved from host-based computing
systems to open systems environments, the deployment, management, maintenance
and productive use of IT has become increasingly complex. These open computing
environments service numerous end-users spread across various locations and
consist of a diverse set of applications, computing platforms (including
mainframes, minicomputers, workstations and desktop PCs/LANs), relational
database management systems ("RDBMS"), operating systems (including UNIX,
Windows, Windows NT, OS/400, OS/2, MVS and VMS) and media, including intranets
and the internet. These open environments are also dynamic; users, as well as
hardware and software resources, are frequently added, removed or changed; and
new, mission-critical applications are continually being developed and
deployed.
PLATINUM believes that, due to the complexities of these new computing
environments, organizations are increasingly seeking to purchase IT management
products and services from a smaller number of vendors that can provide
complete, flexible and integrated solutions for managing and improving their
IT infrastructures.
PRODUCTS
PLATINUM provides software solutions that help organizations efficiently
operate and manage their complex IT infrastructures and related environments,
which contain multiple computing platforms, database management systems,
applications and operating systems. These tools increase the efficiency and
interoperability of these systems and applications in distributed environments
of any size. PLATINUM's solutions support platforms and operating systems that
span mainframe, midrange and PC/LAN computing environments, including MVS,
UNIX, OS/2, OS/400, Windows and Windows NT. They also support multiple
database management systems, such as the DB2 family, Oracle, Sybase, Microsoft
SQL Service and Informix. In addition, PLATINUM's solutions provide support
for packaged applications such as SAP, PeopleSoft and Oracle Financials.
PLATINUM now offers over 160 robust and adaptable point products. While
point products are initially developed and supported through one of PLATINUM's
four business units described below, PLATINUM continues to build integrated
suites of products drawn from different business units, such as ProVision, in
order to provide comprehensive solutions to organizations' IT needs.
Database Management Products-PLATINUM provides a leading set of tools and
utilities for centralized or distributed database administration, performance
analysis and monitoring and database backup and recovery for heterogeneous
database management systems. By automating administrative and maintenance
tasks, these software solutions enable users to achieve the highest
performance levels possible, increase data availability, automate arduous
administrative tasks, and deliver new products or enhancements to end-users
faster and with more flexibility. Principal database management products
include the following:
. Database Analyzer-a DB2 direct access storage device and database
monitoring, analysis, validation, forecasting and tuning tool. It
provides extensive statistical reporting capabilities, automated
maintenance and auditing of internal structures, as well as a DB2 page
editor.
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. RC/Migrator-a tool that automates DB2 object and data migrations and
alterations, while maintaining object dependencies and preserving data
security. Migrations may be performed on a one-to-one or one-to-many
basis.
. TSreorg-a tablespace reorganization tool for heterogeneous databases of
any size. TSreorg delivers fast reorganizations of entire tablespaces,
individual tables and indexes. It also provides efficient fragmentation
of used and free space and automatic data partitioning. TSreorg can run
on UNIX, VMS or Windows NT-based server systems.
Systems Management Products-PLATINUM offers products that enable
organizations to automate routine systems maintenance tasks and processes,
thereby streamlining enterprise management, enhancing system reliability and
reducing costs. These products also simplify the management of disparate
systems and enterprise-wide applications, and increase end-user productivity.
Systems management product offerings span many disciplines, including job and
process management, enterprise automation, desktop management, output
management, problem resolution, security management, distribution management,
performance management, enterprise-wide resource management, storage
management, and networking and connectivity. PLATINUM offers over 20 products
that provide the functionality required by businesses, while scaling across
multiple platforms that include UNIX, Windows, Windows NT, OS/400, OS/2, MVS
and VMS. Principal systems management products include the following:
. AutoSys - a job scheduling and management tool that simplifies the task
of managing and monitoring multiple jobs in distributed environments. It
provides centralized control of job execution across heterogeneous
platforms and offers flexible features, such as self-correcting job
control and automated restart and recovery capabilities.
. DBVision - a scaleable tool for continuous monitoring and centralized
management of heterogeneous databases in any size network. DBVision
collects and displays performance measurements in real time or
retrospect. It automatically detects and corrects performance problems
and predicts space shortages.
. AutoSecure - a tool set that enables organizations to secure and manage
large, heterogeneous computing environments. It protects information by
preventing unauthorized access to data and system resources in
distributed environments; provides single sign-on for users to
applications and services they are authorized to use, whether they are
on mainframes, distributed systems or Pcs; and provides a single point
for user registration in other security systems.
Application Infrastructure Management Products - PLATINUM offers products
that enable organizations to establish an application development process that
is systematic, error-resistant and flexible to adapt to changing business
needs. These products include tools for integrated project and process
management, component modeling, construction, testing, application deployment
and software distribution, integrated change and configuration management,
help desk support and decision support. These products facilitate the
development of sophisticated, high-performance applications and improve the
overall productivity and quality of development efforts. Principal application
infrastructure management products include the following:
. ADvantage - an integrated set of tools for managing the application
development infrastructure. ADvantage helps organizations automate and
improve the processes for building, managing and delivering applications
through solutions for component modeling (Paradigm Plus), integrated
project and process management (Process Continuum), integrated change
and configuration management (CCC/Harvest), rule-based application
development (AionDS) and decision support (ADvisor).
. ADvisor - a decision-support tool, and key component of ADvantage, that
helps IT executives and development managers minimize the risks and
costs associated with the applications that run their businesses by
providing the information needed to ensure on-time, on-budget delivery
of applications. ADvisor delivers the critical project information
organizations need to manage application development as a core business
process.
Data Warehousing and Decision Support Products-PLATINUM offers an integrated
set of solutions for all major data warehousing functions, including data
transformation and movement, data warehouse management,
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metadata management and repository, and decision support. These comprehensive
solutions help organizations build, manage and maintain data warehouses. A
data warehouse is a data store that gives end-users full access to
periodically consolidated, historical data for making business decisions and
analyzing trends without jeopardizing the performance of mission-critical
operations. Warehousing tools can capture data in many forms on numerous
platforms, transfer it to multiple database platforms and provide users with
the means to access and manage such information. Repository tools play a key
role in data warehouses as places for centralized control and as collection
points for status information concerning the warehouses and their activities.
PLATINUM's products enable organizations to better leverage their corporate
data investments by allowing end-users to derive maximum value and insight
from information. These products ensure enterprise-wide data access and enable
complex data analysis and reporting so that users can effectively identify
business trends and make informed decisions. Principal data warehousing and
decision support products include the following:
. InfoPump - a bi-directional data movement tool, InfoPump automates the
process of replicating, transferring and integrating data in
heterogeneous environments on a scheduled or event-driven basis.
. Repository - a product that serves as a central point of control,
enabling organizations to easily manage, maintain and access vast
amounts of corporate data, applications, and systems in a heterogeneous
environment. Repository provides information such as where data is
located, who created and who maintains data, what application processes
the data drives, and what relationship the data has with other data.
. Forest & Trees - a rapid decision-support system development tool which
enables IT departments to deliver customized desktop applications that
provide the necessary components for intuitive navigation and data
investigation. Forest & Trees applications can simultaneously access
multiple data sources and combine data into information that makes sense
to the knowledge worker. Forest & Trees applications can monitor key
strategic, tactical and operational indicators for the business and
automatically alert users to specific conditions via the corporate
network or via the web.
. InfoBeacon - a decision support tool that provides advanced online
analytical processing (OLAP) capabilities for data warehouse
environments. This product creates a virtual, multidimensional view on
top of the relational database. It provides end-users with advanced
analysis capabilities - such as drill down, pivoting, ranking, ratios,
and exception-and date-handling - without requiring the organization to
redundantly store and manage data in a proprietary multidimensional
database.
. Perspectives - an environment for rapidly developing custom, server-
centric, OLAP-enabled decision-support systems. Combining the power of
tools with the speed of packaged applications, Perspectives provides the
benefits of rapid time to market without sacrificing flexibility for
future growth. Perspectives for Market Analysis helps profit/loss
managers (such as brand managers, product managers, VPs of marketing)
view and analyze complex relationships between multiple product
dimensions and measures so that they can understand and respond to
emerging trends.
New Product Suites - In the past, businesses licensed products on a stand-
alone basis to address each of their needs as they arose. By combining tools
and technologies within and across its business units, PLATINUM now provides
product suites that are complete solutions to businesses' IT infrastructure
problems. These integrated product offerings allow businesses to experience
comprehensive benefits without having to deal with multiple products or
multiple vendors. PLATINUM has designed product suites that address IT
infrastructure problems that are shared by businesses from various industries,
as well as product suites that target IT infrastructure problems that are
unique to specific industries. The following provides a brief description of
some of PLATINUM's recent product suite offerings:
. ProVision - this integrated product suite, a combination of database
management and systems management tools, enables companies to reduce the
costs and risks associated with managing their IT
infrastructures, while improving service levels, availability and
productivity. ProVision initially includes nine tools within the
following key IT management disciplines: job management, performance
management and analysis, software distribution, problem resolution,
security, database utilities and database administration. Because
integration is built into each ProVision tool, organizations can
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implement one or more tools, and add more tools as needed, to solve
their most immediate IT problems. ProVision became generally available
in February 1998.
. TransCentury - this product suite, developed through a combination of
tools and technologies made available through internal development,
acquisitions and marketing agreements, provides an end-to-end solution
to the problem created by the century date change, commonly known as the
Year 2000 problem. TransCentury applies a "find-it, fix-it, test-it"
approach that enables businesses to analyze, plan, implement and test
century date changes in an integrated manner. It helps organizations
ensure business continuity and compliance by minimizing exposure,
helping them more effectively plan resources, and reducing costs and
time associated with the Year 2000 problem.
PRODUCT LICENSES
PLATINUM provides its software products to customers under non-exclusive,
non-transferable license agreements (including standard shrink-wrap licenses
for certain products). As is customary in the software industry, in order to
protect its intellectual property rights, PLATINUM does not sell or transfer
title to its software products to customers. Under PLATINUM's current standard
form license agreement, licensed software may be used solely for the
customers' internal operations and only on designated hardware at specified
sites, which may be comprised of a stand-alone computer, a single network
server with multiple terminals or multiple network servers with multiple
terminals.
Licenses for PLATINUM's software are almost exclusively perpetual, although
annual and monthly licenses are also offered. License fees may be due upon
execution by the customer of the applicable product agreement or may be
payable over time for contracts involving multi-year commitments for
maintenance and product upgrades. List prices are based upon the size of the
processor, number of servers and/or number of users, depending upon the type
of license and product being licensed. PLATINUM's published list prices
include discounts for suite, enterprise and multi-site licenses. Licenses
generally include more than one product. Under PLATINUM's current standard
form license agreement, maintenance is renewed on an annual basis by the
customer paying the current maintenance fee. See "--Technical Support and
Maintenance."
PRODUCT DEVELOPMENT
PLATINUM is pursuing its strategy by continuing its emphasis on internally
developing new software products and product enhancements, acquiring products,
technologies and businesses complementary to PLATINUM's existing product
lines: and forming alliances with leading technology companies. PLATINUM has
formed separate in-house development teams to efficiently integrate acquired
products and technologies into existing product lines. During 1995, 1996 and
1997, product development and support expenses of PLATINUM were $94,027,000,
$155,277,000 and $187,383,000, respectively. As of February 28, 1998, PLATINUM
employed approximately 1,660 persons in product development and support.
Internal Development. PLATINUM will continue to rely on the internal
development of products to expand its product lines. PLATINUM believes its
RDBMS expertise and experience give it a competitive advantage in developing
products that address increasingly complex environments and that meet evolving
customer needs. In order to fully exploit acquired software development
personnel, and to access new sources of talent, PLATINUM has established
approximately 36 independent development laboratories, generally at the
locations of newly-acquired companies. These development laboratories are
interconnected via video conferencing, e-mail, Lotus Notes and other
communication technologies, and use various hardware, operating systems and
database systems which give PLATINUM the ability to simulate the environments
of its customers. Laboratories have responsibility for their product lines and
receive guidance from POEMS teams to foster interoperability.
Acquisitions. PLATINUM continually reviews acquisition candidates with
leading-edge products and technologies that could enhance PLATINUM's product
portfolio. The technologies associated with the products of the acquired
businesses are being incorporated into PLATINUM's existing internally
developed products and
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are being used in developing new products. In addition to providing PLATINUM
with new products and technologies, these acquisitions have provided PLATINUM
with experienced teams of product developers who now staff PLATINUM's
independent development laboratories. PLATINUM plans to continue to pursue
acquisition opportunities because it believes that acquisitions are an
essential part of PLATINUM's strategy to compete effectively in its rapidly
evolving marketplace. See "PLATINUM Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Costs
and Expenses--Merger Costs" and "--Recent Developments."
Technology Relationships. To reinforce its commitment to providing
interoperable solutions for managing IT infrastructures, PLATINUM has
implemented its PLATINUM Partners Program, whereby PLATINUM has established
strategic and technology relationships with other leading IT vendors. PLATINUM
believes that in order to provide solutions for heterogeneous computing
environments, it will need to continue to establish and maintain key
relationships with leading technology companies. PLATINUM's current partners
include Intel, IBM, Hewlett-Packard, Oracle, Microsoft, SAP and Lucent
Technologies. These technical and marketing alliances provide PLATINUM early
access to product information and pre-release software.
PROFESSIONAL SERVICES
As part of its strategy to provide complete solutions for Global 10,000 IT
organizations, PLATINUM offers a range of professional services, including
consulting services, systems integration, and educational programs, in support
of and independent of its products. These services help businesses plan,
construct and manage infrastructures in which complex software products can be
used. These services can improve and accelerate customization, implementation
and deployment of PLATINUM's software products. PLATINUM believes that more
rapid and effective implementation of its software products will lead to
increased customer satisfaction and greater follow-on sales. For these
reasons, PLATINUM is now packaging professional services as a standard feature
of its product sales. As of February 28, 1998, PLATINUM employed approximately
1,100 persons in professional services.
Consulting Services. PLATINUM is focusing significant effort on developing
and expanding its consulting services group. Primarily developed through
recent acquisitions of consulting services companies, this group provides
consulting services that help Global 10,000 companies manage risks, manage the
implementation of new technologies and products, and optimize their current
computing environments. Areas of expertise span systems and database
management, information management, security, Year 2000 reengineering,
application lifecycle management, internet/intranet development, and
electronic commerce. PLATINUM's consultants provide flexible, customizable
solutions as well as prepackaged solutions. They can serve all of an
organization's software consulting needs, from strategy and organization to
implementation.
Educational Programs. PLATINUM believes that its training and education
services play an important role in increasing market awareness of its software
products among IT personnel, including application developers, database
administrators and end-users. Offering a comprehensive curriculum that
supports leading technologies, PLATINUM conducts a set of training courses
designed to deal with the critical issue of skills management. These courses
cover several key technology areas of IT infrastructure management and are
held at various training centers in the United States and throughout
PLATINUM's international operations. PLATINUM also offers on-site computer-
based training courses and self-led internet-based training courses that users
may complete in their own offices or homes.
PLATINUM continually reviews acquisition candidates that are leading-edge IT
education service providers. PLATINUM believes that, upon consummation, this
acquisition will significantly enhance PLATINUM's educational service
offerings. PLATINUM is also expanding its professional services through
internal growth. See "PLATINUM Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments."
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SALES AND MARKETING
PLATINUM employs a multi-faceted sales strategy. For software products,
PLATINUM utilizes telemarketers, an inside sales force, an outside sales
force, product seminars, user group participation, direct mail, print and web-
based advertising, and web promotions. PLATINUM also utilizes certain indirect
sales channels, such as distributors, VAR and OEM relationships for selected
products.
Domestic (U.S.) Software Sales. Since January 1, 1997, PLATINUM has
organized its domestic direct sales force by regions throughout the United
States. PLATINUM formerly combined the domestic and Canadian sales forces to
represent the North American sales force. As of February 28, 1998, PLATINUM
had approximately 450 domestic direct sales representatives.
Generally, for domestic software product licenses, PLATINUM's telemarketing
specialists call prospective customers to identify and qualify leads. Once a
lead has been qualified, the prospective client is turned over to the inside
sales force, which predominantly supports the direct sales force by developing
sales leads and arranging product evaluations. Established sales leads are
then typically forwarded to the direct sales force, which visits customer
sites to assist with trials, demonstrate product features and close sales
transactions. For certain sales to smaller customers, as well as the licensing
of standard shrink-wrap products, the inside sales force may handle the full
sales cycle for completing such transactions.
International Software Sales. PLATINUM generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by PLATINUM domestically. As
of February 28, 1998, PLATINUM had approximately 220 international (non-U.S.)
direct sales representatives and had subsidiaries in Australia, Austria,
Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Hong Kong,
Indonesia, Italy, Japan, Korea, Malaysia, the Netherlands, Norway, Singapore,
South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand and the United
Kingdom. PLATINUM expects that it will establish other foreign subsidiaries in
the future to meet its strategic objectives. In a few countries, primarily in
South America and the Middle East, PLATINUM markets its products through
independent distributors.
Global Accounts. PLATINUM now designates certain large, geographically
dispersed entities as "global accounts." Each of these accounts is managed, on
a worldwide basis, by a single executive who focuses his or her attention on
the diverse needs of the enterprise.
Professional Services. PLATINUM's consulting services and educational
programs are marketed by a specialized direct sales force.
User Group Leadership. PLATINUM believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. PLATINUM plays a major role in the activities of
the International DB2 Users Group, the International Oracle Users Group, the
International Sybase Users Group and other smaller user groups, and expects to
continue to do so in the future.
TECHNICAL SUPPORT AND MAINTENANCE
PLATINUM's in-house technical support group, situated at various sites
throughout the U.S., provides pre- sale, installation and post-sale support,
including toll-free telephone support during regular business hours, to
current users and potential customers evaluating PLATINUM's products. The
technical support group also offers seven-day, 24-hour toll-free telephone
service for an additional fee. PLATINUM believes that effective technical
support during product evaluation substantially contributes to product
acceptance, and that post-sale support has been, and will continue to be, a
substantial factor in customer satisfaction.
PLATINUM offers a maintenance program for its software products, which
consists of product enhancements, updated products and technical support.
Maintenance is typically provided without additional charge during the
warranty period defined in PLATINUM's license agreements. Under PLATINUM's
standard
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license agreement, customers renew maintenance support on an annual basis by
paying the current maintenance fee. Customers may also commit for maintenance
and product support over extended periods of time. Maintenance revenue
implicit in new product sales and recurring maintenance charges are recognized
ratably over the period the maintenance and support services are to be
provided.
COMPETITION
PLATINUM operates in highly competitive markets and expects competition to
increase. PLATINUM encountered substantially intensified competition as it
moved from the relational database tools market to the much larger IT
infrastructure products market and as it entered the consulting services
business. PLATINUM also experienced many new competitors, including relational
database vendors and systems software companies. Many of PLATINUM's current
and prospective competitors have significantly greater financial, technical
and marketing resources than PLATINUM. In addition, many prospective customers
may have the internal capability to implement solutions to their IT
infrastructure problems.
The competitive factors affecting the market for PLATINUM's software
products include the following: product functionality, integration,
performance and reliability; demonstrable economic benefits for users relative
to cost; quality of customer support and user documentation and ease of
installation; vendor reputation, experience and financial stability; and
price.
PLATINUM believes that it has competed effectively to date and that its
ability to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support. To be
successful in the future, PLATINUM must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings. Performance in these areas
will, in turn, depend upon PLATINUM's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. PLATINUM also expects to continue its strategy
of identifying and acquiring IT infrastructure products and technologies and
businesses which have developed such products and technologies.
In addition, PLATINUM encounters competition from a broader range of firms
in the market for professional services. Many of PLATINUM's current and
prospective competitors in the professional services business have
significantly greater financial, technical and marketing resources than
PLATINUM. The competitive factors affecting the market for PLATINUM's
professional services include the following: breadth and quality of services
offered, vendor reputation and the ability to retain qualified technical
personnel.
INTELLECTUAL PROPERTY RIGHTS
PLATINUM has historically relied upon a combination of contractual rights,
trademarks, trade secrets and copyright laws to establish and protect its
proprietary rights in its products. PLATINUM also holds some patents and
believes that patents are becoming increasingly important to the software
industry. Consequently, PLATINUM is taking actions to further protect its
proprietary rights through software patents. PLATINUM's license agreements
restrict a customer's use of PLATINUM's software and prohibit disclosure to
third persons. Notwithstanding those restrictions, it may be possible for
unauthorized persons to obtain copies of PLATINUM's software products.
PLATINUM believes that because of the rapid pace of technological change in
the computer software industry, the legal protections for its products are
less significant factors in PLATINUM's success than the knowledge, ability and
experience of PLATINUM's employees, the frequency of product enhancements, and
the timeliness and quality of support services provided by PLATINUM. PLATINUM
registers its product names and other trademarks in the United States and
certain foreign countries.
EMPLOYEES
As of February 28, 1998, PLATINUM employed approximately 4,330 persons,
including 1,280 in sales, marketing and related activities, 1,660 in product
development and support, 1,100 in professional services, and
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290 in management, administration and finance. PLATINUM's success is highly
dependent on its ability to attract and retain qualified employees.
Competition for employees is intense in the software industry. None of
PLATINUM's employees is represented by a labor union or is the subject of a
collective bargaining agreement. PLATINUM has never experienced a work
stoppage and believes that its employee relations are good.
PROPERTIES
PLATINUM's principal administrative, marketing, training, and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where PLATINUM leases approximately 334,000 square feet under leases
terminating in April 2003, with plans to lease additional space in the near
future. PLATINUM also leases approximately 164,000 square feet of
administrative, marketing, sales and product development space in Lisle,
Illinois, near PLATINUM's headquarters, under leases terminating in January
and October 2003. In addition, PLATINUM leases space for approximately 75
sales offices and product development laboratories throughout the United
States, ranging in size from approximately 1,000 to 45,000 square feet. In
conjunction with the restructuring plan executed during the second quarter of
1997, PLATINUM closed certain sales offices and product development
laboratories in the United States and certain foreign countries. See "PLATINUM
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Restructuring Charges."
LEGAL PROCEEDINGS
Computer Associates' International, Inc., and L'Agence pour la Protection
des Programmes v. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny,
Paris, France). Altai, a wholly-owned subsidiary of PLATINUM, is involved in a
suit in France which concerns copyright infringement claims identical to those
on which Altai previously prevailed against Computer Associates International,
Inc. ("CAI") in the United States. The French appellate court granted Altai's
request that the U.S. appellate court's copyright ruling should bind the
Commercial Court of Bobigny as a matter of law. In January 1995, the French
appellate court issued a decision rejecting CAI's claim of copyright
infringement. CAI's subsequent appeal in the French appellate court is still
pending, as are motions from Altai that the U.S. court decisions are binding
with respect to the French case.
PLATINUM is also subject to certain other legal proceedings and claims which
have arisen in the ordinary course of business and which have not been fully
adjudicated. Management currently believes the ultimate outcome of such
matters and those described above will not have a material adverse effect on
PLATINUM's results of operations or financial position.
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MANAGEMENT OF PLATINUM
DIRECTORS AND OFFICERS
The directors and executive officers of the Company, their ages at March 27,
1998, and their positions with PLATINUM are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Andrew J. Filipowski................ 47 President, Chief Executive Officer and
Chairman of the Board of Directors
Paul L. Humenansky.................. 40 Executive Vice President--Product
Development, Chief Operations Officer
and Director
Michael P. Cullinane................ 48 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Thomas A. Slowey.................... 37 Executive Vice President--Sales
Paul A. Tatro....................... 41 Executive Vice President--
International Operations
James E. Cowie(1)(2)................ 43 Director
Steven D. Devick(1)(2).............. 46 Director
Arthur P. Frigo(1)(2)............... 56 Director
Gian Fulgoni(1)..................... 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee of the PLATINUM Board of Directors.
(2) Member of the Compensation Committee of the PLATINUM Board of Directors.
The PLATINUM Board of Directors consists of three classes, which serve
staggered three-year terms. Class I, the terms of whose members expire in
1999, is comprised of Messrs. Cullinane and Humenansky. Class II, the terms of
whose members expire in 1998, is comprised of Messrs. Frigo and Fulgoni. Class
III, the terms of whose members expire in 2000, is comprised of Messrs.
Filipowski, Cowie and Devick. Directors hold office until their successors are
elected and qualified. The PLATINUM Board of Directors elects officers
annually and such officers, subject to the terms of certain employment
agreements, serve at the discretion of the PLATINUM Board. Messrs. Filipowski,
Cullinane and Humenansky each have employment agreements with PLATINUM. There
are no family relationships among any of the directors or officers of
PLATINUM.
Mr. Filipowski, a founder of PLATINUM, has been President, Chief Executive
Officer and Chairman of the PLATINUM Board of Directors since PLATINUM's
formation in April 1987. Mr. Filipowski is also a director of Mastering,
System Software Associates, Inc. and Platinum Entertainment, Inc. ("Platinum
Entertainment"), an integrated music recording and publishing company.
Mr. Humenansky, a founder of PLATINUM, was appointed Chief Operations
Officer of PLATINUM effective January 1993. Mr. Humenansky also serves as
Executive Vice President--Product Development, a position he has held since
PLATINUM's formation in April 1987. Mr. Humenansky is also a director of
Platinum Entertainment.
Mr. Cullinane joined PLATINUM in March 1988 as Senior Vice President and
Chief Financial Officer, becoming Executive Vice President in March 1995. He
has also served as PLATINUM's Treasurer since April 1989 and served as
Secretary from April 1989 until October 1995. Mr. Cullinane is also a director
of Platinum Entertainment.
Mr. Slowey has served as Executive Vice President--Sales since joining
PLATINUM in March 1988.
Mr. Tatro joined PLATINUM in October 1987 as Director of Education and was
appointed Senior Vice President--Field Support and Affiliates in January 1990,
a position he held until March 1995, when he was elected Executive Vice
President--International Operations.
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Mr. Cowie has been a General Partner of Frontenac Company, a Chicago-based
venture capital firm, since February 1989 and has been a director of PLATINUM
since 1989. Mr. Cowie is also a director of US Servis, Inc.
Mr. Devick is currently the President, Chief Executive Officer and Chairman
of the PLATINUM Board of Directors of Platinum Entertainment, which he co-
founded in 1992. He is also the Chief Executive Officer of a number of other
entities, including DDE, Inc. (f/k/a Devick Enterprises, Inc.), and Platinum
Development, a real estate development firm, positions he has held for at
least the preceding five years. Mr. Devick has been a director of PLATINUM
since 1989.
Mr. Frigo is the owner and Chairman of M.B. Walton, a consumer products
company and has been a director of PLATINUM since 1997. He also serves on the
Board of Directors of Modagratics, The Levy Organization, Maxrad, Precision
Extrusions, LaRabida Children's Hospital and the Landmark Preservation Council
of Illinois.
Mr. Fulgoni is Chief Executive Officer and a director of Information
Resources, Inc. ("IRI"), which provides a variety of information services
(primarily to consumer packaged goods companies) and computer decision support
services. He was elected Chief Executive Officer of IRI in 1991. From 1991 to
April 1995, Mr. Fulgoni served as Chairman of IRI, from 1989 to 1991 as Vice
Chairman, and from 1981 to 1989 as President. Mr. Fulgoni has been a director
of PLATINUM since 1991.
PLATINUM EXECUTIVE COMPENSATION
The following table provides information concerning the annual and long-term
compensation for services in all capacities to PLATINUM for the years ended
December 31, 1997, 1996 and 1995 of those persons who were at December 31,
1997 (i) the Chief Executive Officer and (ii) the four other most highly
compensated (based upon combined salary and bonus) executive officers of
PLATINUM (collectively, with the Chief Executive Officer, the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION COMPENSATION AWARDS (1)
- --------------------------- ------------------ ------------
SECURITIES
UNDERLYING
SALARY OPTIONS ALL OTHER
YEAR ($) BONUS ($) (#)(2) COMPENSATION ($)
---- -------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Andrew J. Filipowski, 1997 $772,000 $154,400 500,000 $264,590(3)
President, Chief Executive Officer 1996 702,000 -- -- 222,010
and Chairman of the Board 1995 520,000 -- 400,000 54,736
Paul L. Humenansky, 1997 $508,000 $101,600 300,000 $108,001(4)
Chief Operations Officer and 1996 462,000 -- -- 90,904
Executive Vice President-- 1995 330,000 -- 250,000 5,128
Product Development
Michael P. Cullinane, 1997 $490,000 $ 98,000 250,000 $ 97,150(5)
Executive Vice President, Chief 1996 445,500 -- -- 83,036
Financial Officer and Treasurer 1995 330,000 -- 150,000 6,624
Thomas A. Slowey, 1997 $300,000 $ 60,000 125,000 $ 22,313(6)
Executive Vice President--Sales 1996 273,000 -- -- 22,171
1995 210,000 -- 75,000 1,500
Paul A. Tatro, 1997 $300,000 $60,000 100,000 $ 21,192(7)
Executive Vice President-- 1996 273,000 -- -- 21,923
International Operations 1995 210,000 -- 75,000 1,500
</TABLE>
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- --------
(1) None of the Named Officers had any restricted stock holdings as of
December 31, 1996.
(2) Except for options to purchase 25,000 shares of PLATINUM Common Stock
granted to Mr. Slowey in January 1997, these options were granted in 1996,
subject to stockholder approval of an amendment to the PLATINUM
technology, inc. Employee Incentive Compensation Plan, which approval was
obtained at PLATINUM's 1997 annual meeting of stockholders.
(3) Includes $1,600 in PLATINUM matching contributions pursuant to the
PLATINUM technology, inc. 401(k) Savings Plan, $122,494 in premiums paid
by PLATINUM for term life and disability insurance, $15,723 in premiums
paid by PLATINUM for the term portion of split-dollar life insurance, and
$124,773 representing the dollar value of the benefit to the Named Officer
of the remainder of the premiums paid by PLATINUM for the split-dollar
life insurance.
(4) Includes $1,600 in PLATINUM matching contributions pursuant to the
PLATINUM technology, inc. 401(k) Savings Plan, $23,832 in premiums paid by
PLATINUM for term life and disability insurance, $4,544 in premiums paid
by PLATINUM for the term portion of split-dollar life insurance, and
$78,025 representing the dollar value of the benefit to the Named Officer
of the remainder of the premiums paid by PLATINUM for the split-dollar
life insurance.
(5) Includes $1,600 in PLATINUM matching contributions pursuant to the
PLATINUM technology, inc. 401(k) Savings Plan, $28,125 in premiums paid by
PLATINUM for term life and disability insurance, $4,946 in premiums paid
by PLATINUM for the term portion of split-dollar life insurance, and
$62,479 representing the dollar value of the benefit to the Named Officer
of the remainder of the premiums paid by PLATINUM for the split-dollar
life insurance.
(6) Includes $1,600 in PLATINUM matching contributions pursuant to the
PLATINUM technology, inc. 401(k) Savings Plan, $931 in premiums paid by
PLATINUM for the term portion of split-dollar life insurance, and $19,782
representing the dollar value of the benefit to the Named Officer of the
remainder of the premiums paid by PLATINUM for the split-dollar life
insurance.
(7) Includes $1,600 in PLATINUM matching contributions pursuant to the
PLATINUM technology, inc. 401(k) Savings Plan, $1,069 in premiums paid by
PLATINUM for the term portion of split-dollar life insurance, and $18,523
representing the dollar value of the benefit to the Named Officer of the
remainder of the premiums paid by PLATINUM for the split-dollar life
insurance.
OPTION GRANTS IN 1997. The following table provides information on grants of
stock options during fiscal 1997 to the Named Officers. No stock appreciation
rights were granted to the Named Officers during fiscal 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
------------------------- ----------------------
PERCENT OF TOTAL EXERCISE
NUMBER OF SECURITIES OPTIONS GRANTED OR BASE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(2) FISCAL YEAR(3) ($/SH) DATE 5% ($) 10% ($)
- ---- -------------------- ---------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... 500,000 13.6% $13.6250 10/10/06 $4,284,345 $10,857,371
Paul L. Humenansky...... 300,000 8.2 13.6250 10/10/06 2,570,607 6,514,422
Michael P. Cullinane.... 250,000 6.8 13.6250 10/10/06 2,142,172 5,428,685
Thomas A. Slowey........ 100,000 2.7 13.6250 10/10/06 856,869 2,171,474
25,000 0.7 13.5625 01/08/07 213,235 540,378
Paul A. Tatro........... 100,000 2.7 13.6250 10/10/06 856,869 2,171,474
</TABLE>
- --------
(1) Potential realizable value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains are dependent on the future performance of PLATINUM Common Stock and
the option holder's continued employment throughout the vesting period.
The amounts reflected in the table may not necessarily be achieved.
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<PAGE>
(2) Except for options to purchase 25,000 shares of PLATINUM Common Stock
granted to Mr. Slowey in January 1997, these options were granted in 1996,
subject to stockholder approval of an amendment to the PLATINUM
technology, inc. Employee Incentive Compensation Plan, which approval was
obtained at PLATINUM's 1997 annual meeting of stockholders. These options
are all non-qualified stock options. Subject to certain restrictions,
these options become exercisable in four equal annual installments,
beginning on October 10, 1997, the first anniversary of the date of grant.
(3) The percentages shown do not reflect options granted in 1997 by companies
acquired by PLATINUM.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END 1997 OPTION VALUES. The
following table provides information on the Named Officers' option exercises
in 1997 and unexercised options at December 31, 1997.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED YEAR-END 1997 (#) YEAR-END 1997 ($)(1)
ON EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Filipowski.... -- -- 2,082,500 675,000 $37,805,540 $8,862,784
Paul L. Humenansky...... 50,000 831,250 697,500 412,500 10,042,188 5,407,813
Michael P. Cullinane.... 81,500 1,915,250 617,500 300,000 10,197,438 4,012,500
Thomas A. Slowey........ 45,000 670,814 207,782 131,250 3,055,877 1,732,031
Paul A. Tatro........... 46,984 464,690 274,750 156,250 4,639,866 2,099,219
</TABLE>
- --------
(1) The value per option is calculated by subtracting the exercise price from
the closing price of PLATINUM Common Stock on the Nasdaq National Market
on December 31, 1997, which was $28.25.
EMPLOYMENT AGREEMENTS. Effective March 1, 1991, PLATINUM entered into
employment agreements with Messrs. Filipowski, Cullinane and Humenansky which
agreements were amended and restated as of January 1, 1996 with respect to
Messrs. Filipowski and Cullinane and October 28, 1997 with respect to Mr.
Humenansky. Mr. Filipowski's employment agreement provides for an initial base
salary of $702,000 plus bonus compensation. Mr. Cullinane's employment
agreement provides for an initial base salary of $445,500 plus bonus
compensation. Mr. Humenansky's employment agreement provides for an initial
base salary of $508,000 plus bonus compensation. Each of the employment
agreements provide that the base salary is subject to review in accordance
with PLATINUM's normal practice for executive salary review and cannot be
reduced without the consent of the executive. The agreements provide that all
bonus arrangements for Messrs. Filipowski, Cullinane and Humenansky are
established by the Compensation Committee of the PLATINUM Board of Directors.
All of the employment agreements also provide for continuation of salary,
bonuses and fringe benefits during the Payout Period (as defined below)
following the executive's termination of employment with PLATINUM for any
reason other than "Good Cause" as defined in such agreements, or if the
termination occurs within a certain time period before or after a "Change in
Control" of PLATINUM. The Payout Period under the employment agreements for
Messrs. Filipowski and Cullinane is five years from the date of termination.
The Payout Period under Mr. Humenansky's employment agreement is three years
from the date of termination, unless termination is the result of a "Change in
Control", in which case, the Payout Period is five years. Under such
agreements, a "Change in Control" of PLATINUM includes (a) certain
reorganizations, consolidations or mergers of PLATINUM, (b) certain transfers
of all or substantially all of the assets of PLATINUM, (c) the approval by
PLATINUM's stockholders of a plan of liquidation or dissolution and (d) a
change in PLATINUM's Board of Directors such that a majority of the members of
the PLATINUM Board are not "continuing" directors. In addition, under the
employment agreements for Messrs. Filipowski and Cullinane,"Change in Control"
includes a person's becoming the beneficial owner of stock representing more
than the greater of (i) 25% of the combined voting power of PLATINUM's then
outstanding securities or (ii) the percentage of the combined voting power of
PLATINUM's then outstanding securities which equals (A) 10% plus (B) the
percentage of the combined
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voting power of PLATINUM's outstanding securities held by such corporation,
person or entity on the effective date of their employment agreements. Under
Mr. Humenansky's employment agreement, a person's acquiring 20% or more of (a)
the outstanding shares of PLATINUM Common Stock or (b) the combined voting
power of PLATINUM's then outstanding securities constitutes a "Change in
Control," with certain exceptions.
DIRECTOR COMPENSATION
All non-employee directors of PLATINUM are paid an annual fee of $2,500 and
an attendance fee of $1,000 for each PLATINUM Board meeting attended and $500
for each Committee meeting attended if such Committee meeting is not held in
conjunction with a meeting of the full PLATINUM Board. In addition, each non-
employee director participates in the Amended and Restated PLATINUM
technology, inc. 1993 Directors' Stock Option Plan (the "Directors' Plan").
Pursuant to the Directors' Plan, each non-employee director is granted, on the
date of each annual meeting after which such director continues to serve on
the PLATINUM Board of Directors, an option to purchase 10,000 shares of
PLATINUM Common Stock at the fair market value of the PLATINUM Common Stock on
such date. PLATINUM provides no retirement benefits to non-employee directors.
PLATINUM directors who are also employees of PLATINUM receive no additional
compensation from PLATINUM for services rendered in their capacity as
directors.
PLATINUM COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Cowie, Devick and Cowell were the members of PLATINUM's Compensation
Committee during 1997. Messrs. Filipowski and Devick are executive officers of
Platinum Venture Partners, Inc. ("PVP"), and Mr. Filipowski is the sole
director of, and makes compensation decisions for, PVP. Mr. Devick is an
executive officer of Platinum Entertainment, Inc. ("PEI"), and Messrs.
Filipowski, Humenansky and Cullinane, all of whom are executive officers of
PLATINUM, are directors of PEI. Messrs. Filipowski and Cullinane are also
members of the compensation committee of PEI.
Mr. Filipowski and Mr. Cowie are directors of each of PLATINUM and
Mastering. Mr. Filipowski is also the President and Chief Executive Officer of
PLATINUM. Mr. Filipowski holds options to purchase 34,800 Common Shares (which
were granted to him in his capacity as a director of Mastering) and, through
two investment partnerships of which he is a principal, indirectly owns
approximately 22,000 Common Shares. Mr. Cowie holds options to purchase 34,800
Common Shares (granted to him in his capacity as a director of Mastering).
Messrs. Filipowski and Cowie did not participate in the deliberations of the
Mastering Board or the Board of Directors of PLATINUM with respect to the
Merger. PLATINUM Ventures own a total of approximately 335,000 Common Shares.
Mr. Filipowski is the President, Chief Executive Officer and a stockholder of
PLATINUM Ventures Partners, Inc., the general partner of PLATINUM Ventures,
and is a limited partner of each of the PLATINUM Ventures. Additionally, all
of the other executive officers and directors of PLATINUM indirectly own an
aggregate of more than 20,000 Common Shares. See "The Merger--Interests of
Certain Persons in the Merger."
CERTAIN TRANSACTIONS RELATING TO PLATINUM
See "PLATINUM Compensation Committee Interlocks and Insider Participation."
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INFORMATION REGARDING MASTERING
The discussion below contains certain forward-looking statements (as such
term is defined in Section 21E of the Exchange Act) that are based on the
beliefs of the management of Mastering, as well as assumptions made by, and
information currently available to, Mastering's management. Mastering's actual
growth, results, performance and business prospects and opportunities in 1998
and beyond could differ materially from those expressed in, or implied by, any
such forward-looking statements. See "Summary--Cautionary Statement Regarding
Forward-Looking Statements" on page 10 for a discussion of risks,
uncertainties and other factors that could cause or contribute to such
material differences.
Mastering is an educational services company that provides corporate
training products and services. Mastering, Inc. was formerly known as Eagle
River Interactive, Inc., and changed its name to Mastering, Inc. on October
15, 1997. Training products for IT professionals are created, developed and
marketed by Mastering Computers, Inc., a wholly-owned subsidiary of Mastering,
Inc. Training products include instructor-led seminars for Windows operating
systems and other IT topics, instructor-led Microsoft Certified Professional
preparation courses, on-site workshops, computer-based training media,
interactive software, videos and a newsletter. Mastering's principal executive
offices are located at 9201 East Mountain View Road, Suite 200, Scottsdale,
Arizona 85258, and its telephone number is (602) 657-4000.
Mastering develops and markets instructor-led training workshops and CBT
products for IT professionals. These training products and services include
instructor-led Windows NT(TM), Windows 95(TM), TCP/IP(TM), Internet
Information Server(TM) and Exchange(TM) training workshops as well as
Microsoft Certified Professional preparation courses and on-site workshops
held at customers' facilities, CBT software covering a broad range of
information technologies, other software, videos and a newsletter. Mastering's
CBT products are delivered using CD-ROMs, proprietary intranets, the Internet
and the World Wide Web.
Mastering markets and sells its instructor-led and CBT products and services
throughout the United States and in Canada, primarily through its in-house
telesales organization. Training products and services are also sold to
national accounts under long-term contracts, which are sold using outside
salespeople. At the end of 1997, Mastering began marketing its training
products in Europe, with sales of instructor-led training workshops beginning
in the United Kingdom during the first quarter of 1998.
On February 18, 1998, Mastering entered into the Merger Agreement providing
for the Merger of PT Acquisition 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 Common Share will be
converted into 0.448 of a share of PLATINUM Common Stock. The Merger is
expected to be completed in the second quarter of 1998 (although there can be
no assurance that such transaction will be completed) and accounted for as a
pooling of interests.
DISPOSITIONS
During the year ended December 31, 1997, Mastering sold its custom
interactive development and outdoor media business segments. As a result, the
operations from the custom interactive development and outdoor media business
segments have been accounted for as discontinued operations.
Mastering approved a plan to dispose of its outdoor media business segment
on May 17, 1997, and has accounted for this segment as a discontinued
operation. On September 16, 1997, Mastering completed the sale of the assets
of its outdoor media segment for approximately $4.0 million in cash and
approximately $0.6 million in notes receivable.
Mastering announced its intent to sell its interactive business segment on
July 29, 1997, and has accounted for this segment as a discontinued operation.
On September 26, 1997, Mastering completed the sale of the assets of its
interactive business segment for $13.5 million in cash and the right to future
payments contingent on the segment's future earnings.
SERVICES AND PRODUCTS
Mastering's principal revenues come from instructor-led training workshops
and CBT products for IT professionals working in corporate environments. These
training products and services include instructor-led Windows NT(TM), Windows
95(TM), TCP/IP(TM), Internet Information Server(TM) and Exchange(TM)
workshops, Microsoft
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Certified Professional preparation courses, on-site workshops held at
customers' facilities, CBT software covering a broad range of information
technologies, other software, videos and a newsletter. Mastering's CBT
products are delivered using CD-ROMs, proprietary intranets, the Internet and
the World Wide Web.
INSTRUCTOR-LED TRAINING
Mastering develops and markets instructor-led training workshops for IT
professionals working in corporate environments. The workshops provide
training primarily on Microsoft(TM) operating systems. Mastering offers one-
day and two-day training workshops as well as three-day and four-day
Microsoft(TM) Certified Professional preparation courses, which it hosts in
cities across the United States and in Canada, with an expansion into Europe
during the first quarter of 1998. Depending on the city and the course, a
workshop may be attended by as many as 500 IT professionals. The workshops are
standardized, with the same courses being offered nationally and in Canada.
Workshops are taught by instructors who are employees of Mastering. When not
engaged in teaching a workshop, instructors spend their time developing and
updating course curriculum. Mastering is a Microsoft Solutions Provider and a
member of Microsoft's Training Alliance, which gives Mastering early access to
alpha and beta versions of selected new and updated Microsoft software. Course
content and the workshops themselves continue to evolve due to software
upgrades and enhancements and the introduction of new software, giving
Mastering continuing revenue opportunities as IT professionals continue to
take courses to stay updated on the technology they support. As such,
Mastering's revenue is significantly dependent on the introduction of new
software and updates to existing software. A decrease in the rate of such
introductions or updates could have a material adverse effect on Mastering's
results of operations.
COMPUTER-BASED TRAINING
Mastering, under a licensing agreement with a third party, licenses a CBT
development engine and more than 300 CBT titles, as well as most of its future
releases, which cover a broad range of information technologies. Mastering's
CBT titles are sold to IT professionals and to end users of desk-top
applications such as common word-processing and spreadsheet programs.
Mastering adds content to and/or enhances the user interface of many of the
licensed titles. The titles are private-labeled under the "Mastering
Computers" brand name. Sales of titles began in the first quarter of 1997. The
initial term of the licensing agreement is for an eighteen-month period ending
June 30, 1998, with two one-year renewal options exercisable by Mastering. If
Mastering exercises its two one-year renewal options, there can be no
assurance that the third party would agree to further renewal periods. Failure
to renew the contract or obtain CBT products from alternate suppliers could
have a material adverse effect on Mastering's results of operations.
At the end of 1997, Mastering introduced its Knowledge Track(TM) line of CBT
titles developed in house. This product line converts the content of
Mastering's instructor-led training courses into interactive CBT titles in CD-
ROM format, which are sold as a complement to the instructor-led training
courses and as a stand-alone training product. Because these CBT products are
based on Mastering's instructor-led training workshops, the content is
continually evolving as the related workshop content evolves.
CUSTOMERS
In 1997, no customer accounted for 10 percent or more of Mastering's revenue
from continuing operations. The five largest customers, in total, accounted
for 3 percent of Mastering's 1997 revenue.
Mastering has provided training products and services to numerous Fortune500
companies, other small and mid-size businesses, universities and various
Federal, state and local government agencies. During 1997,
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Mastering trained approximately 95,000 customers through instructor-led
training workshops and CBT. In 1997, the organizations with the most IT
professionals attending Mastering's workshops were:
<TABLE>
<S> <C>
AT&T Corporation Intel Corporation
Lockheed Martin Corporation Allied Signal, Inc.
Blue Cross Blue Shield Association Lucent Technologies, Inc.
The Boeing Company MCI Communications Corporation
Eastman Kodak Company Pacific Bell
Electronic Data Systems Corporation Science Application International
Corporation
General Electric Company Sprint Corporation
GTE Corporation Unisys Corporation
Hewlett-Packard Company Xerox Corporation
Honeywell, Inc.
</TABLE>
SALES AND MARKETING
At the end of 1997, Mastering employed 259 people engaged in sales and
marketing related activities, up from 152 at the beginning of the year.
Mastering's telesales force sells all of Mastering's training products and
services and is also used to identify sales leads for Mastering's national
accounts program targeting Fortune 1000 prospects. Mastering's telesales
organization makes one-on-one contact with prospective customers, allowing
sales representatives to develop a rapport with customers to enhance future
repeat sales.
Mastering's sales effort is aided by a proprietary database of information
related to more than 4 million IT professionals. In 1997, the telesales
organization called most of these IT professionals.
At the end of 1997, Mastering contracted with a third-party vendor to
implement a sales force automation system to significantly enhance its
telesales infrastructure to assist in the gathering and more-intuitive use of
information regarding IT professionals, businesses and government agencies.
Mastering expects this system to be fully functional by the third quarter of
1998, and it should enhance Mastering's efforts to more effectively contact
and develop prospective customers and coordinate sales efforts.
Mastering generally begins selling its instructor-led training workshops
several months before the commencement of the workshops. This advance selling
allows Mastering to perform market research and allows the sales force to test
new products and to gauge customer demand prior to actual product
introduction. Mastering also markets its products and services by distributing
product information through direct mail in advance of a seminar and by
advertising in technology-oriented publications.
Mastering also generates sales and sales leads through its Internet web
site, where prospective customers can obtain detailed information about
Mastering's products and services and interactively sample Mastering's CBT.
The web site allows Mastering to gather important demographic, professional
and personal information about prospective customers using accepted web-based
tracking techniques and on-line surveys. This information is used to test new
products and to gauge customer demands prior to actual product introduction
and to identify new sales leads.
COMPETITION
A shortage of IT professionals has led to the need for education on
continually evolving technologies. In response, a large number of IT training
programs are now offered by hardware/software vendors, systems integrators,
internal training departments, technology/vocational schools and independent
trainers. The training market is highly fragmented and competitive. Because of
the lack of significant barriers to entry into the IT training market,
Mastering expects this competition to continue in the future. In addition,
many of Mastering's competitors have significantly greater financial resources
and are competing with Mastering through the acquisition of Mastering's
competitors, price reductions and strategic partnerships, and Mastering
expects this trend to continue in the future.
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Many of Mastering's competitors have substantially greater technical, sales,
marketing and name recognition than Mastering. In addition, the training
market is experiencing significant pricing pressure and Mastering expects the
pricing pressure from competitors to increase in the future. Accordingly,
there can be no assurance that Mastering will be able to continue to provide
services and products that compare favorably with those of its competitors or
that pricing pressure will not have a significant impact on Mastering's
results of operations.
EMPLOYEES
As of December 31, 1997, Mastering had 390 employees, of which 259 were
engaged in sales and marketing related activities, 49 were engaged in
operations related activities, 11 were engaged in CBT-development related
activities and 71 were engaged in support related activities.
Mastering expects hiring in 1998 to continue in connection with the
continued expansion of its businesses. Mastering believes that its future
success will depend in large part upon its ability to attract and retain
highly skilled strategic sales and marketing personnel and instructors.
Competition for such personnel is intense. Mastering provides stock options to
attract and retain such personnel.
Mastering expects to continue to hire additional sales and marketing
personnel and instructors. There can be no assurance that Mastering will be
successful in attracting and retaining such personnel. Failure to attract and
retain key personnel could have a material adverse effect upon Mastering's
business, results of operations and financial condition.
PROPERTIES
Mastering leases approximately 53,500 square feet of office and
administrative space in Scottsdale, Arizona in facilities housing its
corporate headquarters. The lease expires in December, 2008. In addition,
Mastering leases approximately 3,900 square feet in Chicago, Illinois for its
executive and investor-relations activities and occupies approximately 1,200
square feet in Portland, Oregon for its CBT research and development
activities.
Upon completion of tenant improvements currently underway, Mastering expects
to occupy an additional 5,000 square feet at the corporate headquarters.
Mastering currently has an obligation to lease an additional 20,000 square
feet at the corporate office by December 1, 1998.
Mastering owns approximately 3.5 acres of undeveloped land located next to
Mastering's corporate headquarters in Scottsdale, Arizona.
LEGAL PROCEEDINGS
Mastering is a party to various claims and lawsuits arising in the normal
course of business. Management believes that the ultimate liability, if any,
in excess of amounts already provided for is not likely to have a material
adverse effect on Mastering's annual results of operations or financial
condition.
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DESCRIPTION OF PLATINUM'S CAPITAL STOCK
The authorized capital stock of PLATINUM consists of 180,000,000 shares of
Common Stock, $.001 par value per share (the "PLATINUM Common Stock"), and
10,000,000 shares of Class II Preferred Stock, $0.01 par value per share (the
"Preferred Stock"), 1,000,000 shares of which (subject to adjustment upward or
downward by PLATINUM's Board of Directors) have been designated as Series A
Junior Participating Preferred Stock, and 1,775,000 of which (subject to
adjustment upward or downward in accordance with PLATINUM's Restated
Certificate of Incorporation, as amended (the "PLATINUM Charter")) have been
designated as Series B Preferred Stock. As of March 27, 1998, 64,850,036
shares of PLATINUM Common Stock were issued and outstanding; 1,768,421 shares
of Series B Preferred Stock were issued and outstanding, and no shares of the
Series A Junior Participating Preferred Stock were issued or outstanding. The
following description is a summary and is qualified in its entirety by
reference to the provisions of PLATINUM's Restated Certificate of
Incorporation, as amended (the "PLATINUM Charter") , and its Bylaws, copies of
which have been filed with and are available from the Commission and PLATINUM
upon request.
COMMON STOCK
Holders of PLATINUM Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Holders
of a majority of the shares of PLATINUM Common Stock represented at a meeting
can elect all of the directors to be elected at that meeting. Holders of
PLATINUM Common Stock are not permitted to act by written consent. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of PLATINUM Common Stock are entitled to receive ratably such
dividends as may be declared by the PLATINUM Board of Directors out of funds
legally available therefor. See "Comparative Per Share Market Price Data--
PLATINUM." In the event of a liquidation, dissolution, or winding up of
PLATINUM, holders of the PLATINUM Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of PLATINUM Common
Stock have no preemptive rights and have no right to convert their PLATINUM
Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the PLATINUM Common Stock. All outstanding
shares of PLATINUM Common Stock are, and any shares of PLATINUM Common Stock
which are issued in connection with the Merger, when so issued, will be, fully
paid and nonassessable.
PREFERRED STOCK
The PLATINUM Board of Directors has the authority, without further action by
the stockholders, to issue up to 8,231,579 shares of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences, and
relative, participating, optional, or other special rights, and
qualifications, limitations, and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, and the number of shares constituting any series. Because the
PLATINUM Board of Directors has the power to establish the preferences and
rights of the shares of any such series of Preferred Stock, it may afford
holders of any Preferred Stock preferences, powers, and rights (including
voting rights), senior to the rights of holders of PLATINUM Common Stock,
which could adversely affect the rights of holders of PLATINUM Common Stock
and could have the effect of delaying, deferring, or preventing a change in
control of PLATINUM.
SERIES B PREFERRED STOCK
Holders of shares of Series B Preferred Stock have voting rights only with
respect to actions by PLATINUM which will materially and adversely change any
of the rights, privileges and preferences of the Series B Preferred Stock.
Shares of Series B Preferred Stock may only be transferred to PLATINUM, or any
person or entity that, directly or indirectly, controls, is controlled by, or
is under common control with the holder of such shares. Shares of Series B
Preferred Stock are convertible, at any time, into shares of PLATINUM Common
Stock at the rate of one-for-one (subject to certain adjustments).
Furthermore, each share of Series B Preferred Stock shall
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automatically be converted into shares of PLATINUM Common Stock at the rate of
one-for-one (subject to certain adjustments) upon the improper transfer of any
shares of Series B Preferred Stock by any holder thereof. In the event of any
liquidation, dissolution, or winding up of PLATINUM, holders of Series B
Preferred Stock are entitled to receive up to an amount equal to (i) $23.75
per share for each share of Series B Preferred Stock then held by them, plus
(ii) the amount of declared but unpaid dividends thereon.
PREFERRED STOCK PURCHASE RIGHTS
The registered holders of PLATINUM Common Stock have the right (a "Right")
to purchase from PLATINUM, for each share of PLATINUM Common Stock owned, one
one-hundredth of a share of Class II Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Rights Shares"), of PLATINUM
at a price of $125.00 per one one-hundredth of a Preferred Rights Share (the
"Rights Purchase Price"), subject to adjustment. Each one-one hundredth of a
Preferred Rights Share is entitled to one vote, a dividend equal to the
dividend per share paid on the PLATINUM Common Stock, and a liquidation
payment equal to the liquidation payment per share paid on the PLATINUM Common
Stock. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between PLATINUM and Harris Trust and
Savings Bank, as Rights Agent (the "Rights Agent").
The Rights are not exercisable until the earlier of (i) the close of
business on the tenth business day after the first public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 15% or more of the outstanding shares of PLATINUM Common Stock
(an "Acquired Person"), or (ii) the close of business on the tenth business
day (or such later date as may be determined by action of the PLATINUM Board
of Directors prior to such time as any Person becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer, the consummation of which would result in the
beneficial ownership by such person or group of 15% or more of the outstanding
shares of PLATINUM Common Stock (the earlier of such dates being called the
"Distribution Date"). Until the Distribution Date, the Rights will be
evidenced by the certificates for the PLATINUM Common Stock, will be
transferable only by the transfer of the shares of PLATINUM Common Stock
(including a transfer to PLATINUM) will constitute a transfer of the Rights.
As described below, after a person or group becomes an Acquiring Person, the
Rights may not be redeemed or amended. The Rights will expire on January 5,
2006 (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Rights are redeemed earlier by PLATINUM, in each case,
as described below. Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of PLATINUM as a result of the ownership
of the Right, including, without limitation, the right to vote or to receive
dividends.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), certificates for the PLATINUM Common Stock issued upon the transfer
or new issuance of shares of PLATINUM Common Stock will contain a legend
incorporating the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for shares of PLATINUM Common Stock will also
constitute the transfer of Rights associated with the shares of PLATINUM
Common Stock represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to the holders of record of shares of PLATINUM
Common Stock as of the close of business on the Distribution Date and such
separate Rights Certificates alone will evidence the Rights.
At any time after the Distribution Date, each holder of a Right (other than
those described in the next sentence) will thereafter have the right to
receive, upon exercise and in lieu of Preferred Rights Shares, shares of
PLATINUM Common Stock (or, in certain circumstances, cash, property or other
securities of PLATINUM) having a value equal to two times the Rights Purchase
Price. All Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be
void.
At any time after the first date of public announcement by PLATINUM or an
Acquiring Person that an Acquiring Person has become such (a "Shares
Acquisition Date"), if (i) PLATINUM is the surviving
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corporation in a merger with any other company or entity, (ii) PLATINUM is
acquired in a merger or other business combination transaction, or (iii) 50%
or more of PLATINUM's consolidated assets or earning power are sold, each
holder of a Right (other than those whose rights have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current Rights Purchase Price and in lieu of Preferred Rights Shares, that
number of shares of common stock of the surviving or acquiring company which
at the time of such transaction will have a market value of two times the
exercise price of such Right.
At any time after a person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding
shares of PLATINUM Common Stock, the Board of Directors of PLATINUM may
exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, without any additional payment, for
shares of PLATINUM Common Stock at an exchange ratio equal to one share of
PLATINUM Common Stock (or a share of a class or series of PLATINUM's preferred
shares having equivalent rights, preferences and privileges) per Right,
subject to adjustment.
With certain exceptions, no adjustment in the Rights Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Rights Purchase Price. No fractional Rights Preferred Shares will be
issued (other than fractions which are integral multiples of one one-hundredth
of a Rights Preferred Share, which may, at the election of PLATINUM, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Rights Preferred Shares on the
last trading day prior to the date of exercise.
At any time prior to the Shares Acquisition Date, the Board of Directors of
PLATINUM may redeem all, but not less than all, of the Rights at a price of
$.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the
PLATINUM Board of Directors in its sole discretion may establish. Immediately
upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
Any provisions of the Rights may be amended by the Board of Directors of
PLATINUM prior to the Shares Acquisition Date. After the Shares Acquisition
Date, the provisions of the Rights Agreement may be amended by the Board of
Directors of PLATINUM in order to cure any ambiguity or to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person).
A copy of the Rights Agreement is available free of charge from PLATINUM.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
The Rights have certain anti-takeover effects. The Rights should not
interfere with any merger or business combination approved by the Board of
Directors of PLATINUM because the Rights may be redeemed by PLATINUM at the
Redemption Price prior to the time that a person or group has acquired
beneficial ownership of 15% or more of the outstanding shares of PLATINUM
Common Stock. However, by causing substantial dilution to a person or group
that attempts to acquire PLATINUM on terms not approved by PLATINUM's Board of
Directors, the Rights may interfere with certain acquisitions, including
acquisitions that may offer a premium over market price to some or all of
PLATINUM's stockholders. The PLATINUM Board of Directors has stated that the
Rights are not intended to prevent an acquisition of PLATINUM on terms that
are favorable and fair to all stockholders.
CERTAIN PLATINUM CHARTER AND BYLAWS PROVISIONS
The PLATINUM Charter and the Bylaws contain a number of provisions relating
to corporate governance and to the rights of PLATINUM stockholders. Certain of
these provisions may be deemed to have a potential "anti-takeover" effect in
that such provisions may delay, defer or prevent a change of control of
PLATINUM. These provisions include (i) the classification of PLATINUM's Board
of Directors into three classes, each class
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serving for staggered three year terms; (ii) restrictions on the removal of
directors; (iii) a requirement that special meetings of PLATINUM stockholders
may be called only by the Board of Directors of PLATINUM and that PLATINUM
stockholder action may be taken only at PLATINUM stockholder meetings and not
by written consent; (iv) the authority of the Board of Directors of PLATINUM
to issue series of Preferred Stock with such voting rights and other powers as
it may determine; (v) a requirement that the affirmative vote of greater than
80% of the voting power of shares entitled to vote generally for the election
of directors is required to amend provisions of the PLATINUM Charter relating
to (a) the classification of PLATINUM's Board of Directors, (b) removal of
directors, and (c) the inability of PLATINUM stockholders to call special
meetings and to take action by written consent; (vi) a requirement that the
Bylaws may only be amended (other than by PLATINUM's Board of Directors) by
the vote of the holders of 66% of the shares entitled to vote generally for
the election of directors; and (vii) notice requirements in the Bylaws
relating to nominations to the Board of Directors of PLATINUM and to the
raising of business matters at PLATINUM stockholder meetings.
DELAWARE GENERAL CORPORATION LAW
PLATINUM is subject to the provisions of Section 203 of the DGCL ("Section
203"). Pursuant to Section 203, with certain exceptions, a Delaware
corporation may not engage in any of a broad range of business combinations,
such as mergers, consolidations and sales of assets with an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder, unless (i) the transaction that results in the
person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person
becomes an interested stockholder, (ii) upon consummation of the transaction
which results in the stockholder becoming an interested stockholder, the
interested stockholder owns 85% or more of the voting stock of the corporation
outstanding at the time the transaction commenced (other than certain excluded
shares), or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board
of directors and by holders of at least two-thirds of the corporation's
outstanding voting stock, excluding shares owned by the interested
stockholder, at a meeting of stockholders. Under Section 203, an "interested
stockholder" is defined as any person, other than the corporation and any
direct or indirect majority-owned subsidiaries of the corporation, that is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring PLATINUM to
negotiate in advance with PLATINUM's Board of Directors because the
stockholder approval requirement would be avoided if a majority of the
PLATINUM's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
management of PLATINUM. It is possible that such provisions could make it more
difficult to accomplish transactions that stockholders may otherwise deem to
be in their best interests.
TRANSFER AGENT
The transfer agent and registrar for the PLATINUM Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
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COMPARISON OF STOCKHOLDER RIGHTS
The statements set forth under this heading with respect to the DGCL, the
PLATINUM Charter, the PLATINUM Bylaws, the Mastering Charter and the Mastering
Bylaws are brief summaries thereof and do not purport to be complete; such
statements are subject to the detailed provisions of the DGCL, the PLATINUM
Charter, the PLATINUM Bylaws, the Mastering Charter and the Mastering Bylaws.
See "AVAILABLE INFORMATION."
GENERAL
The following summary compares certain rights of the holders of PLATINUM
Common Stock to the rights of the holders of Common Shares. The rights of
Mastering stockholders are governed principally by the DGCL, the Mastering
Charter and the Mastering Bylaws. Upon consummation of the Merger, such
stockholders will become holders of PLATINUM Common Stock, and their rights
will be governed principally by the DGCL, the PLATINUM Charter and the
PLATINUM Bylaws. In most respects, the rights of PLATINUM stockholders are
similar to those of Mastering stockholders. The following summarizes the
material differences between the rights of holders of PLATINUM Common Stock
and Common Shares.
DIVIDENDS
Under the DGCL, a corporation may pay dividends out of surplus (defined as
the excess, if any, of net assets over capital) or, if no such surplus exists,
out of its net profits for the fiscal year in which such dividends are
declared and/or for its preceding fiscal year, provided that dividends may not
be paid out of net profits if the capital of such corporation is less than the
aggregate amount of capital represented by the outstanding stock of all
classes having a preference upon distribution of assets. Each of the PLATINUM
Charter and Bylaws and the Mastering Charter and Bylaws contains provisions
relating to the declaration and payment of dividends consistent with the DGCL.
However, neither PLATINUM nor Mastering currently pays dividends to their
respective stockholders.
VOTING RIGHTS
Each share of PLATINUM Common Stock and each Common Share is entitled to one
vote on each matter submitted to a vote of stockholders. Neither the holders
of PLATINUM Common Stock nor the holders of Common Shares have cumulative
voting rights in the election of directors.
DIRECTORS
Number of Directors. Under the DGCL, the charter document or bylaws of a
corporation may specify the number of directors. The PLATINUM Charter and
Bylaws provide the PLATINUM Board shall consist of not less than six nor
greater than eleven directors elected for staggered three year terms, with the
exact number determined by the PLATINUM Board. The current size of the
PLATINUM Board is seven. Section 223 of the DGCL provides that vacancies and
newly created directorships may be filled by a majority of the directors then
in office (even though less than a quorum) unless (i) otherwise provided in
the certificate of incorporation or bylaws of the corporation (PLATINUM's
Charter and Bylaws do not provide otherwise) or (ii) the certificate of
incorporation directs that a particular class is to elect such director, in
which case any other directors elected by such class, or a sole remaining
director, shall fill such vacancy (PLATINUM's Charter does not have such a
provision). In addition, if, at the time of filling any vacancy or newly
created directorship, the directors then in office constitute less than a
majority of the whole board, the Delaware Court of Chancery may, upon
application of stockholders holding at least ten percent of shares outstanding
at the time and entitled to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office. Such
elections are to be conducted in accordance with the procedures provided by
the DGCL. Unless otherwise provided in the certificate of incorporation or
bylaws, when one or more directors resign from the board, a majority of
directors then in office, including those
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who have so resigned, may vote to fill the vacancy. PLATINUM's Bylaws limit
this provision with respect to directors that have resigned such that it
applies only where the director has resigned, effective at a future date.
The Mastering Charter specifies that the Mastering Board shall consist of
not less than five nor more than 15 directors elected for staggered three year
terms. The current size of the Mastering Board is seven and the number of
directors may be changed by amendment to the Mastering Bylaws. Vacancies and
newly created directorships may be filled by the Mastering Board. In addition,
if at the time of filling any vacancy or newly created directorship the
directors then in office shall constitute less than a majority of the whole
board, holders of ten percent (10%) or more of the outstanding voting capital
stock of Mastering may petition the Delaware Court of Chancery to summarily
order an election to be held to fill any such vacancy or newly created
directorship, or to replace the directors chosen by the directors then in
office.
Classification. Directors of both PLATINUM and Mastering serve staggered
terms of office. Both the PLATINUM Charter and Bylaws and the Mastering
Charter and Bylaws provide that their respective boards of directors shall be
divided, with respect to the terms of office for the individual directors,
into three classes, as nearly equal as possible, with each class to serve a
staggered three year term.
Removal. Under Section 141 of the DGCL, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares entitled to vote at an election of directors, except (i) unless
the certificate of incorporation otherwise provides, in the case of a
corporation having a classified board, stockholders may effect such removal
only for cause and (ii) in the case of a corporation having cumulative voting,
if less than the entire board is to be removed, no director may be removed
without cause if the votes cast against his removal would be sufficient to
elect him if then cumulatively voted at an election of the entire board of
directors. PLATINUM's Charter provides that directors may be removed only with
cause by a vote of a majority of the combined voting power of PLATINUM's
outstanding stock. Mastering's Bylaws provide that any director may be removed
only for cause by (i) the affirmative vote of holders of at least eighty
percent (80%) of the outstanding voting capital stock of Mastering or (ii) the
affirmative vote of a majority of the entire Mastering Board.
Nominations. Each of the Mastering Bylaws and the PLATINUM Bylaws provide
that nominations for directors may be made only by or at the direction of the
Mastering Board or by a stockholder entitled to vote for the election of
directors at a stockholders' meeting. With respect to stockholder nominations,
written notice of such stockholders' intent to make such nominations at such
meeting must be received by the Secretary of Mastering or PLATINUM, as the
case may be, in a manner and within the time period specified in the
respective Bylaws of PLATINUM and Mastering.
Fiduciary Duties of Directors. Under the DGCL, directors have a fiduciary
relationship with their corporation and its stockholders and, as such, are
required to discharge their duties in good faith and in a manner reasonably
believed to be in the best interests of such corporation and its stockholders.
They are required to use such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. Absent a breach of fiduciary duty, a lack of good faith or
self-dealing, any act of the board of directors, a committee thereof or an
individual director is presumed to be in the best interests of such
corporation. Delaware courts have held that the duty of care requires
directors to exercise an informed business judgment, which requires that they
have informed themselves of all material information reasonably available.
Delaware courts have imposed a heightened standard of conduct on directors who
are responding to a proposed change of control or are engaging in a sale or
auction of their corporation.
LIMITATION ON DIRECTORS LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL allows a corporation to include in its certificate
of incorporation a provision that limits or eliminates the personal liability
of directors of the corporation and its stockholders for monetary damages for
breach of fiduciary duty as a director. Section 102 of the DGCL does not,
however, permit a corporation to limit or eliminate the personal liability of
a director for (i) any breach of the director's duty of
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loyalty to the corporation or its stockholders (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) intentional or negligent payments of unlawful dividends or unlawful
stock purchases or redemption or (iv) any transaction from which the director
derives an improper personal benefit. Each of the PLATINUM Charter and the
Mastering Charter provide for limitations on directors' liability to the
fullest extent permitted by the DGCL.
Section 145 of the DGCL permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to: (i) any action, suit
or proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) against expenses
(including attorneys' fees), judgments, fines and reasonable settlement
amounts if such person acted in good faith and reasonably believed that his or
her actions were in or not opposed to the best interests of such corporation
and, with respect to any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful; (ii) any derivative action or
suit on behalf of such corporation against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such action or suit, if such person acted in good faith and
reasonably believed that his or her actions were in or not opposed to the best
interest of such corporation. With respect to derivative suits and actions, in
the event that a person is adjudged to be liable to the corporation, the DGCL
prohibits indemnification unless, and then only to the extent that, either the
Delaware Court of Chancery or the court in which such derivative action or
suit was brought determines that such person is entitled to indemnification
for those expenses which that court deems proper. To the extent that a
representative of a corporation has been successful on the merits or otherwise
in the defense of a third party or derivative action, indemnification for
actual and reasonable expenses incurred is mandatory.
The PLATINUM Charter provides that PLATINUM shall indemnify PLATINUM
directors to the maximum extent permitted by the DGCL. The PLATINUM Charter
provides that PLATINUM may, at the discretion of the PLATINUM Board, indemnify
officers and employees of PLATINUM.
The Mastering Charter and Bylaws provide for the indemnification of
directors and officers of Mastering to the maximum extent permitted by the
DGCL. The Mastering Charter authorizes the Mastering Board, from time to time,
to indemnify employees and agents of Mastering to the maximum extent permitted
by the DGCL. The Mastering Charter also provides for the mandatory advancement
of certain expenses to directors and officers upon the delivery of an
undertaking by such persons to reimburse all amounts so advanced to which such
persons are determined by a court not to be entitled.
CALL OF SPECIAL MEETINGS
Under Section 211 of the DGCL, special meetings of stockholders may be
called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or
bylaws. Under PLATINUM's Bylaws, a special meeting of stockholders may be
called only by the PLATINUM Board. Under Mastering's Bylaws, a special meeting
of the stockholders may be called by the President or the Chairman of the
Board of Directors of Mastering, and shall be called at the request of a
majority of the Mastering Board.
ACTION OF STOCKHOLDERS WITHOUT A MEETING
The DGCL permits the stockholders of a corporation to consent in writing to
any action without a meeting, unless the certificate of incorporation of such
corporation provides otherwise; provided such consent is signed by the
stockholders having at least the minimum number of votes required to authorize
such action at a meeting. Each of the PLATINUM Charter and the Mastering
Charter contains a prohibition that prevents PLATINUM's stockholders and
Mastering's stockholders, respectively, from taking any action without a
meeting.
STOCKHOLDER PROPOSALS
The PLATINUM Bylaws provide that, to be timely, a stockholder must deliver
written notice to, or mail such written notice so that it is received by, the
Secretary of PLATINUM at the principal executive offices of
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PLATINUM, not less than 120 nor more than 150 days prior to the first
anniversary of the date of PLATINUM's consent solicitation or proxy statement
released to stockholders in connection with the previous year's election of
directors or meeting of stockholders, except that if no annual meeting of
stockholders or election by consent was held in the previous year or if the
date of the meeting has been changed from the previous year's meeting date, a
proposal must be received within 10 days after the meeting date has been
"publicly disclosed." Neither Mastering's Charter nor Bylaws contains any
specific provision relating to stockholder proposals.
AMENDMENT TO CHARTER
Under the DGCL, the charter of a corporation may be amended by resolution of
the board of directors and the affirmative vote of the holders of a majority
of the outstanding shares of voting stock entitled to vote thereon. With
respect to any amendment to the charter of a corporation that would adversely
affect a particular class or series of stock, the DGCL requires the separate
approval by the holders of the affected class or series of stock, voting
together as a single class. Any amendments to either the PLATINUM Charter or
the Mastering Charter relating to the creation of a classified board of
directors or affecting the prohibition on stockholder action by written
consent requires the approval of eighty percent (80%) of the outstanding
shares of voting capital stock of PLATINUM or Mastering, as the case may be,
unless, in the case of Mastering, such amendment is declared advisable by at
least seventy five percent (75%) of the members of the Mastering Board.
AMENDMENT TO BYLAWS
Section 109 of the DGCL provides that the power to adopt, amend or repeal
bylaws shall be in the stockholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers on
the board of directors. In accordance with the PLATINUM Charter, the PLATINUM
Board is expressly authorized to make, alter, amend or repeal the Bylaws of
PLATINUM; provided, however, that if such action is to be taken by
stockholders, the affirmative vote of 66 2/3% of the total votes eligible to
be cast by stockholders is required.
In accordance with the Mastering Charter, each of the Mastering Board and
the Stockholders are expressly authorized to make, alter, amend or repeal the
Mastering Bylaws; provided however that amendments to the By-law provisions
relating to creation of a classified board of directors, filling of vacancies
and newly created directorships, removal of directors and nomination of
directors require the approval of the holders of eighty percent (80%) of the
outstanding shares of voting capital stock of Mastering, unless such amendment
is declared advisable by at least seventy-five percent (75%) of the members of
the Mastering Board.
CONFLICT OF INTEREST
The PLATINUM Bylaws provide that no contract entered into between PLATINUM
and one or more of its directors or officers or between PLATINUM and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely because the director or
officer is present or participates in a meeting which authorizes the contract
or transaction, or solely because his or her votes are counted for such
purpose, if: (i) the director or officer's relationship or interest in the
contract or transaction are disclosed to the disinterested directors and the
disinterested directors in good faith authorize the contract or transaction;
(ii) the material facts as to the director or officer's relationship or
interest in the contract are disclosed to the stockholders entitled to vote
thereon, and a contract is approved in good faith by the vote of the
stockholders; or (iii) the contract is fair as to the corporation as of the
time it is authorized, by the Board of Directors, or by the stockholders.
Neither the Mastering Charter nor Mastering's Bylaws contains any specific
provisions relating to contracts between Mastering and its directors or
officers.
ANTI-TAKEOVER PROVISIONS
Section 203 of the DGCL prohibits, in general, a publicly held Delaware
corporation from engaging, under certain circumstances and subject to certain
exceptions, in a "business combination" with an "interested
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stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless either (i) prior to
the date at which the person becomes an interested stockholder, the board of
directors approves the transaction or business combination which results in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which results in the stockholder becoming an interested
stockholder, the stockholder acquires more than eighty five percent (85%) of
the outstanding shares of voting capital stock of the corporation (excluding
shares held by directors who are officers or held in certain employee stock
plans); or (iii) the business combination is approved by the board of
directors and by holders of two-thirds of the outstanding voting capital stock
of the corporation (excluding shares held by the interested stockholder) at a
meeting of stockholders (and not by written consent). An "interested
stockholder" is a person (other than the corporation or a majority-owned
subsidiary of such corporation), who, together with affiliates and associates,
owns (or at any time within the prior three years did own) fifteen percent
(15%) or more of the corporation's outstanding voting capital stock, subject
to certain exceptions. Section 203 of the DGCL defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset-based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
Except as described above under "--Conflict of Interest," neither the
PLATINUM Charter or Bylaws nor the Mastering Charter or Bylaws contains any
provisions which modify Section 203 of the DGCL.
PLATINUM's Charter, Bylaws and the PLATINUM Rights Agreement as well as
Mastering's Charter, Bylaws and the Rights Agreement (the "Mastering Rights
Agreement") dated as of March 15, 1996, as amended, between Mastering and
Harris Trust and Savings Bank, as rights agent, contain a number of provisions
which may be deemed to have potential anti-takeover effects. See "DESCRIPTION
OF PLATINUM'S CAPITAL STOCK" and "Available Information."
97
<PAGE>
SECURITY OWNERSHIP OF PLATINUM MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF PLATINUM
The following table sets forth, as of March 27, 1998 unless otherwise
indicated below, certain information with respect to the beneficial ownership
of the PLATINUM Common Stock by (i) each person known by PLATINUM to own
beneficially more than 5% of the outstanding shares of PLATINUM Common Stock,
(ii) each director of PLATINUM, (iii) each of the Named Officers and (iv) all
executive officers and directors of PLATINUM as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP(1) CLASS
---------------- ------------ -------
<S> <C> <C>
Andrew J. Filipowski(2)............................... 4,433,042 6.6%
T. Rowe Price Associates, Inc.(3)..................... 5,741,400 8.9
The Prudential Insurance Company of America(4)........ 5,324,850 8.2
Jennison Associates Capital Corp.(5).................. 5,261,600 8.1
Michael P. Cullinane(6)............................... 709,742 1.1
Paul L. Humenansky(7)................................. 706,541 1.1
Steven D. Devick(8)................................... 108,350 *
Thomas A. Slowey(9)................................... 285,365 *
Paul A. Tatro(10)..................................... 248,782 *
Gian Fulgoni(11)...................................... 25,966 *
James E. Cowie(12).................................... 38,966 *
Arthur P. Frigo....................................... 90,200 *
All Executive Officers and Directors as a Group (9
persons)(13)......................................... 6,646,954 9.7
</TABLE>
- --------
*Less than one percent
(1) Unless otherwise indicated below, the persons in the above table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes (a) 2,082,500 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Filipowski within 60 days of March
27, 1998, (b) 189,000 shares held by a foundation established by Mr.
Filipowski and (c) 391,549 shares held by Platinum Ventures. Mr.
Filipowski disclaims beneficial ownership of the shares held by the
foundation. Mr. Filipowski disclaims beneficial ownership of the shares
owned by Platinum Ventures except to the extent of his pecuniary
interest. The address of Mr. Filipowski is c/o PLATINUM technology, inc.,
1815 South Meyers Road, Oakbrook Terrace, Illinois 60181.
(3) As reported on a Schedule 13G/A filed with the Securities and Exchange
Commission (the "Commission") on February 10, 1998 (the "Price 13G")
jointly by T. Rowe Price Associates, Inc. ("Price Associates") and T.
Rowe Price Science and Technology Fund, Inc. ("Price Fund"). According to
the Price 13G, Price Associates has sole voting power with respect to
156,500 shares and sole dispositive power with respect to all 5,741,400
shares, and Price Fund has sole voting power with respect to 2,500,000
shares. The address of Price Associates and Price Fund is 100 E. Pratt
Street, Baltimore, Maryland 21202.
(4) As reported on a Schedule 13G/A filed with the Commission on February 9,
1998 (the "Prudential 13G") by the Prudential Insurance Company of
America ("Prudential"). According to the Prudential 13G, Prudential has
sole voting power and sole dispositive power with respect to 6,900
shares, shared voting power with respect to 4,601,650 shares and shared
dispositive power with respect to 5,317,950 shares. The address of
Prudential is 751 Broad Street, Newark, New Jersey 07102-3777.
(5) As reported on a Schedule 13G/A filed with the Commission on February 12,
1998 (the "Jennison 13G") by Jennison Associates Capital Corp.
("Jennison"). According to the Jennison 13G, Jennison has sole voting
power with respect to 6,600 shares, shared voting power with respect to
4,538,700 shares and shared dispositive power with respect to all
5,261,600 shares. The address of Jennison is 466 Lexington Ave., New
York, New York 10017.
98
<PAGE>
(6) Includes (a) 617,500 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Cullinane within 60 days of March
27, 1998 and (b) 6,211 shares allocated to his account under the PLATINUM
Stock Purchase Plan.
(7) Includes (a) 697,500 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Humenansky within 60 days of March
27, 1998 and (b) 5,364 shares allocated to his account under the PLATINUM
Stock Purchase Plan.
(8) Includes 15,966 shares which may be acquired pursuant to the exercise of
stock options held by Mr. Devick within 60 days of March 27, 1998.
(9) Includes (a) 281,000 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Slowey within 60 days of March 27,
1998 and (b) 3,167 shares allocated to his account under the PLATINUM
Stock Purchase Plan.
(10) Includes (a) 207,782 shares which may be acquired pursuant to the
exercise of stock options held by Mr. Tatro within 60 days of March 27,
1998, and (b) 41,000 shares held as co-trustee, with his wife, of trusts
for their benefit.
(11) Represents shares which may be acquired pursuant to the exercise of stock
options held by Mr. Fulgoni within 60 days of March 27, 1998.
(12) Includes 15,966 shares which may be acquired pursuant to exercise of
stock options held by Mr. Cowie within 60 days of March 27, 1998.
(13) Includes 3,950,780 shares which may be acquired pursuant to the exercise
of stock options within 60 days of March 27, 1998.
99
<PAGE>
SECURITY OWNERSHIP OF MASTERING MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF MASTERING
The following table sets forth, as of March 1, 1998, unless otherwise
indicated, the number of Common Shares beneficially owned by (i) each person
known by Mastering to own beneficially more than five percent of the
outstanding Common Shares (ii) each director and nominee, (iii) the executive
officers of Mastering, and (iv) all directors and executive officers as a
group. Unless otherwise indicated, the persons named below have sole voting
and investment power with respect to all shares shown as beneficially owned by
them:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP
- ------------------------ ----------------- ----------
<S> <C> <C>
Terence M. Graunke............................... 3,504,548(1) 25.5%
Paul D. Carbery.................................. 3,029,800(2) 22.1
James E. Cowie................................... 3,029,800(2) 22.1
Frontenac VI Limited Partnership................. 3,000,000(3) 22.0
Thomas R. Graunke................................ 1,286,250(4) 9.4
The Capital Group Companies, Inc................. 880,000(5) 6.4
Montgomery Asset Management, L.P................. 816,000(6) 5.9
Jennison Associates Capital Corp................. 765,500(7) 5.6
Casey Cowell..................................... 344,800(8) 2.5
Andrew J. Filipowski............................. 364,800(9) 2.7
Marc Pinto....................................... 166,810(10) 1.2
Marko A. Rukavina III............................ 155,378(11) 1.1
Peter I. Mason................................... 79,800(12) *
Paul G. Yovovich................................. 6,000 *
All directors and executive officers as a group
(10 persons).................................... 8,967,986(13) 65.3
</TABLE>
- --------
* Less than 1%.
(1) Includes 472,100 shares issuable pursuant to options that are currently
exercisable. Mr. Graunke's address is c/o Mastering, Inc., 676 N.
Michigan Ave., Suite 3410, Chicago, Illinois 60611.
(2) Includes 29,800 shares issuable pursuant to options that are currently
exercisable, and 3,000,000 shares held by Frontenac VI Limited
Partnership. Messrs. Carbery and Cowie are General Partners of Frontenac
Company, the general partner of Frontenac VI Limited Partnership, and may
be deemed to have shared voting and investment power over the shares held
by Frontenac VI Limited Partnership. Messrs. Carbery and Cowie disclaim
beneficial ownership of the shares held by Frontenac VI Limited
Partnership. The address of Messrs. Carbery and Cowie is c/o Frontenac
Company, 135 South LaSalle Street, Chicago, Illinois 60603.
(3) Excludes options to purchase Common Shares held by Messrs. Carbery and
Cowie, who are directors of Mastering and general partners of Frontenac
Company, the general partner of Frontenac VI Limited Partnership. The
address of Frontenac VI Limited Partnership is c/o Frontenac Company, 135
South LaSalle Street, Chicago, Illinois 60603.
(4) Includes 17,500 shares that have been pledged to Mastering, pursuant to a
Stock Pledge Agreement, to secure certain potential indemnification
obligations of Mr. Graunke to Mastering, Inc. and Mastering Computers,
Inc., a wholly-owned subsidiary of Mastering, Inc.. In connection with
the pledge of stock, Mr. Graunke has agreed not to sell, transfer,
exchange or otherwise dispose or agree to dispose of all or any portion
of such shares without Mastering's consent until such shares are released
pursuant to the terms of the Stock Pledge Agreement. Includes 101,250
shares issuable pursuant to options that are currently exercisable. Mr.
Graunke's address is c/o Mastering, Inc., 9201 East Mountain View Road,
Scottsdale, Arizona 85258.
(5) Includes 880,000 shares with respect to which The Capital Group
Companies, Inc. ("The Capital Group") and its wholly-owned subsidiary,
Capital Research and Management Company, report sole dispositive power.
Sole voting power with respect to such shares is held by SMALLCAP World
Fund, Inc. The
100
<PAGE>
Capital Group's address is 333 South Hope Street, 52nd Floor, Los Angeles,
California 90071. The number of shares reflected in the table is based on
information contained in a Schedule 13G, dated February 11, 1998, filed by
each of the Capital Group, Capital Research and Management Company and
SMALLCAP World Fund, Inc. with the Securities and Exchange Commission.
(6) Includes 642,000 shares with respect to which Montgomery Asset
Management, L.P. ("Montgomery") has sole voting power. Montgomery's
address is 101 California Street, San Francisco, California 94111. The
number of shares reflected in the table is based on information contained
in a Schedule 13G, dated February 5, 1998, filed by Montgomery with the
Securities and Exchange Commission.
(7) Includes 462,200 shares with respect to which Jennison Associates Capital
Corp. ("Jennison") has sole voting power, and 303,300 shares with respect
to which it has shared voting power. Jennison shares dispositive power
with respect to all of the 765,500 shares. The Prudential Insurance
Company of America owns all of the stock of Jennison and may be deemed to
have the power to exercise or direct the exercise of such voting and/or
investment power that Jennison may have with respect to the Common Shares
reported above. Jennison's address is 466 Lexington Avenue, New York, New
York 10017. The number of shares reflected in the table is based on
information contained in a Schedule 13G, dated February 12, 1998, filed
by Jennison with the Securities and Exchange Commission.
(8) Includes 29,800 shares issuable pursuant to options that are currently
exercisable.
(9) Includes 29,800 shares issuable pursuant to options that are currently
exercisable and 335,000 shares held by Platinum Ventures Partners I L.P.
and Platinum Ventures Partners II L.P. (collectively "Platinum
Ventures"). Mr. Filipowski is the President, Chief Executive Officer and
a stockholder of Platinum Ventures Partners, Inc., the general partner of
the Platinum Ventures and a limited partner of each of the Platinum
Ventures, and may be deemed to have shared voting and investment power
over the shares held by the Platinum Ventures. Mr. Filipowski disclaims
beneficial ownership of the shares held by the Platinum Ventures except
to the extent of his pecuniary interest.
(10) Includes 166,800 shares issuable pursuant to options that are currently
exercisable.
(11) Represents shares issuable pursuant to options that are currently
exercisable.
(12) Includes 19,800 shares issuable pursuant to options that are currently
exercisable.
(13) Includes 1,034,528 shares issuable pursuant to options that are currently
exercisable, 3,000,000 shares held by Frontenac VI Limited Partnership
and 335,000 shares held by the Platinum Ventures. See footnotes 1, 2, 4,
8, 9, 10, 11 and 12 above.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mastering has entered into employment agreements with each of Messrs.
Terence M. Graunke, Marc Pinto, Thomas R. Graunke and Marko A. Rukavina III.
Pursuant to certain arrangements with PLATINUM, the employment agreements with
Messrs. Terence M. Graunke, Marc Pinto and Thomas R. Graunke will terminate at
the Effective Time. See "THE MERGER--Interests of Certain Persons in the
Merger." The employment agreement with Terence M. Graunke provides for an
annual base salary of $275,000 plus a bonus of up to $275,000 to be awarded
annually at the discretion of the Compensation Committee. For 1997 Mastering
paid Mr. Graunke a bonus of $120,000. Mr. Graunke's employment agreement,
which expires September 30, 2001, may be terminated by either party upon 90
days' notice. In the event Mr. Graunke is terminated without "cause" or if he
resigns for "good reason" (as defined in the agreement), he is entitled to
receive a severance payment in the amount of three times his base salary. In
addition, Mr. Graunke is eligible for a "gross-up" payment as reimbursement of
any federal excise (but not income) taxes payable.
The employment agreement with Marc Pinto provides for an annual base salary
of $175,000. Mr. Pinto is entitled to participate in Mastering's bonus plan
for senior executives, and for 1997 he received a bonus of $116,000 under the
plan. Mr. Pinto's agreement, which expires December 25, 1999, may be
terminated by either party upon 60 days' notice. In the event Mr. Pinto is
terminated without "cause" (as defined in the agreement), he is entitled to
receive his base salary for a period of six months.
The employment agreement with Thomas R. Graunke provides for an annual base
salary of $200,000. Mr. Graunke is entitled to participate in Mastering's
bonus plan for senior executives, and for 1997 he received
101
<PAGE>
a bonus of $160,000. Mr. Graunke's employment agreement, which expires in July
2000, may be terminated by either party upon 30 days' notice. In the event Mr.
Graunke is terminated without "cause" (as defined in the agreement) before
July 31, 1999, he is entitled to receive his base salary for a period of
twelve months, and if he is terminated without cause after July 31, 1999, he
is entitled to receive his base salary for the remaining term of the
agreement. If Mr. Graunke terminates his employment for "good reason" (as
defined in the agreement) prior to July 31, 1999, he is entitled to severance
equal to his base salary for a period of twelve months, and, if he terminates
his employment for good reason on or after July 31, 1999, he is entitled to
receive his base salary for the remaining term of the agreement.
The employment agreement with Marko A. Rukavina III provides for an annual
base salary of $150,000. Mr. Rukavina is entitled to participate in
Mastering's bonus plan for senior executives, and for 1997 he received a bonus
of $108,000 under the plan. Mr. Rukavina's agreement, which expires on July
31, 1999, may be terminated by either party on fourteen days' notice. In the
event Mr. Rukavina is terminated without "cause" (as defined in the
agreement), he is entitled to receive his base salary for a period of six
months.
Each of the employment agreements with Messrs. Terence M. Graunke, Marc
Pinto, Thomas R. Graunke and Marko A. Rukavina III contains certain non-
competition and confidentiality provisions.
The Amended and Restated 1995 Executive Stock Option Plan and the Amended
and Restated 1995 Employee Stock Option Plan each contain a provision which
provides that options granted under the respective plans become exercisable
upon a "change in control" (as such term is defined in the plans).
EXPERTS
The consolidated financial statements and related financial statement
schedule of PLATINUM, as of December 31, 1997 and 1996, and for each of the
years in the three-year period ended December 31, 1997, have been included in
this Proxy Statement/Prospectus in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Mastering, as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, included in this Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto and are included in reliance upon the authority of said
firm as experts in giving said reports.
LEGAL MATTERS
The validity of PLATINUM Common Stock offered hereby and certain federal
income tax matters relating to the Merger will be passed upon for PLATINUM by
Katten Muchin & Zavis, Chicago, Illinois. Certain federal income tax matters
relating to the Merger will be passed upon for Mastering by Sidley & Austin,
Chicago, Illinois.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by Mastering. Proxies may be
solicited without extra compensation by certain directors, officers and
regular employees of Mastering by mail, telegram or personally. Brokers,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to the
102
<PAGE>
beneficial owners of Common Shares and will be reimbursed by Mastering for
their reasonable expenses in forwarding such materials.
Stockholders are urged to return their proxies without delay.
OTHER MATTERS
The Mastering Board is not aware of any matters to be presented at the
Meeting other than those listed in the notice of the Meeting. If any other
matters do come before the Meeting, it is intended that the holders of proxies
solicited by the Mastering Board will vote on such other matters in their
discretion in accordance with their best judgments.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PLATINUM TECHNOLOGY, INC.
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP.......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997,
1996 and 1995........................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
MASTERING, INC.
Report of Arthur Andersen LLP............................................ F-30
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-31
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995..................................................... F-32
Consolidated Statements of Stockholders's Equity (Deficit) for the years
ended December 31, 1997, 1996 and 1995.................................. F-33
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995..................................................... F-34
Notes to Consolidated Financial Statements............................... F-35
PLATINUM TECHNOLOGY, INC.
Report on Schedule of KPMG Peat Marwick LLP.............................. S-1
Schedule II--Valuation and Qualifying Accounts........................... S-2
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
PLATINUM technology, inc.:
We have audited the accompanying consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of PLATINUM technology, inc. and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 9, 1998, except for Note 18,
which is as of March 14, 1998
F-2
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
ASSETS 1997 1996
---------------------------------------------------- --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 178,138 $ 140,783
Short-term investment securities...................... 57,597 42,755
Trade accounts receivable, net of allowances of $1,613
and $2,503........................................... 212,731 165,131
Installment accounts receivable, net of allowances of
$878 and $395........................................ 30,043 13,603
Accrued interest and other current assets............. 32,132 11,729
Refundable income taxes............................... 547 629
--------- ---------
Total current assets................................ 511,188 374,630
--------- ---------
Non-current investment securities....................... 25,553 2,135
Property and equipment, net............................. 77,842 72,750
Purchased and developed software, net................... 116,717 82,438
Excess of cost over net assets acquired, net of
accumulated amortization of $15,975 and $10,610........ 52,759 37,382
Non-current installment receivables, net of allowances
of $1,616 and $816..................................... 21,912 21,665
Other assets............................................ 28,206 27,572
--------- ---------
Total assets........................................ $ 834,177 $ 618,572
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables.......................... $ 15,717 $ 7,872
Income taxes payable.................................. 3,698 2,420
Accounts payable...................................... 16,091 15,436
Accrued commissions and bonuses....................... 13,357 10,622
Accrued royalties..................................... 7,070 3,913
Accrued restructuring costs........................... 6,308 --
Other accrued liabilities............................. 42,905 29,798
Current maturities of long-term obligations........... 1,319 3,246
Deferred revenue...................................... 116,374 84,166
--------- ---------
Total current liabilities........................... 222,839 157,473
--------- ---------
Acquisition-related payables............................ 18,320 2,502
Deferred revenue........................................ 60,435 38,674
Deferred rent........................................... 6,197 8,360
Accrued restructuring costs............................. 16,002 --
Long-term obligations, net of current maturities........ 266,824 115,803
--------- ---------
Total liabilities................................... 590,617 322,812
--------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000, none issued and outstanding.................. -- --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997...................... 18 --
Common stock, $.001 par value; authorized 180,000,
issued and outstanding 63,860 and 60,577............. 64 61
Paid-in capital....................................... 565,371 487,417
Accumulated deficit................................... (325,558) (208,788)
Unrealized holding gains on marketable securities..... 8,262 17,805
Foreign currency translation adjustment............... (4,597) (735)
--------- ---------
Total stockholders' equity.......................... 243,560 295,760
--------- ---------
Total liabilities and stockholders' equity.......... $ 834,177 $ 618,572
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Revenues:
Software products............................ $ 357,223 $243,938 $ 158,597
Maintenance.................................. 125,245 102,364 76,498
Professional services........................ 141,035 121,763 91,316
--------- -------- ---------
Total revenues............................. 623,503 468,065 326,411
--------- -------- ---------
Costs and expenses:
Professional services........................ 127,499 116,133 92,374
Product development and support.............. 187,383 155,277 94,027
Sales and marketing.......................... 228,387 182,597 113,978
General and administrative................... 61,876 39,224 34,097
Restructuring charges........................ 57,319 -- --
Merger costs................................. 8,927 5,782 30,819
Acquired in-process technology............... 67,904 48,456 88,493
--------- -------- ---------
Total costs and expenses................... 739,295 547,469 453,788
--------- -------- ---------
Operating loss................................. (115,792) (79,404) (127,377)
Other income, net.............................. 16,729 5,237 4,130
--------- -------- ---------
Loss before income taxes....................... (99,063) (74,167) (123,247)
Income taxes................................... 18,721 (9,245) (11,680)
--------- -------- ---------
Net loss....................................... $(117,784) $(64,922) $(111,567)
========= ======== =========
Net loss per share............................. $ (1.90) $ (1.14) $ (2.50)
========= ======== =========
Shares used in computing per share amounts..... 62,042 56,968 44,671
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock:
Balance at beginning of
year................... -- $ -- -- $ -- -- $ --
Stock subscribed........ 1,768 18 -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................... 1,768 $ 18 -- $ -- -- $ --
====== ========= ====== ========= ====== =========
Common stock:
Balance at beginning of
year................... 60,577 $ 61 54,598 $ 55 39,670 $ 40
Exercise of stock
options................ 939 1 517 1 803 1
Issuance of common
stock under Stock
Purchase Plan.......... 882 1 197 -- -- --
Issuance of common
stock.................. 1,461 1 5,265 5 14,125 14
Conversion of
subordinated notes..... 1 -- -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................... 63,860 $ 64 60,577 $ 61 54,598 $ 55
====== ========= ====== ========= ====== =========
Paid-in capital:
Balance at beginning of
year................... $ 487,417 $ 433,856 $ 191,194
Exercise of stock
options................ 7,067 2,380 4,754
Issuance of common
stock under Stock
Purchase Plan.......... 11,540 1,801 --
Issuance of common
stock.................. 17,514 49,515 237,907
Preferred stock
subscribed............. 41,848 -- --
Amortization of shelf
registration costs..... (25) (135) --
Conversion of
subordinated notes..... 10 -- --
Adjustment to conform
fiscal years of pooled
businesses............. -- -- 1
--------- --------- ---------
Balance at end of
year................... $ 565,371 $ 487,417 $ 433,856
========= ========= =========
Notes receivable:
Balance at beginning of
year................... $ -- $ (515) $ (333)
Issuance of notes
receivable............. -- -- (200)
Repayment of notes
receivable............. -- -- 18
Reclassification to
other assets........... -- 515 --
--------- --------- ---------
Balance at end of
year................... $ -- $ -- $ (515)
========= ========= =========
Accumulated deficit:
Balance at beginning of
year................... $(208,788) $(143,771) $ (30,958)
Net loss................ (117,784) (64,922) (111,567)
Adjustment for
immaterial pooled
businesses............. 1,014 45 --
Other................... -- -- (22)
Adjustment to conform
fiscal years of pooled
businesses............. -- (140) (1,224)
--------- --------- ---------
Balance at end of
year................... $(325,558) $(208,788) $(143,771)
========= ========= =========
Unrealized appreciation
in marketable
securities:
Balance at beginning of
year................... $ 17,805 $ -- $ --
Change in unrealized
holding gains, net of
tax.................... (9,543) 17,805 --
--------- --------- ---------
Balance at end of
year................... $ 8,262 $ 17,805 $ --
========= ========= =========
Foreign currency
translation adjustment:
Balance at beginning of
year................... $ (735) $ 588 $ 183
Translation
adjustment............. (3,862) (1,323) 405
--------- --------- ---------
Balance at end of
year................... $ (4,597) $ (735) $ 588
========= ========= =========
Total stockholders'
equity............... $ 243,560 $ 295,760 $ 290,213
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(117,784) $(64,922) $(111,567)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 57,191 38,824 24,140
Acquired in-process technology............. 67,904 48,456 88,493
Write-off of fixed assets, capitalized
software and other intangible assets in
conjunction with the restructuring plan... 19,687 -- --
Unrealized holding gains on marketable
equity securities......................... (12,581) (920) --
Realized net gain on sales of investment
securities................................ (7,566) (1,032) (332)
Write-off of capitalized software in
connection with product stabilization and
mergers................................... -- 654 942
Noncash compensation....................... -- -- 78
Sales of trading securities.................. 9,489 -- --
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables............ (62,316) (67,219) (53,845)
Deferred income taxes........................ 14,580 (16,337) (13,000)
Accrued interest and other current assets ... (10,394) (1,170) (3,134)
Accounts payable and accrued liabilities..... 32,547 (7,080) 6,888
Deferred revenue............................. 53,969 59,196 20,325
Income taxes payable......................... 1,092 993 2,615
Other........................................ (13,232) 6,657 16,073
--------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 32,586 (3,900) (22,324)
--------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities........... (66,957) (18,797) (61,484)
Sales of investment securities............... 87 30,223 75,519
Maturities of investment securities.......... 24,383 5,846 10,753
Purchases of property and equipment.......... (26,940) (35,542) (39,435)
Purchased and developed software............. (63,781) (41,279) (20,742)
Payments for acquisitions.................... (19,338) (17,853) (103,085)
Other assets................................. (1,365) (3,749) (482)
--------- -------- ---------
Net cash used in investing activities.... (153,911) (81,151) (138,956)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of issuance costs........................... -- -- 194,420
Proceeds from issuance of convertible notes,
net of issuance costs....................... 144,967 110,783 --
Proceeds from exercise of stock options and
Stock Purchase Plan......................... 18,609 4,182 4,144
Short-term borrowings........................ -- 1,115 8,205
Payments on borrowings....................... (4,896) (5,915) (7,331)
Other........................................ -- -- (256)
--------- -------- ---------
Net cash provided by financing
activities.............................. 158,680 110,165 199,182
--------- -------- ---------
Adjustment to conform fiscal years of pooled
businesses.................................... -- (140) (2,203)
--------- -------- ---------
Net increase in cash and cash equivalents...... 37,355 24,974 35,699
Cash and cash equivalents at beginning of
year.......................................... 140,783 115,809 80,110
--------- -------- ---------
Cash and cash equivalents at end of year....... $ 178,138 $140,783 $ 115,809
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
PLATINUM technology, inc. and its subsidiaries (collectively, the "Company"
or "PLATINUM") develop, market and support software products, and provide
related professional services, that help organizations manage and improve
their information technology ("IT") infrastructures, which consist of data,
systems and applications. The Company's products and services help IT
departments, primarily in large and data-intensive organizations, minimize
risk, improve service levels and leverage information to make better business
decisions. The Company's products typically perform fundamental functions such
as automating operations, maintaining the operating efficiency of systems and
applications and ensuring data access and integrity. The Company currently
develops software products through its four business units: database
management, systems management, application infrastructure management and data
warehousing and decision support. The Company markets and supports its
products and services principally through its own sales organization,
including an international network of wholly-owned subsidiaries.
Use of Estimates
In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, the Company's management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of PLATINUM
technology, inc. and its subsidiaries. All intercompany accounts and
transactions are eliminated in consolidation.
Revenue Recognition
Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery and customer acceptance, when
all significant contractual obligations are satisfied and the collection of
the resulting receivables is reasonably assured. Software product sales under
extended payment terms are discounted to present value. Revenues from
maintenance fees implicit in software product sales or separately priced
maintenance agreements are recognized on a straight-line basis over the
maintenance period.
Professional service revenues are derived from the Company's consulting
services business and educational programs. These revenues are comprised of
both time and material contracts and fixed-price contracts. Time and material
contract revenues are recognized as services are performed. Fixed-price
contract revenues are recognized based on the percentage-of-completion method.
Cash Equivalents and Investment Securities
Cash equivalents are comprised of highly liquid investments with original
maturities of three months or less. Investment securities consist primarily of
state and municipal bonds with original maturities generally ranging from four
to thirty years, corporate bonds with original maturities of less than one
year and marketable equity securities. The Company classifies its investment
securities as either available-for-sale or trading and reports them at fair
value.
Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. For available-for-sale
F-7
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
securities, unrealized holding gains and losses, net of income taxes, are
reported as a separate component of stockholders' equity. For trading
securities, unrealized holding gains and losses are reflected in pre-tax
earnings. For securities transferred from available-for-sale to the trading
classification, any unrealized holding gains or losses at the date of transfer
are recognized in pre-tax earnings immediately.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, generally three
to seven years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or
the estimated useful life of the asset.
Purchased and Developed Software
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." Costs associated
with the planning and designing phase of software development, including
coding and testing activities necessary to establish technological
feasibility, are classified as product development and expensed as incurred.
Once technological feasibility has been determined, additional costs incurred
in development, including coding, testing and documentation, are capitalized.
Amortization of purchased and developed software is provided on a product-
by-product basis over the estimated economic life of the software, generally
four years, using the straight-line method. This method generally results in
greater amortization expense per year than the method based on the ratio of
current year gross product revenue to current and anticipated future gross
product revenue. Amortization commences when a product is available for
general release to customers. Unamortized capitalized costs determined to be
in excess of the net realizable value of a product are expensed at the date of
such determination.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired is amortized on a straight-line
basis over the expected period to be benefited, generally seven to 10 years.
Adjustments to the carrying value of excess of cost over net assets acquired
are made if the sum of expected future net cash flows from the business
acquired is less than book value.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings in the period
of enactment.
Fair Value of Financial Instruments and Long-Lived Assets
The Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1997: cash and cash equivalents; trade and installment receivables; accrued
interest and other current assets; refundable income taxes; acquisition-
related payables; accounts payable and other accrued liabilities; and long-
term obligations, excluding convertible subordinated notes. Investment
securities are discussed in Note 3, and convertible subordinated notes are
discussed in Note 12.
F-8
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
under which the Company has reviewed long-lived assets and certain intangible
assets and determined that their carrying values as of December 31, 1997 are
recoverable in future periods.
Earnings Per Share
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which established new methods for computing and presenting
earnings per share ("EPS") and replaced the presentation of primary and fully-
diluted EPS with basic ("Basic") and diluted EPS. Basic earnings per share is
based on the weighted average number of shares outstanding and excludes the
dilutive effect of unexercised common stock equivalents. Diluted earnings per
share is based on the weighted average number of shares outstanding and
includes the dilutive effect of unexercised common stock equivalents. Because
the Company reported a net loss for the years ended December 31, 1997, 1996
and 1995, per share amounts have been presented under the Basic method only.
Had the Company reported net earnings for the years ended December 31, 1997,
1996 and 1995, the weighted average number of shares outstanding would have
potentially been diluted by the following common equivalent securities (not
assuming the effects of applying the treasury stock method to outstanding
stock options or the if-invested method to convertible securities):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Stock options.............................. 11,861,865 10,143,622 8,404,911
Convertible subordinated notes (November
1996)..................................... 8,243,010 8,243,727 --
Convertible subordinated notes (December
1997)..................................... 4,160,600 -- --
---------- ---------- ---------
24,265,475 18,387,349 8,404,911
========== ========== =========
</TABLE>
Additionally, net earnings applicable to common stockholders for the years
ended December 31, 1997 and 1996 would have been increased by interest
expense, net of income taxes, related to the convertible subordinated notes of
$5,870,000 and $501,000, respectively.
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars using
current exchange rates as of the balance sheet date. Revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments arising from differences in exchange rates are included as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statement of
operations.
Derivative Financial Instruments
In the ordinary course of business, the Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations
on assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts
designated and effective as hedges of firm commitments are treated as hedges,
as required by generally accepted accounting principles.
Forward exchange contracts are reported at fair value within short-term
investment securities. Fair values of forward exchange contracts are
determined using published rates. Gains and losses on the forward exchange
contracts are included in other income and expense and offset foreign exchange
gains and losses from the revaluation of intercompany balances denominated in
currencies other than the functional currency of the reporting entity.
Realized and unrealized holding gains and losses on the forward exchange
contracts are reported within operating activities in the statement of cash
flows.
F-9
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock-Based Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and provide pro forma net income and earnings
per share disclosures as if the fair value method defined in SFAS No. 123 had
been applied. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures of SFAS No. 123.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. The Company sells installment
receivables to third party finance companies in the normal course of business.
During 1997, all such transactions were accounted for as sales in accordance
with SFAS No. 125.
Supplemental Cash Flow Disclosure
Income tax refunds received by the Company amounted to $524,000, $307,000
and $933,000 in 1997, 1996 and 1995, respectively. Cash paid for income taxes
in 1997, 1996 and 1995 was $1,173,000, $2,179,000 and
$987,000, respectively. Cash paid for interest in 1997, 1996 and 1995 was
$8,419,000, $787,000 and $824,000, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
2. ACQUISITIONS
Poolings of Interests
On June 15, 1995, the Company acquired all of the outstanding capital stock
of Software Interfaces, Inc. ("SII"), a leading provider of data access,
reporting and data conversion utilities for relational and non-relational
database management systems, in exchange for 1,085,450 shares of the Company's
Common Stock, $.001 par value (the "Common Stock"), which had a market value,
based upon the trading price of the Common Stock on the Nasdaq National Market
("Market Value"), of approximately $20,000,000 at the time of the acquisition.
In addition, the Company assumed stock options which converted into options to
purchase 14,377 shares of Common Stock.
On August 9, 1995, the Company acquired all of the outstanding capital stock
and warrants of Answer Systems, Inc. ("Answer"), a pioneer in client/server
help desk solutions, in exchange for 1,567,946 shares of Common Stock, which
had a Market Value of approximately $38,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 42,176 shares of Common Stock.
On August 16, 1995, the Company acquired all of the outstanding capital
stock of Locus Computing Corporation ("Locus"), a leading provider of
consulting services for information technology users and suppliers, in
exchange for 1,452,445 shares of Common Stock, which had a Market Value of
approximately $33,000,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase 231,905
shares of Common Stock.
F-10
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 23, 1995, the Company acquired all of the outstanding capital
stock of Altai, Inc. ("Altai"), a vendor of integrated automated operations
software for open computing, in exchange for 1,098,295 shares of Common Stock,
which had a Market Value of approximately $23,000,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 52,696 shares of Common Stock.
On August 25, 1995, the Company acquired all of the outstanding capital
stock of Trinzic Corporation ("Trinzic"), a major provider of data warehousing
and open systems tools and services, in exchange for 6,654,484 shares of
Common Stock, which had a Market Value of approximately $150,000,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 620,948 shares of Common Stock.
On November 17, 1995, the Company acquired all of the outstanding capital
stock of Softool Corporation ("Softool"), a leading provider of software
change and configuration management technology, in exchange for 1,452,708
shares of Common Stock, which had a Market Value of approximately $25,000,000
at the time of the acquisition.
On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea Software Corporation ("Prodea"), a leading provider of data
warehousing and business intelligence tools, in exchange for 2,126,913 shares
of Common Stock, which had a Market Value of approximately $36,000,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 212,427 shares of Common Stock.
On March 26, 1996, the Company acquired all of the outstanding capital stock
of Paradigm Systems Corporation ("Paradigm"), a leading provider of
information technology consulting services, in exchange for 762,503 shares of
Common Stock, which had a Market Value of approximately $12,800,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 87,912 shares of Common Stock.
On March 29, 1996, the Company acquired all of the outstanding capital stock
of Axis Systems International, Inc. ("Axis"), a leading provider of
information technology consulting services, in exchange for 319,926 shares of
Common Stock, which had a Market Value of approximately $6,300,000 at the time
of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 59,986 shares of Common Stock.
On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for
313,784 shares of Common Stock, which had a Market Value of approximately
$5,000,000 at the time of the acquisition.
On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("I&S"), a leading provider
of information technology consulting services, in exchange for 1,089,867
shares of Common Stock, which had a Market Value of approximately $17,200,000
at the time of the acquisition.
Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all periods
presented. Merger costs relating to the acquisitions consummated in 1997, 1996
and 1995 amounted to $8,927,000, $5,782,000 and $30,819,000, respectively, of
which $3,155,000, $353,000 and $1,942,000, were included in other accrued
liabilities at December 31, 1997, 1996 and 1995, respectively. These costs
included investment banking and other professional fees, write-downs of
certain assets, employee severance payments, costs of closing excess office
facilities and various other expenses.
F-11
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following information reconciles total revenues and net loss of PLATINUM
technology, inc. as previously reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 with the amounts presented in the
accompanying consolidated statements of operations for the years ended
December 31, 1996 and 1995, as well as separate results of operations for 1997
of ATR and I&S during the periods preceding their acquisition. The 1997
results presented for ATR represent the one-month period ended January 31,
1997. The 1997 results for I&S represent the two-month period ended February
28, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------------
NET
NET INCOME NET INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
-------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1)..... $439,190 $(67,962) $304,676 $(111,933)
ATR............. $ 511 $(56) 9,132 142 9,492 301
I&S............. 2,627 109 19,743 2,898 12,243 65
-------- -------- -------- ---------
Total....... $468,065 $(64,922) $326,411 $(111,567)
======== ======== ======== =========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the poolings of interests consummated during
1997. All merger costs and acquired in-process technology charges are
reflected in the historical results of PLATINUM.
The consolidated statement of operations for the year ended December 31,
1996 reflects the impact of ATR's operating results for the six months ended
June 30, 1996, which are also included in the year ended December 31, 1995
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of ATR included more than once were
$5,061,000 and $140,000, respectively.
The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of Trinzic's operating results for the quarter ended
March 31, 1995, which are also included in the year ended December 31, 1994
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of Trinzic included more than once were
$12,553,000 and $215,000, respectively.
The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of certain operating results included more than once,
due to the differences in reporting periods of Altai and Locus relative to
that of PLATINUM. The revenues and net income of Altai included more than once
were $2,514,000 and $441,100, respectively. The revenue and net income of
Locus included more than once were $3,197,000 and $568,000, respectively.
During 1996, the Company consummated an immaterial acquisition accounted for
as a pooling of interests. The Company did not restate the consolidated
financial statements to reflect the results of this entity for the periods
preceding the acquisition. As a result, the retained earnings of this entity
were recorded as of the acquisition date, causing a $45,000 adjustment to the
Company's accumulated deficit in 1996. This adjustment is reflected in the
consolidated statement of stockholders' equity.
On November 26, 1997, the Company consummated an immaterial acquisition
accounted for as a pooling of interests. The Company acquired all of the
outstanding capital stock of Vayda Consulting, Inc. ("Vayda"), a leading
provider of information technology consulting services, in exchange for
580,231 shares of Common Stock, which had a Market Value of approximately
$15,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 67,937 shares of Common
Stock. The Company did not restate the consolidated financial statements to
reflect the results of Vayda for the periods
F-12
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
preceding the acquisition. As a result, the retained earnings of Vayda were
recorded as of the acquisition date, causing an adjustment of $1,014,000 to
the Company's accumulated deficit in 1997. This adjustment is reflected in the
consolidated statement of stockholders' equity.
Purchase Transactions
The Company has also made a number of acquisitions that have been accounted
for under the purchase method. Accordingly, purchase prices have been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values. Amounts allocated to
acquired in-process technology have been expensed at the time of acquisition.
Excess of cost over net assets acquired is amortized on a straight-line basis
over the expected period to be benefited, generally seven to ten years. The
consolidated statements of operations reflect the results of operations of the
purchased companies since the effective dates of the acquisitions.
To determine the fair market value of the acquired in-process technology,
the Company considered the three traditional approaches of value: the cost
approach, the market approach and the income approach. The Company relied
primarily on the income approach, whereupon fair market value is a function of
the future revenues expected to be generated by an asset, net of all allocable
expenses and charges for the use of contributory assets. The future net
revenue stream is discounted to present value based upon the specific level of
risk associated with achieving the forecasted asset earnings. The income
approach focuses on the income producing capability of the acquired assets and
best represents the present value of the future economic benefits expected to
be derived from these assets.
The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and
development activities that required further refinement and testing. The
development activities required to complete the acquired in-process
technologies included additional coding, cross-platform porting and
validation, quality assurance procedures and customer beta testing.
The acquired technologies represent unique and emerging technologies, the
application of which is limited to the Company's IT infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use.
Effective March 1995, the Company acquired all of the outstanding capital
stock of SQL Software Corporation ("SQL"), a provider of Windows-based
development tools for managing multiple relational databases, for
approximately $2,000,000; the assets of Viatech Development, Inc. ("Viatech"),
a provider of electronic distribution tools, for approximately $5,300,000; and
the assets of BrownStone Solutions, Inc. ("BrownStone"), a vendor of
repository technology, for approximately $6,300,000. Also effective March
1995, the Company acquired all of the outstanding capital stock of RELTECH
Group, Inc. ("Reltech"), a vendor of repository technology, for approximately
$9,800,000 in cash plus 318,453 shares of Common Stock, which had a Market
Value of approximately $7,500,000 at the time of the acquisition.
Effective July 1995, the Company acquired all of the outstanding capital
stock of Advanced Software Concepts, Inc. ("ASC"), a leading provider of
distributed storage network management solutions for heterogeneous
environments, for approximately $7,000,000.
Effective November 1995, the Company acquired substantially all of the
assets of ProtoSoft, Inc. ("ProtoSoft"), a pioneer in portable, object-
oriented analysis and design software for building enterprise-wide
applications and the developer of Paradigm Plus, for approximately $30,000,000
in cash plus 582,121 shares of Common Stock, which had a Market Value of
approximately $10,000,000 at the time of the acquisition.
F-13
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective December 1995, the Company purchased all of the outstanding
capital stock of AIB Software Corporation ("AIB"), a leader in multi-platform
application development and testing tools, for approximately $2,200,000 in
cash plus 478,045 shares of Common Stock, which had a Market Value of
approximately $9,000,000 at the time of the acquisition; Protellicess
Software, Inc. ("Protellicess"), a leader in enterprise project and process
management software, in exchange for 822,077 shares of Common Stock, which had
a Market Value of approximately $15,000,000 at the time of the acquisition;
and BMS Computer, Inc. ("BMS"), a leader in integrated chargeback systems that
provide job accounting, chargeback, cost analysis and resource reporting for
heterogeneous environments, for approximately $6,900,000. In conjunction with
the acquisitions of AIB and Protellicess, the Company assumed stock options
which converted into options to purchase 116,144 and 128,320 shares of Common
Stock, respectively.
During 1995, the Company also acquired certain software technologies with an
aggregate purchase price of approximately $10,227,000.
Internationally, during 1995, the Company acquired Echo-Soft Technologies
Sarl, a software sales and consulting firm located in France, Krystal Software
SA, an international affiliate of the Company in France, and Sequel UK Ltd.,
an international affiliate of the Company in the United Kingdom. The Company
also terminated its agreements with four other international affiliates and
established wholly-owned subsidiaries for these operations. The aggregate
price for these transactions was approximately $11,563,000.
Effective January 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. ("AST"), a leading developer of
performance management tools, in exchange for approximately $445,000 in cash
plus 344,640 shares of Common Stock, which had a Market Value of approximately
$5,800,000 at the time of the acquisition.
Effective July 1996, the Company acquired all of the outstanding capital
stock of Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), a leading provider of production scheduling
software, for approximately $1,900,000. Also effective July 1996, the Company
acquired all of the outstanding capital stock of Grateful Data, Inc. (d/b/a
TransCentury Data Systems) ("Grateful Data"), a Year 2000 solution provider,
for $100,000 in cash plus 333,333 shares of Common Stock, which had a Market
Value of approximately $4,000,000 at the time of the acquisition.
Effective December 1996, the Company acquired all of the outstanding capital
stock of VREAM, Inc. ("VREAM"), a leading provider of virtual reality software
for the World Wide Web and other interactive environments, in exchange for
760,383 shares of Common Stock, which had a Market Value of approximately
$10,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 70,257 shares of Common
Stock.
During 1996, the Company also acquired certain software technologies for an
aggregate purchase price of approximately $3,513,000.
Internationally, effective December 1996, the Company acquired substantially
all of the assets of the Access Manager business unit of the High Performance
Systems division of International Computers Limited ("Access Manager"), a
leading provider of single-sign-on security computer software for enterprise
computing technology, in exchange for 2,286,222 shares of Common Stock, which
had a Market Value of approximately $30,000,000 at the time of the
acquisition.
F-14
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective February 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 at the time of the acquisition.
Internationally, effective October 1997, the Company acquired all of the
outstanding capital stock of ProMetrics Group Limited ("ProMetrics"), a
leading provider of productivity management software, in exchange for
approximately $8,000,000 in cash plus 364,396 shares of Common Stock, which
had a Market Value of approximately $9,500,000 at the time of the acquisition,
plus contingent consideration of approximately $11,000,000, as specified in
the acquisition agreement. The Company's issuance of Common Stock was
substantially used to retire approximately $7,000,000 of assumed debt under
the acquisition agreement.
On December 23, 1997, the Company and Intel Corporation ("Intel") entered
into certain agreements providing for the sale and license to the Company by
Intel of certain product technologies and the payment to the Company by Intel
of certain cash consideration. In exchange, the Company agreed to issue to
Intel 1,768,421 shares of the Company's Class II Series B Preferred Stock
("Preferred Stock"), which had a Market Value of approximately $42,000,000 on
the date of the agreement, and to distribute certain products manufactured by
Intel. Additionally, the Company licensed certain product technologies to
Intel.
During 1997, the Company also acquired certain other software technologies
for an aggregate purchase price of approximately $6,800,000.
The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at
the beginning of each period. This summary is provided for informational
purposes only. It does not necessarily reflect the actual results that would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future.
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................. $ 632,150 $485,456
Net loss............................................. (120,431) (73,853)
Net loss per share................................... (1.92) (1.27)
</TABLE>
The Company estimates aggregate payments for acquisition-related payables in
connection with the acquisitions described above to be $15,717,000,
$17,682,000 and $638,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
The Company may be required to make additional payments in future years to
various former owners of acquired businesses based upon the attainment of
certain operating results by such businesses. The amount of these payments was
not determinable at December 31, 1997. Additional payments will be charged to
compensation expense or recorded as an adjustment to the respective purchase
price in the periods in which such payments are determinable.
3. INVESTMENT SECURITIES
At December 31, 1997, the Company classified its marketable debt and equity
securities as either available-for-sale or trading. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity and are not actively traded. Trading securities represent
those securities which the Company intends to buy or sell in the near term for
the purpose of generating profits on increases in market values. At December
31, 1997, net unrealized holding gains from available-for-sale securities of
$13,770,000, reduced by
F-15
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
income taxes of approximately $5,508,000, were included as a separate
component of stockholders' equity. For the year ended December 31, 1997,
available-for-sale securities amounting to $24,972,000 were reclassified to
trading securities. The Company reclassified its available-for-sale securities
to trading securities during 1997, because the Company intended to sell the
securities at various dates in the near future to benefit from increases in
the market price of those securities. Unrealized holding gains from
reclassified securities of approximately $19,829,000, previously reported as a
separate component of stockholders' equity in the amount of $11,897,000 (net
of income taxes), were recognized in pre-tax earnings for the year ended
December 31, 1997. The Company sold a portion of its trading securities during
1997 and consequently reclassified the corresponding unrealized gains to
realized gains. For the year ended December 31, 1997, the Company reported
unrealized holding gains of approximately $12,581,000 in pre-tax earnings.
During 1996, certain cost-basis equity investments became marketable equity
securities and were reclassified as either available-for-sale or trading. The
Company owns equity interests in certain technology companies that executed
initial public offerings during 1996. As a result, the Company reclassified
these investments based upon future trading intentions. The cost and
unrealized gain, net of income taxes, on the investment transferred to the
available-for-sale classification were approximately $8,383,000 and
$17,805,000, respectively. The cost and unrealized gain on the investment
transferred to the trading classification were approximately $1,125,000 and
$920,000, respectively.
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities......... $ 7,571 $ 2 $ -- $ 7,573
State and municipal
bonds.............. 1,356 4 (36) 1,324
Corporate bonds..... 13,812 26 (2) 13,836
Marketable equity
securities......... 3,240 13,770 -- 17,010
------- ------- ----- -------
25,979 13,802 (38) 39,743
------- ------- ----- -------
Trading securities--
Marketable equity
securities......... 4,338 13,867 (351) 17,854
------- ------- ----- -------
$30,317 $27,669 $(389) $57,597
======= ======= ===== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $25,498 $ 55 $ -- $25,553
======= ======= ===== =======
</TABLE>
F-16
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1996
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
State and municipal
bonds.............. $ 402 $ 1 $-- $ 403
Corporate bonds..... 2,002 -- (1) 2,001
Marketable equity
securities......... 8,383 29,923 -- 38,306
------- ------- ---- -------
10,787 29,924 (1) 40,710
------- ------- ---- -------
Trading securities--
Marketable equity
securities......... 1,125 920 -- 2,045
------- ------- ---- -------
$11,912 $30,844 $ (1) $42,755
======= ======= ==== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $ 2,122 $ 51 $(38) $ 2,135
======= ======= ==== =======
</TABLE>
The contractual maturities of debt securities at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Due within one year........................................ $22,733
Due after one year through five years...................... 416
Due after five years....................................... 25,137
-------
$48,286
=======
</TABLE>
Using the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were
approximately $44,000 and $0, respectively, for the year ended December 31,
1997, $1,032,000 and $0, respectively, for the year ended December 31, 1996
and $467,000 and $(135,000), respectively, for the year ended December 31,
1995. For the year ended December 31, 1997, the Company also sold investments
classified as trading securities. Gross realized gains and gross realized
losses related to these sales were $7,522,000 and $0, respectively.
F-17
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures................................. $ 28,070 $ 26,568
Computers and software................................. 65,717 62,338
Transportation......................................... 11,445 8,117
Leasehold improvements................................. 26,498 20,780
-------- --------
131,730 117,803
Less accumulated depreciation and amortization......... 53,888 45,053
-------- --------
$ 77,842 $ 72,750
======== ========
</TABLE>
5. PURCHASED AND DEVELOPED SOFTWARE
Purchased and developed software consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Purchased software..................................... $ 47,238 $ 34,618
Software development costs............................. 141,690 89,400
-------- --------
188,928 124,018
Less accumulated amortization.......................... 72,211 41,580
-------- --------
$116,717 $ 82,438
======== ========
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, $62,504,000,
$38,555,000 and $19,867,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $21,361,000, $11,309,000 and
$6,276,000 during 1997, 1996 and 1995, respectively. The Company recognized
amortization expense applicable to purchased software of $9,270,000,
$6,237,000 and $3,084,000 during 1997, 1996 and 1995, respectively. During
1997, the Company wrote-off $10,214,000 of capitalized software development
costs and $1,450,000 of purchased software related to the restructuring plan
executed in May 1997. During 1996, the Company wrote off $654,000 of
capitalized software development costs related to certain AIB, SII and other
product technologies.
F-18
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INSTALLMENT ACCOUNTS RECEIVABLE
Installment accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current installment receivables....................... $ 42,753 $ 19,763
Allowance for uncollectible amounts................... (878) (395)
Deferred maintenance fees............................. (10,124) (5,058)
Unamortized discounts................................. (1,708) (707)
-------- --------
$ 30,043 $ 13,603
======== ========
Non-current installment receivables................... $ 58,889 $ 40,827
Allowance for uncollectible amounts................... (1,616) (816)
Deferred maintenance fees............................. (27,603) (16,347)
Unamortized discounts................................. (7,758) (1,999)
-------- --------
$ 21,912 $ 21,665
======== ========
</TABLE>
Installment accounts receivable represent amounts collectible on long-term
financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years and
are recorded net of unamortized discounts, deferred maintenance fees and
allowances for uncollectible amounts.
The Company sells a significant portion of its installment receivables to
third parties. When these receivables are sold, the Company reduces the gross
installment receivable balance. Additionally, the Company reclassifies the
deferred maintenance to an obligation, which was previously reflected as a
reduction of the related installment receivable balance. The deferred
maintenance is recognized ratably into income over the term of the maintenance
agreement.
Proceeds from the sale of installment receivables for 1997 and 1996 were
approximately $206,916,000 and $129,328,000, respectively. There were no
accounts receivable sold with recourse for the year ended December 31, 1997.
Accounts receivable sold with recourse were $19,373,000 and $2,993,000 for the
years ended
December 31, 1996 and 1995, respectively. As of December 31, 1997, there were
no potential recourse obligations for accounts receivable sold with recourse.
As of December 31, 1996 and 1995, potential obligations for accounts
receivable sold with recourse were $16,817,000 and $5,177,000, respectively.
In addition to accounts receivable sold with recourse, the Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Based on the terms of that agreement, potential recourse
obligations at December 31, 1997 and 1996 were $14,632,000 and $9,300,000,
respectively. Based on the credit ratings of the underlying obligors to the
accounts receivable and the performance history of the accounts receivable
portfolio, the Company has assessed the exposure related to these recourse
obligations and determined the potential liability to be minimal. The fair
market value of the recourse obligations at December 31, 1997 was not
determinable.
7. EMPLOYEE BENEFIT PLANS
The Company has various defined contribution retirement plans (401(k) and
profit sharing) for qualified employees. Employer contributions made under the
plans totaled $1,511,000, $1,071,000 and $406,000 in 1997, 1996 and 1995,
respectively.
F-19
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LINE OF CREDIT
At December 31, 1997, the Company had an unsecured bank line of credit for
$55,000,000, under which borrowings bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate. This line of credit is
subject to limitations based upon certain financial covenants. At December 31,
1997, there were no borrowings outstanding under this line of credit.
At December 31, 1997, the Company had aggregate letters of credit
outstanding for approximately $2,623,000, with expiration dates ranging from
March 1998 to December 1998. These letters of credit reduce the available line
of credit balance.
9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
As of December 31, 1997, the Company and its subsidiaries had seven stock
option plans, which are described below, as well as several plans that have
been assumed pursuant to acquisitions. The Company applies APB Opinion No. 25
in accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans and its employee stock purchase
plan (the "Stock Purchase Plan").
Had compensation cost for the Company's stock option plans and the Stock
Purchase Plan been determined consistent with SFAS No. 123, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net loss:
As reported............................. $(117,784) $(64,922) $(111,567)
Pro forma............................... (127,972) (70,866) (117,114)
Net loss per share:
As reported............................. $ (1.90) $ (1.14) $ (2.50)
Pro forma............................... (2.06) (1.24) (2.62)
</TABLE>
Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option plans and Stock Purchase Plan, before effects for
income taxes, was approximately $17,130,000, $9,940,000 and $9,326,000 in
1997, 1996 and 1995, respectively.
Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The Employee Incentive
Compensation Plan, 1994 Stock Incentive Plan, 1991 Option Plan
and 1989 Option Plan provide for the granting of options to employees and non-
employee directors for up to an aggregate of 16,160,000 shares. Under the
Chief Executive Option Plan, the Company has authority to grant options for up
to 1,600,000 shares to its Chief Executive Officer and President. Under the
Directors' Option Plan, the Company may grant options for up to 500,000 shares
to non-employee directors.
In general, the options granted under the Company Plans, excluding the
Directors' Option Plan, during 1997, 1996 and 1995 have similar provisions.
Under these plans, the Company has granted both non-qualified and incentive
stock options. These options have an exercise price equal to the closing
market price of the Company's stock on the date of grant, have a legal life of
ten years and typically vest in equal annual installments over a four-year
period beginning one year from the date of grant. Certain options granted
prior to 1995 have a legal life of fifteen years. The specific provisions of
any grant are determined by the Compensation Committee of the Board of
Directors or another designated committee.
Under the Directors' Option Plan, only non-qualified options have been
granted. These options have an exercise price equal to the closing market
price of the Company's stock on the date of grant and have a legal life of ten
years. The options granted in 1995 under this plan vested immediately, while
those granted in 1996 and 1997 vest annually over a three-year period
beginning one year from the date of grant.
F-20
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Note 2, the Company has assumed various option grants
related to certain acquisitions. The assumption of these option grants
resulted in the deemed issuance by the Company of options for 67,937, 430,582
and 1,206,566 shares in 1997, 1996 and 1995, respectively. The options assumed
reflect outstanding options at the time of acquisition. The provisions of the
assumed options are generally the same as those provided for in the original
option agreements.
In 1996, the Company began offering the Stock Purchase Plan to its employees
who work more than 20 hours per week. Under this Plan, the Company is
authorized to issue up to 5,000,000 shares of Common Stock. Under terms of the
Stock Purchase Plan and current policies of the administrative committee,
employees may elect each year to withhold between one and 50 percent of their
cash compensation through regular payroll deductions to purchase Common Stock,
subject to Internal Revenue Service limitations. The purchase price of the
stock is 85 percent of the lower of the price at the grant date, which is the
beginning of the plan year (March 1 or September 1 for employees with a start
date between March 1 and August 31) or the exercise date, which is the end of
each plan quarter (February 28, May 31, August 31 and November 30). As of
December 31, 1997, approximately 50% of eligible employees were participating
in the Stock Purchase Plan. Under the Stock Purchase Plan, the Company sold
882,229 and 197,165 shares to employees in 1997 and 1996, respectively.
The fair value of stock option grants is estimated using the Black-Scholes
option-pricing model, with the following weighted-average assumptions used for
stock option grants in 1997, 1996 and 1995, respectively: weighted-average
option price, which equals the fair market value at date of grant, of $14.61,
$12.03 and $16.56; expected dividend yields of 0% for all years; expected
volatility of 61%, 55% and 55%; risk-free interest rates of 5.66%, 6.37% and
6.12%; and an expected life of five years for all years. The fair value of the
employees' purchase rights pursuant to the Stock Purchase Plan are estimated
using the Black-Scholes option-pricing model, with the following weighted-
average assumptions used for purchase rights granted in 1997 and 1996,
respectively: average fair market value of $13.75 and $10.75; average option
price of $11.69 and $9.14; expected dividend yield of 0% for both years;
expected volatility of 61% and 51%; average risk-free interest rate of 5.52%
and 5.42%; and expected life of three months for both years.
Stock option plan activity during the years ended December 31, 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- ---------- -------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 10,143,622 $12.18 8,404,911 $11.87 6,813,468 $ 9.66
Granted................. 3,590,727 14.61 2,781,172 12.03 2,683,058 16.56
Exercised............... (938,817) 8.91 (517,219) 4.60 (738,030) 6.27
Canceled................ (933,667) 13.49 (525,242) 13.80 (353,585) 14.02
---------- ---------- ---------
Outstanding at end of
year................... 11,861,865 13.08 10,143,622 12.18 8,404,911 11.87
========== ========== =========
Options exercisable at
end of year............ 5,797,724 5,488,725 5,211,103
========== ========== =========
Weighted-average grant-
date fair value of op-
tions granted during
the year............... $ 8.35 $ 6.96 $ 11.36
</TABLE>
F-21
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
RANGE OF WEIGHTED-AVG.
EXERCISE NUMBER OF REMAINING WEIGHTED-AVG. NUMBER OF WEIGHTED-AVG.
PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$.0025-
9.75 1,419,229 3.87 years $ 3.52 1,330,587 $ 3.39
10.13-
12.00 2,062,375 7.00 10.74 1,092,745 10.41
12.38-
14.00 4,174,778 7.75 13.08 1,462,639 12.95
14.06-
18.13 2,165,479 7.56 15.14 1,030,550 14.99
$18.25-
33.73 2,040,004 7.91 19.92 881,203 19.18
---------- ---------
11,861,865 7.15 13.08 5,797,724 11.59
========== =========
</TABLE>
During 1997, a wholly-owned subsidiary of the Company adopted a fixed stock
option plan (the "1997 Option Plan"). The 1997 Option Plan provides for the
granting of options to employees for up to an aggregate of 7,500,000 shares of
the subsidiary's common stock. Under this plan, the subsidiary has granted
non-qualified stock options. These options have an exercise price equal to the
fair market value of the subsidiary's stock on the date of grant, have a legal
life of ten years and vest on the sixth anniversary of the grant date. Options
granted under the 1997 Option Plan are exercisable in shares of the
subsidiary's common stock and are not convertible to the Company's Common
Stock. During 1997, the subsidiary granted 5,170,000 options at a fair market
value of $0.92. For the year ended December 31, 1997, 247,500 options were
canceled. The weighted-average grant-date fair value of these options was
$0.33 using the Minimum Value option-pricing method and a risk-free interest
rate of 5.80%.
10. PREFERRED STOCK
On December 23, 1997, the Company agreed, pursuant to a stock purchase
agreement, to issue to Intel 1,768,421 shares of its Preferred Stock, which
had a fair market value of approximately $42,000,000 on the date of
subscription, for certain product technologies and other intangible assets.
The shares of Preferred Stock were subscribed for as of December 31, 1997 and
subsequently issued on January 14, 1998.
The holders of the Preferred Stock have the option to convert, at any time,
each share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock upon
the tranfer by any holder of Preferred Stock in a non-permitted transfer. In
the event of a liquidation of the Company, the holders of the Preferred Stock
are entitled to receive $23.75 per share plus the amount of any declared but
unpaid dividends. The conversion and liquidation terms are subject to
adjustment based upon subsequent changes in equity interests.
As of December 31, 1997, the Company had reserved 1,768,421 shares of its
authorized Common Stock to be issued upon conversion of the Preferred Stock.
11. INCOME TAXES
Income (loss) before income taxes for the years ended December 31, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S....................................... $(113,313) $(68,911) $(137,724)
Non-U.S................................... 14,250 (5,256) 14,477
--------- -------- ---------
Total................................. $ (99,063) $(74,167) $(123,247)
========= ======== =========
</TABLE>
F-22
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $ -- $ -- $ 315
State....................................... 241 175 133
Foreign..................................... 2,309 2,035 740
Deferred:
Federal..................................... 22,096 (7,838) (7,899)
State....................................... (3,295) (3,617) (4,969)
Foreign..................................... (2,630) -- --
------- ------- --------
$18,721 $(9,245) $(11,680)
======= ======= ========
</TABLE>
The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax computed at statutory rate..... $(34,672) $(25,959) $(43,137)
State income tax, net of Federal tax
benefit.................................. (3,053) (3,442) (4,836)
Research and experimentation credits...... (3,514) (1,491) (1,213)
Foreign tax credit........................ (117) (59) (239)
Foreign taxes............................. 1,271 751 240
Foreign sales corporation................. (557) (1,036) (294)
Municipal interest........................ (80) (289) (554)
Stock acquisitions........................ 9,953 6,281 11,450
Nondeductible merger costs................ 443 1,440 4,625
Change in valuation allowance............. 45,064 12,608 22,856
Other..................................... 3,983 1,951 (578)
-------- -------- --------
Effective tax............................. $ 18,721 $ (9,245) $(11,680)
======== ======== ========
</TABLE>
F-23
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue.................................. $ 6,419 $ 1,152
Allowance for doubtful accounts................... 561 749
Net operating loss carryforwards.................. 118,475 95,190
Foreign net operating losses...................... 2,630 --
General business, AMT and state tax credits....... 12,907 9,544
Foreign tax credits............................... 952 1,138
Accrued expenses and reserves..................... 9,097 157
Rent abatement.................................... 2,471 1,957
Other............................................. 5,856 5,128
--------- --------
Total gross deferred tax assets................. 159,368 115,015
Less valuation allowance.......................... (105,000) (59,936)
--------- --------
Net deferred tax assets......................... 54,368 55,079
--------- --------
Deferred tax liabilities:
Capitalized software, net......................... 36,420 23,908
Installment sales................................. 819 826
Acquired technology............................... 1,000 3,124
Unrealized gain on marketable equity securities... 11,161 12,499
--------- --------
Total gross deferred tax liabilities............ 49,400 40,357
--------- --------
Net deferred tax asset.......................... $ 4,968 $ 14,722
========= ========
</TABLE>
The net change in the valuation allowance during 1997, 1996 and 1995 was an
increase of $45,064,000, $12,608,000 and $22,856,000, respectively.
The Company has reduced gross deferred tax assets by a valuation allowance
to reflect the estimated amount of deferred tax assets which will, more likely
than not, be realized. The net deferred tax asset at December 31, 1997
reflects management's estimate of the amount that will be realized as a result
of future profitability. The amount of the deferred tax asset considered
realizable could be reduced if estimates of future taxable income are reduced.
At December 31, 1997, the Company had approximately $294,715,000 of net
operating loss carryforwards and $14,000,000 of tax credit carryforwards,
which are available to reduce future Federal income taxes, if any, through the
year 2012. The Company's ability to utilize the net operating loss
carryforwards and available tax credits may be limited due to changes in
ownership as a result of business combinations.
12. CONVERTIBLE SUBORDINATED NOTES
In November 1996, the Company issued $115,000,000 of convertible
subordinated notes (the "1996 Notes") due November 15, 2001, bearing interest
at 6.75% annually. Interest is payable semi-annually on May 15 and November
15. The holders of the Notes have the option to convert them into shares of
Common Stock, at any time prior to maturity, at a conversion price of $13.95
per share. The Notes are redeemable at the option of the Company, in whole or
in part, at any time during the twelve-month period commencing November 15,
F-24
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1999 at 102.7% of their principal amount and during the twelve-month period
commencing November 15, 2000 at 101.35% of their principal amount. During
1997, $10,000 of the 1996 Notes were converted to Common Stock. As of December
31, 1997, $114,990,000 of the 1996 Notes were outstanding.
The Company estimated the fair value of the 1996 Notes as of December 31,
1997 at approximately $236,879,000, based upon their trading price on the
Nasdaq SmallCap Market on that date.
In December 1997, the Company issued $150,000,000 of convertible
subordinated notes (the "1997 Notes") due December 15, 2002, bearing interest
at 6.25% annually. Interest is payable semi-annually on June 15 and December
15, commencing June 15, 1998. The holders of the 1997 Notes have the option to
convert them into shares of Common Stock, at any time prior to maturity, at a
conversion price of $36.05 per share. The 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the twelve-
month period commencing December 15, 2000 at 102.5% of their principal amount
and during the twelve-month period commencing December 15, 2001 at 101.25% of
their principal amount. As of December 31, 1997, $150,000,000 of the 1997
Notes were outstanding.
The Company estimated the fair value of the 1997 Notes as of December 31,
1997 at approximately $159,375,000, based upon their bid price in the
convertible debentures market on that date.
For the years ended December 31, 1998, 1999, 2000, 2001 and 2002, aggregate
annual maturities of the 1996 Notes and the 1997 Notes are $0, $0, $0,
$114,990,000 and $150,000,000, respectively.
13. RESTRUCTURING
In May 1997, the Company executed a restructuring plan to consolidate its
sales, marketing, business development and product development operations to
achieve cost efficiencies through the elimination of redundant functions.
These redundancies resulted primarily from businesses acquired over the last
three years. The Company also realigned its business units and inside sales
force to redirect focus on its strongest product lines and better integrate
the efforts of certain product development teams. As part of the plan, the
Company reduced its worldwide work force by approximately 10%, eliminating
approximately 400 positions primarily in the areas of product development and
support, marketing and inside sales and, to a lesser extent, professional
services and administration.
The Company recorded a restructuring charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: facility-related costs, including a reserve
for estimated lease obligations associated with the closing of office
facilities; write-offs of excess equipment, furniture and fixtures; write-offs
of capitalized software costs and other intangible assets related to the
termination of development efforts for certain discontinued products, as well
as penalties for the cancellation of distributorship agreements for such
products; and severance and other employee-related costs of the terminated
staff.
F-25
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the Company's restructuring activity for the
year ended December 31, 1997:
<TABLE>
<CAPTION>
INTANGIBLE ASSETS AND PROPERTY
EXCESS SEVERANCE AND PENALTIES FOR CANCELLED AND
FACILITIES BENEFITS AGREEMENTS EQUIPMENT TOTAL
---------- ------------- ----------------------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997 restructuring
charges:
Cash-related charges.. $24,032 $10,364 $ 3,236 $ -- $ 37,632
Non-cash charges...... -- -- 16,177 3,510 19,687
------- ------- ------- ------ --------
$24,032 $10,364 $19,413 $3,510 57,319
======= ======= ======= ======
Payments made in 1997.............................................................. (15,322)
Write-offs taken in 1997........................................................... (19,687)
--------
Total accrued restructuring costs at December 31, 1997............................. 22,310
Less current portion............................................................... 6,308
--------
Long-term accrued restructuring costs ............................................. $ 16,002
========
</TABLE>
14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse movements in
foreign currency exchange rates. The Company has established a foreign
currency hedging program utilizing forward foreign exchange contracts to
reduce certain currency
exposures. These contracts hedge exposures associated with nonfunctional
currency assets and liabilities denominated in Japanese, Australian, numerous
Asian and various European currencies. At the present time, the Company hedges
only those currency exposures associated with certain nonfunctional currency
assets and liabilities resulting from intercompany balances and does not
generally hedge anticipated foreign currency cash flows. The Company does not
enter into forward exchange contracts for trading purposes.
Gains and losses on the foreign currency forward exchange contracts are
included in other income and offset foreign exchange gains and losses from the
revaluation of intercompany balances denominated in currencies other than the
functional currency of the reporting entity. The Company's forward contracts
generally have original maturities of one month.
The table below provides information as of December 31, 1997 about the
Company's foreign currency forward exchange contracts, including notional
values of outstanding forward contracts purchased and sold and the unrealized
gains or losses recorded for each contract.
<TABLE>
<CAPTION>
NOTIONAL NOTIONAL
VALUE VALUE UNREALIZED
PURCHASED SOLD GAINS (LOSSES)
--------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
European currencies................... $4,407 $(20,649) $(173)
Asian currencies...................... -- (412) 4
Japanese Yen.......................... -- (972) 4
Australian Dollar..................... -- (338) 11
--
------ -------- -----
Total............................. $4,407 $(22,371) $(154)
====== ======== =====
</TABLE>
While the notional or contract amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the Company's full exposure to credit risk. The Company faces
additional risks if the banking counterparties are unable to meet the terms of
the agreements.
F-26
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has established policies to minimize such risks and will only
execute forward exchange contracts with major financial institutions. The
Company has assessed the potential exposure related to default by such
institutions to be minimal.
15. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space and certain computer and telecommunications
equipment under long-term lease agreements expiring through the year 2016.
Total future minimum lease payments under noncancelable leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1998...................... $ 40,980
1999...................... 33,133
2000...................... 24,727
2001...................... 20,067
2002 and thereafter....... 35,226
--------
Total................. $154,133
========
</TABLE>
Future minimum lease payments have not been reduced by minimum sublease
rentals of $603,000 due in the future under noncancelable subleases. Total
rent expense under all operating leases, net of insignificant sublease rental
income, amounted to $32,021,000, $22,510,000 and $15,659,000 in 1997, 1996 and
1995, respectively.
Litigation
The Company is subject to certain legal proceedings and claims that have
arisen in the ordinary course of business and have not been fully adjudicated.
Management currently believes the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.
16. OTHER INCOME, NET
Other income (expense), net, for the years ended December 31, 1997, 1996 and
1995 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................. $ 5,365 $ 5,163 $4,637
Interest expense............................. (9,130) (1,825) (782)
Foreign exchange gains (losses).............. 469 (35) 64
Net realized gains on sales of investments... 7,566 1,032 332
Unrealized gains on marketable equity
securities.................................. 12,581 920 --
Other........................................ (122) (18) (121)
-------- ------- ------
$ 16,729 $ 5,237 $4,130
======== ======= ======
</TABLE>
17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment. The Company markets and
services its products in the United States and in foreign countries through
its direct sales organization and affiliates (which are non-controlled product
representatives).
F-27
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents information about the Company by geographic
area for the years ended December 31, 1997, 1996 and 1995. Export sales and
certain income and expense items are reported in the geographic area where the
final sale is made rather than where the transaction originates.
<TABLE>
<CAPTION>
DOMESTIC EUROPE OTHER TOTAL
--------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Revenues....................... $ 444,577 $119,919 $59,007 $ 623,503
Operating income (loss)........ (122,573) 4,135 2,646 (115,792)
Identifiable assets............ 690,127 89,958 54,092 834,177
1996
Revenues....................... $ 326,673 $ 97,708 $43,684 $ 468,065
Operating loss................. (74,742) (1,892) (2,770) (79,404)
Identifiable assets............ 498,500 84,201 35,871 618,572
1995
Revenues....................... $ 222,568 $ 67,906 $35,937 $ 326,411
Operating income (loss)........ (137,672) 9,885 410 (127,377)
Identifiable assets............ 365,799 59,465 27,003 452,267
</TABLE>
The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1997, 1996 and 1995
include all merger costs, restructuring costs and acquired in-process
technology charges.
No single customer accounted for 10% or more of total revenues in 1997, 1996
or 1995.
18. SUBSEQUENT EVENTS
On January 2, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire Learmonth and
Burchett Management Systems PLC ("LBMS"), a leading provider of process
management solutions. Under the terms of this acquisition, LBMS will become a
wholly-owned subsidiary of the Company. The Company has agreed to exchange
approximately 2,745,000 shares of Common Stock for all of the outstanding
common shares of LBMS and has offered to exchange options to purchase
approximately 468,000 shares of Common Stock for the outstanding LBMS options.
This acquisition, which is expected to be consummated in the second quarter of
1998, is subject to the sanction of the English High Court, the approval of
the shareholders of LBMS and customary legal and regulatory conditions.
On February 18, 1998, the Company entered into an agreement and plan of
merger, pursuant to which the Company has agreed to acquire Mastering, Inc.
("Mastering"), a leading provider of information technology training. Under
the terms of this acquisition, Mastering will become a wholly-owned subsidiary
of the Company. The Company has agreed to exchange approximately 6,165,000
shares of Common Stock for all of the outstanding common shares of Mastering
and to assume stock options which will convert into options to purchase
approximately 2,143,000 shares of Common Stock. This acquisition, which is
expected to be consummated in the second quarter of 1998, is subject to the
filing of a registration statement with the Securities and Exchange
Commission, the approval of the stockholders of Mastering and customary legal
and regulatory conditions.
On March 14, 1998, the Company entered into an agreement and plan of merger,
pursuant to which the Company has agreed to acquire Logic Works, Inc.
("Logic"), a leading provider of data modeling tools. Under the terms of this
acquisition, Logic will become a wholly-owned subsidiary of the Company. The
Company has agreed to exchange approximately 7,240,095 shares of Common Stock
for all of the outstanding common shares
F-28
<PAGE>
PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Logic and to assume stock options which will convert into options to
purchase approximately 1,325,716 shares of Common Stock. This acquisition,
which is expected to be consummated in mid-1998, is subject to the filing of a
registration statement with the Securities and Exchange Commission, the
approval of the stockholders of Logic and customary legal and regulatory
conditions.
The acquisitions of LBMS, Mastering and Logic are expected to be accounted
for as poolings of interests. Costs incurred in connection with these
transactions will be expensed in the periods in which the acquisitions are
consummated.
The following unaudited pro forma information shows total revenues and net
income (loss) of PLATINUM, LBMS, Mastering and Logic during the three years
ended December 31, 1997, 1996 and 1995, as if the transactions had been
consummated as of the earliest period presented. This summary is provided for
informational purposes only. It does not necessarily reflect the actual
results that would have occurred had the acquisitions been made as of those
dates or of results that may occur in the future.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------- ------------------
NET NET
INCOME NET INCOME INCOME
REVENUES (LOSS) REVENUES (LOSS) REVENUES (LOSS)
-------- --------- -------- ---------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM................ $623,503 $(117,784) $468,065 $(64,922) $326,411 $(111,567)
LBMS.................... 23,897 4,469 21,861 (16,318) 41,158 (784)
Mastering............... 40,966 3,606 21,018 520 10,168 518
Logic................... 50,513 4,605 42,540 (3,062) 30,688 1,407
-------- --------- -------- -------- -------- ---------
Total............... $738,879 $(105,104) $553,484 $(83,782) $408,425 $(110,426)
======== ========= ======== ======== ======== =========
Net loss per share.. $ (1.35) $ (1.17) $ (2.04)
========= ======== =========
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mastering, Inc.:
We have audited the accompanying consolidated balance sheets of Mastering,
Inc. (formerly Eagle River Interactive, Inc.), a Delaware corporation, and
subsidiaries (collectively, the Company) as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado
January 19, 1998.
F-30
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 18,379 $ 9,032
Short-term investments................................... 9,479 24,963
Accounts receivable, net of allowance for doubtful
accounts of $288 and $184, respectively................. 1,987 1,130
Deferred seminar expenses................................ 2,372 1,016
Net current assets of discontinued operations (Note 2)... -- 4,268
Deferred tax asset (Note 9).............................. 2,025 1,592
Other current assets..................................... 442 96
-------- --------
Total current assets................................... 34,684 42,097
-------- --------
PROPERTY AND EQUIPMENT:
Land..................................................... 1,450 --
Furniture, fixtures and computer equipment............... 7,794 1,652
Leasehold improvements................................... 533 --
-------- --------
9,777 1,652
-------- --------
Less--accumulated depreciation........................... (1,334) (255)
-------- --------
Net property and equipment............................. 8,443 1,397
-------- --------
NON-CURRENT ASSETS:
Long-term investments (Note 4)........................... 20,363 --
Net long-term assets of discontinued operations (Note
2)...................................................... -- 9,789
Deferred tax asset (Note 9).............................. 352 704
Other non-current assets................................. 477 361
-------- --------
Total non-current assets............................... 21,192 10,854
-------- --------
$ 64,319 $ 54,348
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 4,616 $ 898
Accrued liabilities...................................... 2,101 2,212
Deferred revenue......................................... 1,881 1,094
Current portion capital lease obligations................ 135 36
Other current liabilities................................ 100 13
-------- --------
Total current liabilities.............................. 8,833 4,253
-------- --------
NON-CURRENT LIABILITIES:
Capital lease obligations, net of current portion........ 255 181
-------- --------
Total liabilities...................................... 9,088 4,434
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 3, 4, 5, 7, 8 and 11):
Common stock $.001 par value; 30,000,000 shares
authorized; 13,703,828 and 13,356,990 shares issued and
outstanding, respectively .............................. 14 13
Unrealized gain on "Available for Sale" securities....... 186 --
Additional paid-in capital............................... 57,487 54,938
Accumulated deficit...................................... (2,456) (5,037)
-------- --------
Total stockholders' equity............................. 55,231 49,914
-------- --------
Total liabilities and stockholders' equity............. $ 64,319 $ 54,348
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-31
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
--------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
REVENUE...................................... $ 40,966 $ 21,018 $ 10,168
---------- ---------- --------
OPERATING EXPENSES:
Cost of revenue............................ 11,992 5,296 3,304
Marketing and selling expenses............. 17,778 9,304 4,328
General and administrative expenses........ 6,347 6,721 2,017
Depreciation and amortization.............. 1,032 253 71
---------- ---------- --------
Total operating expenses................. 37,149 21,574 9,720
---------- ---------- --------
NET OPERATING INCOME (LOSS).................. 3,817 (556) 448
Interest income and other, net............. 1,870 1,537 70
---------- ---------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES................................ 5,687 981 518
Tax provision (Note 9)..................... (2,081) (461) --
---------- ---------- --------
INCOME FROM CONTINUING OPERATIONS............ 3,606 520 518
---------- ---------- --------
DISCONTINUED OPERATIONS (Note 2)
Loss from discontinued operations, net of
income tax benefit of $1,196 and $2,721 in
1997 and 1996, respectively............... (1,858) (3,610) (3,441)
Gain (loss) on disposal, net of income
taxes of $394 and $40 in 1997 and 1996,
respectively.............................. 833 198 (350)
---------- ---------- --------
(1,025) (3,412) (3,791)
---------- ---------- --------
NET INCOME (LOSS)............................ $ 2,581 $ (2,892) $ (3,273)
---------- ---------- --------
BASIC EARNINGS (LOSS) PER SHARE
(Pro forma for 1996, Note 1):
Income from continuing operations.......... $ 0.27 $ 0.04
Loss from discontinued operations, net..... (0.08) (0.28)
Net income (loss).......................... $ 0.19 $ (0.24)
---------- ----------
Weighted average shares.................... 13,535,105 12,285,782
---------- ----------
DILUTED EARNINGS (LOSS) PER SHARE
(Pro forma for 1996, Note 1):
Income from continuing operations.......... $ 0.25 $ 0.04
Loss from discontinued operations, net..... (0.07) (0.25)
Net income (loss).......................... $ 0.18 $ (0.21)
Weighted average shares.................... 14,534,596 13,714,600
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SERIES A
MANDATORILY
REDEEMABLE UNREALIZED TOTAL
CONVERTIBLE GAIN ON STOCK-
PREFERRED STOCK COMMON STOCK DEFERRED "AVAILABLE ADDITIONAL ACCUMU- HOLDERS'
------------------- ----------------- COMPEN- FOR SALE" PAID-IN LATED EQUITY
SHARES AMOUNT SHARES AMOUNT SATION SECURITIES CAPITAL DEFICIT (DEFICIT)
---------- ------- ---------- ------ -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... -- $ -- 1,599,744 $ 1 $ -- $ -- $ 17 $ (723) $ (705)
Issuance of shares upon
conversion of debt.... -- -- 30 -- -- -- 566 -- 566
Exchange ERC for ERI
shares................ -- -- 3,122,118 3 -- -- (3) -- --
Issuance of Series A
Preferred Stock, net
of issuance costs..... 1,342,000 6,710 -- -- -- -- (114) -- (114)
Issuance of Common
Stock................. -- -- 15,000 -- -- -- 19 -- 19
Exercise of stock
options............... -- -- -- -- (49) -- 297 -- 248
Amortization of
deferred
compensation.......... -- -- -- -- 31 -- -- -- 31
Issuance of stock for
technology............ -- -- 125,556 1 -- -- 142 -- 143
Shareholder S
corporation
distribution.......... -- -- -- -- -- -- -- (269) (269)
Net loss............... -- -- -- -- -- -- -- (3,273) (3,273)
Dividends accrued on
Series A Preferred
Stock................. -- 188 -- -- -- -- (188) -- (188)
---------- ------- ---------- ---- ----- ----- ------- ------- -------
BALANCE, December 31,
1995................... 1,342,000 6,898 4,862,448 5 (18) -- 736 (4,265) (3,542)
Undistributed losses
reclassified to
additional paid-in
capital due to
termination of S
corporation status.... -- -- -- -- -- -- (3,126) 3,126 --
Shareholder S
corporation
distributions......... -- -- -- -- -- -- (138) (1,006) (1,144)
Dividends accrued on
Series A Preferred
Stock................. -- 178 -- -- -- -- (178) -- (178)
Conversion of Series A
Preferred Stock....... (1,342,000) (7,076) 4,026,000 4 -- -- 7,072 -- 7,076
Proceeds from initial
public offering, net
of underwriter
commissions and $1,632
of offering costs..... -- -- 4,309,000 4 -- -- 50,459 -- 50,463
Amortization of
deferred
compensation.......... -- -- -- -- 18 -- -- -- 18
Acquisition and
retirement of shares
from GM shareholder... -- -- -- -- -- -- (352) -- (352)
Issuance of Common
Stock pursuant to
employee stock
purchase plan......... -- -- 10,673 -- -- -- 54 -- 54
Exercise of stock
options............... -- -- 148,869 -- -- -- 261 -- 261
Issuance of stock
options............... -- -- -- -- -- -- 150 -- 150
Net loss............... -- -- -- -- -- -- -- (2,892) (2,892)
---------- ------- ---------- ---- ----- ----- ------- ------- -------
BALANCE, December 31,
1996................... -- -- 13,356,990 13 -- -- 54,938 (5,037) 49,914
Exercise of stock
options............... -- -- 300,503 1 -- -- 1,080 -- 1,081
Issuance of Common
Stock pursuant to
employee stock
purchase plan......... -- -- 46,335 -- -- -- 276 -- 276
Unrealized gain on
"Available for Sale"
securities............ -- -- -- -- -- 186 -- -- 186
Tax benefit related to
exercise of non-
qualified stock
options............... -- -- -- -- -- -- 1,193 -- 1,193
Net income............. -- -- -- -- -- -- -- 2,581 2,581
---------- ------- ---------- ---- ----- ----- ------- ------- -------
BALANCE, December 31,
1997................... -- $ -- 13,703,828 $ 14 $ -- $ 186 $57,487 $(2,456) $55,231
========== ======= ========== ==== ===== ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 2,581 $ (2,892) $ (3,273)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 2,797 2,149 1,057
Write-off product technology............. -- -- 241
Deferred tax provision (benefit)......... 1,270 (2,296) --
Loss on disposal of property and
equipment............................... -- 66 23
Gain on sale of discontinued
operations.............................. (6,709) -- --
Compensation from issuance of stock
options................................. -- 150 200
Amortization of deferred compensation.... -- 18 31
Reserve for bad debts.................... 150 165 150
Reserve for uncollectable advances to
affiliates.............................. -- (262) 262
Changes in assets and liabilities:
Accounts receivable...................... 188 (2,801) (1,530)
Costs and estimated earnings in excess
of billings............................. 219 (2,095) (28)
Other current assets..................... (2,695) (320) (107)
Other assets............................. 1,478 (623) (44)
Accounts payable and accrued
liabilities............................. 4,537 1,031 1,880
Billings in excess of costs and
estimated earnings...................... 168 (63) 218
Revenue billed in advance................ 128 (212) (61)
---------- ----------- ----------
Net cash provided by (used in)
operating activities.................. 4,112 (7,985) (981)
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....... (8,711) (5,982) (1,740)
Proceeds from disposition of property and
equipment............................... 75 18 --
Proceeds from sale of discontinued
operations.............................. 17,500 -- --
Purchase of product rights............... -- -- (50)
Cash paid for acquisitions............... -- (242) (1,230)
Advances to affiliates................... -- -- (262)
Purchase of investments.................. (4,879) (24,963) --
Unrealized gain on available for sale
securities.............................. 186 -- --
Other.................................... -- -- (4)
---------- ----------- ----------
Net cash provided by (used in)
investing activities.................. 4,171 (31,169) (3,286)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit............. -- 1,905 2,850
Repayment of line of credit.............. -- (1,905) (2,988)
Proceeds from long-term debt............. -- 350 250
Repayment of long-term debt.............. -- (3,737) (360)
Repayment of capital leases.............. (293) (208) (47)
Payment of noncompete obligation......... -- (96) (96)
Distributions to S corporation
shareholders............................ -- (1,144) (269)
Acquisition of shares from GM
shareholder............................. -- (352) --
Proceeds from issuance of Series A
preferred stock......................... -- -- 6,710
Series A preferred stock issuance costs.. -- -- (114)
Proceeds from IPO, net of offering
costs................................... -- 50,463 --
Proceeds from exercise of common stock
options and stock purchase plan......... 1,357 315 19
---------- ----------- ----------
Net cash provided by financing
activities............................ 1,064 45,591 5,955
---------- ----------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. 9,347 6,437 1,688
CASH AND CASH EQUIVALENTS, beginning of
period................................... 9,032 2,595 907
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of period.. $ 18,379 $ 9,032 $ 2,595
========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................... $ 36 $ 269 $ 697
========== =========== ==========
Cash paid for income taxes............... $ 190 $ -- $ --
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Mastering, Inc. (formerly Eagle River Interactive, Inc.), a Delaware
corporation, was incorporated on September 28, 1995, and became the parent
company of Eagle River Communications, Inc. ("ERC"), SkiView, Inc.
("SkiView"), and Eagle River Production, Inc. ("ERP"). During 1996, Mastering,
Inc. completed mergers with Graphic Media, Inc. ("GM") and Mastering
Computers, Inc. ("Mastering Computers"), which were accounted for as poolings
of interests. In addition, during 1996 Mastering, Inc. formed SRC Localisation
("SRC"), a 99% owned subsidiary, which is located in Paris, France.
Collectively Mastering, Inc., and ERC, SkiView, ERP, GM and Mastering
Computers, all of which are Mastering, Inc.'s wholly owned subsidiaries, and
SRC, are herein referred to as the "Company".
The Company's operating subsidiary, Mastering Computers, develops and
markets instructor-led training workshops and computer-based training ("CBT")
products for information technology ("IT") professionals. These training
products and services include instructor-led Windows NT(TM), Windows 95(TM),
TCP/IP(TM), Internet Information Server(TM) and Exchange(TM) training
workshops, Microsoft Certified Professional preparation courses, on-site
workshops held at customers' facilities, CBT software covering a broad range
of information technologies, other software, videos and a newsletter. The
Company's CBT products are delivered using CD-ROMs, proprietary intranets, the
Internet and the World Wide Web.
The Company's operating subsidiary, Mastering Computers, markets and sells
its instructor-led and CBT products and services throughout the United States
and in Canada, primarily through its in-house telesales organization. Training
products and services are also sold to national accounts under long-term
contracts, which are sold using outside salespeople. At the end of 1997, the
Company began marketing its training products in Europe, with sales of
instructor-led training workshops beginning in the United Kingdom during the
first quarter of 1998.
The Company has completed two acquisitions accounted for as poolings of
interests since its inception. Accordingly, the accompanying consolidated
financial statements reflect the combined financial position, operating
results and cash flows of the Company, GM and Mastering Computers for all
periods presented. In addition, the consolidated financial statements include
the accounts of businesses acquired under the purchase method of accounting
from the effective date of the purchase transaction. In 1995, the Company
accounted for ERC and SkiView as a reorganization of entities under common
control and their assets and liabilities are included in the consolidated
financial statements at their historical cost.
During 1997, the Company sold two of its business segments, the interactive
and outdoor media segments. The Company has accounted for these two business
segments as discontinued operations (see Note 2). As a result of this
determination, the operations of the interactive and outdoor media business
segments have been reflected as discontinued operations in the accompanying
consolidated financial statements for all periods presented. The interactive
business segment developed and created custom interactive solutions that
assist United States and international companies with corporate
communications, marketing and training. The outdoor media business segment
offered traditional outdoor media advertising at United States ski resorts.
STOCK SPLIT
Effective January 24, 1996, the Company approved a three share for one share
common stock split. Common stock amounts, equivalent share amounts and per-
share amounts have been adjusted retroactively to give effect to the stock
split.
F-35
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and SRC. All material intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
BASIS FOR RECORDING PURCHASE-METHOD ACQUISITIONS
The purchase method of accounting was applied in the accompanying
consolidated financial statements on January 1, 1995 to reflect the purchase
of SkiView and Production Masters, Inc. ("PMI"), a company that operated an
audio and video post-production studio. The Company acquired and assumed
certain liabilities in connection with the SkiView and PMI acquisitions. These
assets and liabilities have been accounted for as discontinued operations in
the accompanying consolidated financial statements. PMI and SkiView were sold
in 1995 and 1997, respectively (see Note 2).
Effective November 1996, the Company acquired certain assets and assumed
certain liabilities of SRC. The Company incurred approximately $107,000 of
acquisition costs and paid approximately $242,000 in cash at the closing of
the SRC acquisition. SRC was a component of the interactive business segment.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share, which supersedes Accounting Principles Board Opinion No. 15, the former
existing authoritative guidance. SFAS No. 128 modifies the calculation of
primary and fully diluted earnings per share (EPS) and replaces them with
basic and diluted EPS. SFAS No. 128 is effective for financial statements for
both interim and annual periods presented after December 15, 1997, and as a
result, all prior-period EPS data presented has been restated.
EPS is not considered relevant for the year ended December 31, 1995, given
the changes in the capital structure of Company which occurred on March 21,
1996 (the date of the Company's initial public offering). In addition, EPS for
1996 is unaudited and pro forma assuming the conversion of the Company's
mandatorily redeemable convertible Series A Preferred Stock ("Preferred
Stock") (which was converted to common stock on the date of the Company's
initial public offering) had occurred on January 1, 1996.
F-36
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the numerators and denominators of the basic and diluted
EPS computations for the years ended December 31, 1997 and 1996, is as
follows:
<TABLE>
<CAPTION>
UNAUDITED
1997 PRO FORMA 1996
---------------------------------- ----------------------------------
EFFECT OF EFFECT OF
BASIC STOCK DILUTED BASIC STOCK DILUTED
EPS OPTIONS EPS EPS OPTIONS EPS
----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income from operations
(numerator)............ $ 3,606,000 -- $ 3,606,000 $ 520,000 -- $ 520,000
Discontinued operations,
net (numerator)........ $(1,025,000) -- $(1,025,000) $(3,412,000) -- $(3,412,000)
Net income (loss)
(numerator)............ $ 2,581,000 -- $ 2,581,000 $(2,892,000) -- $(2,892,000)
Shares (denominator).... 13,535,105 999,491 14,534,596 12,285,782 1,428,818 13,714,600
Per share amount--income
from operations........ $ .27 $ .25 $ .04 $ .04
Per share amount--
discontinued
operations, net........ (.08) (.07) (.28) (.25)
Per share amount--net
income (loss).......... $ .19 $ .18 $ (.24) $ (.21)
</TABLE>
For purposes of applying the treasury stock method, the Company has assumed
that it could fully use the assumed tax deduction arising from the exercise of
non-qualified stock options.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all cash
and highly liquid investments with an original maturity of three months or
less to be cash equivalents.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Effective January 1, 1995, the Company acquired the following assets and
assumed the following liabilities of SkiView, which conducted the Company's
outdoor media business. The Company incurred approximately $35,000 of
acquisition costs.
<TABLE>
<S> <C>
Assets acquired:
Cash........................................................... $ 54,000
Accounts receivable............................................ 1,497,000
Other current assets........................................... 536,000
Property and equipment......................................... 700,000
Goodwill....................................................... 3,535,000
----------
6,322,000
----------
Liabilities assumed:
Accounts payable and accrued liabilities....................... 1,062,000
Revenue billed in advance...................................... 1,203,000
Related party debt assumed..................................... 557,000
Notes payable.................................................. 3,000,000
5,822,000
----------
Cash paid at closing......................................... $ 500,000
----------
</TABLE>
F-37
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective November 1996, the Company acquired the following assets and
assumed the following liabilities of SRC. The Company incurred approximately
$107,000 of acquisition costs.
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable............................................... $ 6,000
Property and equipment............................................ 14,000
Goodwill.......................................................... 448,000
--------
468,000
--------
Liabilities assumed:
Accounts payable.................................................. 144,000
Long-term debt.................................................... 82,000
226,000
--------
Cash paid at closing............................................ $242,000
--------
</TABLE>
In September 1995, the chief executive officer ("CEO") of the Company
converted $512,000 of debt and $54,000 of accrued interest payable to him into
common stock of the Company.
During 1997, 1996, and 1995, the Company acquired approximately $244,000,
$769,000, and $171,000, respectively, of equipment under capital leases.
On March 21, 1996, the effective date of the Company's initial public
offering, holders of 1,342,000 shares of the Company's Preferred Stock
converted their shares into 4,026,000 shares of the Company's common stock
(see Notes 5 and 7).
In March 1996, upon the Company's initial public offering, $3,126,000 of
accumulated deficit was reclassified to additional paid-in capital to reflect
the Company's change in tax status from an S corporation to a C corporation
for tax purposes.
INVESTMENTS
As of December 31, 1997 and 1996, the Company had invested approximately
$29,407,000 and $24,963,000, respectively, in United States government
securities ("Government Securities"). In addition, as of December 31, 1997,
the Company had an equity investment in Allin Communications Corporation
("ACC") recorded for $435,000 (see Note 4). Of the $29,407,000 of Government
Securities investments at December 31, 1997, approximately $19,928,000 are
classified as long-term investments in the accompanying consolidated balance
sheets. The Company has the positive intent and ability to hold all of its
Government Securities to maturity and not to engage in trading or selling
activities with respect to these securities. These Government Securities are
classified as held to maturity in accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and are recorded at
amortized cost. At December 31, 1997, total Government Securities had a fair
value of approximately $29,455,000, and reflect unrealized gains of
approximately $48,000. These Government Securities contain provisions whereby
they may be called at the option of the issuer for amounts at least equal to
their carrying amount.
CONCENTRATION OF CREDIT RISK
The Company has no significant off-balance sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other hedging
arrangements. The Company maintains the majority of its cash balances with two
financial institutions in the form of demand deposits and money market
accounts.
F-38
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In management's opinion, the Company's accounts receivables do not represent
a significant credit risk to the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1997 and 1996, the Company's financial instruments other
than investments primarily consisted of cash, short-term trade receivables and
payables, and capital leases. The carrying values of these instruments
approximate fair value because of their primarily short-term nature.
RECLASSIFICATIONS
Certain amounts in 1996 and 1995 have been reclassified to conform with 1997
presentation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The Company depreciates these
assets using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Furniture, fixtures and computer equipment................. 3 to 7 years
Leasehold improvements..................................... Term of the lease
</TABLE>
Assets purchased under capital leases are depreciated over the lesser of
their estimated useful lives or the term of the lease.
The land recorded in the accompanying consolidated balance sheet at December
31, 1997 represents raw land that is owned by the Company and located next to
the Company's headquarters in Scottsdale, Arizona.
ACCRUED LIABILITIES
The components of accrued liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Accrued salaries, wages, benefits and bonuses......... $ 655,000 $ 820,000
Accrued sales taxes................................... 285,000 566,000
Accrued liabilities for discontinued operations....... 426,000 --
Other accrued expenses................................ 735,000 826,000
---------- ----------
Totals.............................................. $2,101,000 $2,212,000
========== ==========
</TABLE>
PRODUCT LICENSE COSTS
A contract requires the Company to pay royalties on certain CBT product
sales. Royalties are generally a fixed amount per unit sold or a percentage of
the Company's net sales of certain products and are generally accrued as
products are sold.
REVENUE RECOGNITION
The Company generates revenue from sales of training products and services,
which consist primarily of instructor-led seminars on Microsoft Windows(TM)
operating systems and other IT topics, instructor-led Microsoft Certified
Professional preparation courses, on-site workshops, computer based training
software covering a broad range of information technologies, other software,
videos and a newsletter. Revenue from seminars is generally collected in
advance and deferred and is recognized upon commencment of a seminar or a
series of seminars in a given city. In connection with certain seminar
offerings, the Company also provides its customers with course materials in
advance of a seminar, in which case it recognizes revenue for the value of the
materials upon shipping the materials and the remainder of the revenue upon
commencement of the related seminar or series of seminars. Other product
revenue is generally recognized when the products are shipped to the customer.
F-39
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs related to training seminars consist primarily of labor and related
benefits for speakers and seminar personnel, rental of seminar facilities and
materials provided to seminar participants, some of which is deferred until
seminar commencement. Costs related to CBT products include royalties paid to
a third-party licensor and costs to duplicate and ship the CBT product.
INCOME TAXES
The Company provides for income taxes using the asset and liability method
prescribed by SFAS No. 109, Accounting for Income Taxes. Under this method,
deferred income tax assets and liabilities are recognized for the expected
future income tax consequences, based on enacted tax laws, of temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities and carryforwards.
SFAS No. 109 requires recognition of deferred tax assets for the expected
future tax effects of all deductible temporary differences, loss carryforwards
and tax credit carryforwards. Deferred tax assets are then reduced, if deemed
necessary, by a valuation allowance for the amount of any tax benefits which,
more likely than not based on current circumstances, are not expected to be
realized.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This statement is
effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. In the initial year
of application, comparative information for earlier years is to be restated.
(2) DISCONTINUED OPERATIONS:
On July 29, 1997, the Company announced its intention to dispose of its
outdoor media business segment. On September 16, 1997, the Company sold the
assets of its outdoor media business segment for approximately $4.0 million in
cash and approximately $600,000 in notes receivable resulting in a pre-tax
gain of approximately $1.1 million. The Company approved the disposition of
the outdoor media business segment, including a plan for the Company to
identify potential buyers, on May 17, 1997. As a result, the Company has
accounted for the segment as a discontinued operation in the accompanying
consolidated financial statements for all periods presented, with a
measurement date of May 17, 1997.
The following table presents approximate revenue and net income (loss) for
the outdoor media business segment for the period from January 1, 1997 to
September 16, 1997, and the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
JANUARY 1, 1997 ---------------------
TO SEPTEMBER 16, 1997 1996 1995
--------------------- ---------- ----------
<S> <C> <C> <C>
Revenue......................... $2,100,000 $3,900,000 $4,000,000
Net income (loss)............... (200,000) 500,000 (600,000)
</TABLE>
F-40
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in the net loss for the period from January 1, 1997 to September
16, 1997 is approximately $0.2 million of costs related to the sale. The net
loss for the period from May 18, 1997 to September 16, 1997 was approximately
$800,000.
Also on July 29, 1997, the Company announced its intention to dispose of its
interactive business segment. On September 26, 1997, the Company sold the
assets of its interactive business segment for $13.5 million in cash and the
right to future payments contingent on the segment's future earnings resulting
in a pre-tax gain of approximately $5.6 million. As a result of this
transaction, the Company has accounted for the interactive business segment as
a discontinued operation in the accompanying consolidated financial statements
for all periods presented with a measurement date of July 28, 1997.
The following table presents approximate revenue and net loss for the
interactive business segment for the period from January 1, 1997 to September
26, 1997 and the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
JANUARY 1, 1997 ----------------------
TO SEPTEMBER 26, 1997 1996 1995
--------------------- ----------- ----------
<S> <C> <C> <C>
Revenue......................... $13,000,000 $14,300,000 $6,700,000
Net loss........................ 5,100,000 4,100,000 2,600,000
</TABLE>
Included in the net loss for the period from January 1, 1997 to September
26, 1997 is approximately $1.5 million of costs related to the organizational
realignment and sale of the interactive business segment. The net loss for the
period from July 29, 1997 to September 26, 1997 was approximately $2.6
million.
The Company sold the following assets and was relieved of the following
liabilities related to the outdoor media and interactive business segments at
their respective sale dates:
<TABLE>
<S> <C>
Assets:
Current assets
Accounts receivable, net........................................ $ 3,938
Other current assets............................................ 2,345
-------
Total current assets.......................................... 6,283
Property, plant and equipment, net.............................. 5,711
Goodwill and other assets, net.................................. 3,389
-------
Total assets.................................................. 15,383
-------
Liabilities:
Current liabilities
Accounts payable................................................ 778
Accrued liabilities............................................. 1,764
Other current liabilities....................................... 1,148
-------
Total current liabilities..................................... 3,690
Noncurrent liabilities............................................ 277
-------
Total liabilities............................................. 3,967
-------
Net Assets Sold..................................................... $11,416
=======
</TABLE>
Effective June 30, 1995, the Company discontinued the operations of PMI. The
assets were sold to a third party for approximately $700,000 and all proceeds
from the liquidation of the assets were paid to the previous
F-41
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
owner of the PMI business in satisfaction of all acquisition-related
liabilities. As a result, the operations of PMI through its disposition have
been reflected as discontinued operations in the accompanying consolidated
financial statements for all periods presented. The Company recorded a loss on
the disposal of this segment of approximately $350,000, composed of
approximately $58,000 to write down the segment's assets and $292,000 of
payroll and other operating costs incurred from the measurement date through
the date of final disposition. In addition, during 1995, the Company recorded
approximately $294,000 for losses from PMI operations prior to the measurement
date. During 1996, the Company recorded a gain of $198,000, net of income tax,
from discontinued operations representing the settlement of certain
contingencies related to the PMI business segment.
(3) MERGERS AND BUSINESS COMBINATIONS ACCOUNTED FOR AS POOLINGS OF INTERESTS:
On June 21, 1996, pursuant to an agreement and plan of merger, the Company
completed the merger of a wholly owned subsidiary with GM, an Oregon
corporation. As a result of the merger, GM became a wholly owned subsidiary of
the Company. The business combination was accounted for as a pooling of
interests. In connection with the GM merger, each outstanding share of GM
common stock was converted into 0.27 of a share of the Company's common stock
with all the outstanding shares of GM common stock being exchanged for 550,000
shares of the Company's common stock. Prior to the conversion, a dissenting GM
shareholder was paid approximately $352,000 as consideration for her
approximate 3% interest in GM. In addition, the Company assumed and exchanged
all options to purchase GM common stock for options to purchase 141,041 shares
of the Company's common stock.
On August 1, 1996, pursuant to an agreement and plan of merger, the Company
completed the merger of a wholly owned subsidiary with Mastering Computers, an
Arizona corporation. As a result of the merger, Mastering Computers became a
wholly owned subsidiary of the Company. This business combination was
accounted for as a pooling of interests. In connection with the Mastering
Computers merger, all outstanding shares of Mastering Computers common stock
were exchanged for 1,175,000 shares of the Company's common stock. The Company
also assumed and exchanged all options to purchase Mastering Computers common
stock for options to purchase 191,280 shares of the Company's common stock.
(4)SEAVISION AND CONTINGENT NOTE RECEIVABLE:
As of December 31, 1995 and 1996, the Company had advanced SeaVision, Inc.
("SeaVision") approximately $262,000 and $302,000, respectively. These
advances accrued interest at 15% per annum, compounded quarterly, and matured
three years from the date of each funding. As of December 31, 1995, the
Company had established a reserve for $262,000 of this receivable. During
1996, the Company reversed the reserve, based on the initial public offering
of ACC (which was formed by the combination of SeaVision and other companies).
During 1997, ACC repaid the advance with $161,000 of cash and 14,418 shares of
ACC common stock.
In connection with the September 1995 Preferred Stock offering, the CEO of
the Company issued a contingent note (the "Contingent Note") to the Company.
This note transferred to the Company future gains arising from the sale of the
CEO's 10.5% equity interest in SeaVision. The terms of the Contingent Note
require the CEO to pay the Company any net proceeds in excess of $500,000 if
and when he sells his holdings in SeaVision. This Contingent Note had an
estimated fair value of zero at September 1995. At that time, SeaVision was a
development stage enterprise with significant liquidity issues.
In November 1996, ACC completed an initial public offering of its common
stock. The SeaVision stock owned by the CEO was converted into 241,200 shares
of ACC Common Stock, all of which are subject to the terms of the Contingent
Note.
F-42
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, the Contingent Note was amended. The amendment defines
procedures by which the Company can require the sale of the ACC shares and
defines procedures by which the CEO may segregate and retain a portion of the
ACC shares having a market value of approximately $500,000. As of December 31,
1997, the CEO had not sold any of his shares of ACC. The Company has recorded
approximately $435,000 of available-for-sale securities related to the ACC
shares owned and the ACC shares subject to the Contingent Note, which is
included in long-term investments in the accompanying consolidated balance
sheet.
(5)INITIAL PUBLIC OFFERING:
In March 1996, the Company completed an initial public offering of 4,000,000
shares of its common stock at a price of $13.00 per share. After underwriting
discounts, commissions and other offering expenses, net proceeds to the
Company from the offering were approximately $46,727,000. Upon the closing of
the offering, all 1,342,000 shares of Preferred Stock outstanding were
converted into 4,026,000 shares of common stock (See Note 7).
In addition, the terms of the Preferred Stock provided that accrued
dividends were not payable upon conversion of the Preferred Stock if the
market price of the common stock at the time of such conversion exceeded $5.00
per share. At the conversion date, $366,000 in Preferred Stock dividends had
been accrued. These accrued dividends were restored to additional paid-in
capital upon the closing of the initial public offering at which time the
market price of the common stock on the date of conversion was the initial
public offering price of $13.00 per share.
In April 1996, the underwriters of the Company's initial public offering
exercised their over-allotment option and purchased from the Company an
additional 309,000 shares of common stock at $13.00 per share, with net
proceeds to the Company aggregating $3,736,000.
(6)OTHER RELATED PARTY TRANSACTIONS:
In addition to the related party transactions discussed above, the Company
had the following related party transactions:
. The Company uses an aircraft owned by an entity in which the CEO is the
primary owner. Costs incurred to rent the aircraft totaled approximately
$313,000, $280,000 and $149,000 for the years ended December 31, 1997,
1996 and 1995, respectively. In 1996, the Company's policy was to pay
rental rates which approximated first class commercial rates for similar
flights, taking into account the number of passengers on each flight.
During 1997, the Company's policy was to pay $750 per flight hour,
regardless of the number of passengers on each flight. As of December 31,
1996, the Company had prepaid approximately $186,000 to this entity,
which is recorded in the accompanying consolidated balance sheet. As of
December 31, 1997, the Company had a payable due to this entity of
approximately $50,000, which is recorded in the accompanying consolidated
balance sheet.
. The Company leased office space from an entity owned by several members
of the board of directors. Related rental expense totaled approximately
$31,000 and $81,000 in 1997 and 1996, respectively. The lease was
terminated in May 1997.
. The Company incurred approximately $43,000, $800,000 (including $505,000
of initial public offering costs) and $280,000 to a law firm for legal
services performed for the period from January 1, 1997 through April 30,
1997 and for the years ended December 31, 1996 and 1995, respectively. A
director and stockholder in the Company was a partner of the law firm
when the services were provided. At December 31, 1996, approximately
$90,000 of these costs were included in accrued expenses in the
accompanying consolidated balance sheets.
F-43
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
. Mastering Computers' ongoing direct-mail campaigns and newsletter
printing and mailing involved approximately 9,350,000, 4,345,000 and
2,988,000 direct-mail pieces in 1997, 1996 and 1995, respectively. With
respect to these direct-mail campaigns, Mastering Computers incurred to
related-party companies approximately $466,000, $1,327,000 and $641,000
in 1997, 1996 and 1995, respectively for printing, film work, data
processing, marketing and mailing. These amounts were paid to two
companies owned by family members of the Company's CEO and one of its
Executive Vice Presidents. During 1995, services provided by related-
party companies were on an informal basis, and amounts billed included a
fee to manage all aspects of the direct-mail campaign and newsletter
printing and mailing and an amount to pay third-party vendors to provide
the related services. During 1996 and the period from January 1, 1997
through April 4, 1997, Mastering Computers arranged with one of the
related-party companies to pay the related party a fee equal to 15% of
all submitted third-party vendor invoices and to reimburse the related
party for all such vendor invoices paid by the related-party. After April
4, 1997, the Company began paying the vendors directly and paid only the
15% fee to the related party. At December 31, 1997 and 1996,
approximately $22,253 and $233,000, respectively, of costs were reflected
as prepaid expenses and are included in other current assets in the
accompanying consolidated balance sheets. Management believes that the
amounts paid to the related party companies are comparable to those that
would have been paid to unaffiliated companies.
. During 1995, prior to the Company's merger with Mastering Computers in
August 1996, Mastering Computers entered into an agreement to expand
certain products available to seminar customers with a company owned by a
family member of the Company's CEO and one of its Executive Vice
Presidents. The Company had approximately $41,000 payable to this related
party included in accrued expenses at December 31, 1995 relating to the
agreement. This agreement was terminated in 1996.
. During 1996, the Company paid approximately $185,000 for consulting
services to a family member of the Company's CEO and one of its Executive
Vice Presidents, primarily under an agreement entered into by Mastering
Computers prior to Mastering Computers' merger with the Company. This
agreement was terminated in 1996.
(7)STOCKHOLDERS' EQUITY:
RIGHTS AGREEMENT
The Board of Directors of the Company declared a dividend distribution of
one purchase right (a "Right") for each outstanding share of common stock.
Upon the occurrence of certain events, including events which could result in
a change in control of the Company, each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Preferred Stock
at a price of five times the offering price per share of the Company's common
stock established by the initial public offering of such common stock.
PREFERRED STOCK
During 1995 the Company sold 1,342,000 shares of Preferred Stock, $0.001 par
value, at $5.00 per share for gross proceeds of $6,710,000. The Company used
the funds for repayment of certain outstanding debt as well as for other
working capital and investment purposes.
As of December 31, 1995, dividends of $188,000 were accrued on the Preferred
Stock. During 1996, additional dividends of $178,000 were accrued on the
Preferred Stock. On March 21, 1996, the holders of 1,342,000 shares of
Preferred Stock converted their shares of Preferred Stock into 4,026,000
shares of the Company's common stock. However, dividends were not paid upon
conversion of the Preferred Stock as the market price of the Company's common
stock exceeded $5.00 on the date of conversion, which was the maximum
conversion rate at which dividends were to be paid.
F-44
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
S-CORPORATION DISTRIBUTION
Prior to their merger with the Company, GM and Mastering Computers were S
Corporations for income tax purposes. Accordingly, distributions from such
entities to their shareholders were made relating to the shareholders' tax
liabilities.
(8)OPTION PLANS:
1995 EXECUTIVE STOCK OPTION PLAN
In 1995, the Company adopted the 1995 Executive Stock Option Plan (the
"Executive Option Plan"), whereby certain eligible executives may be granted
options. The Executive Option Plan allows issuance of incentive stock options
and nonqualified options. The Executive Option Plan is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee may grant options to purchase up to an aggregate of 4,500,000 shares
under the Executive Option Plan, of which 3,512,400 are considered Standard
Options and 987,600 are considered Special Options. The Standard Options are
generally exercisable in four equal annual installments beginning 12 months
after the date of grant. The terms of the Special Options provided that such
Special Options vest at the end of four years from the date of grant; however,
vesting could be accelerated based upon the Company achieving certain
performance measures, which primarily related to the fair market value of the
Company's common stock. In 1996, the Company met such performance measures,
and the Special Options vested in full.
1995 EMPLOYEE OPTION PLAN
In 1995, the Company adopted the 1995 Employee Option Plan (the "Employee
Option Plan"), whereby certain eligible employees may be granted options. The
Employee Option Plan allows issuance of incentive stock options and non-
qualified options, and is administered by the Committee. The Committee may
grant options to purchase up to an aggregate of 1,500,000 shares under the
Employee Option Plan. The options are generally exercisable in four equal
annual installments beginning 12 months after the date of grant.
MASTERING COMPUTERS STOCK OPTIONS
Mastering Computers had granted certain key employees options to purchase
shares of common stock of Mastering Computers. A portion of those options
vested immediately at the grant date, and the remaining options vested upon
the change of control resulting from Mastering Computers' merger with the
Company. All outstanding Mastering Computers options were exchanged for
options of the Company. For certain options, the excess of the fair value of
the underlying stock on the date of grant over the exercise price has been
recorded as compensation expense and additional paid-in capital in the
accompanying consolidated balance sheets.
EMPLOYEE STOCK PURCHASE PLAN
In January 1996, the Board of Directors adopted, and the Company's
stockholders approved, the Employee Stock Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code. Under the Employee
Stock Purchase Plan, employees meeting certain eligibility requirements are
entitled to purchase common stock through payroll deductions or lump-sum
deposits made during periods established by the plan's administrative
committee. Participants generally may purchase common stock at a price equal
to 85% of the fair market value of the common stock on certain specified
dates. The Company has reserved 150,000 shares of common stock for issuance
under the Employee Stock Purchase Plan. Under the plan, the Company issued
approximately 41,000 and 10,700 shares during 1997 and 1996, respectively.
F-45
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS 123")
SFAS 123, Accounting for Stock-Based Compensation, defines a fair-value-
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of
compensation cost for such plans using the intrinsic-value-based method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25"), provided that pro forma disclosures are made of the impact of
issuing employee stock options or similar equity instruments assuming the
fair-value-based method of SFAS 123 had been applied. The Company has elected
to account for its stock-based compensation plans under APB 25; accordingly,
for purposes of the pro forma disclosures presented below, the Company has
computed the fair value of all options granted during 1997, 1996 and 1995
using the Black-Scholes pricing model and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 5.88% 6.02% 5.91%
Expected dividend yield........................... 0% 0% 0%
Expected lives outstanding........................ 4 years 4 years 4 years
Expect volatility................................. 86.40% 104.14% 104.14%
</TABLE>
To estimate lives of options for this valuation, it was assumed options will
be exercised upon becoming fully vested. All options are initially assumed to
vest. Cumulative compensation cost recognized in pro forma income from
continuing operations with respect to options that are forfeited prior to
vesting is adjusted as a reduction of pro forma compensation expense in the
period of forfeiture. As discussed in Note 11, the Company has entered into an
agreement which, if consummated, would result in the accelerated vesting of
stock options and would require the recognition, in pro forma footnote
disclosure, of the unrecognized pro forma compensation expense under SFAS No.
123.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's pro forma net income (loss) and pro
forma net income (loss) per diluted common share would have been reported as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net income (loss):
As reported...................... $2,581,000 $ (2,892,000) $ (3,273,000)
Pro forma........................ $ (763,000) $ (6,093,000) $ (4,292,000)
Unaudited net income (loss) per
diluted common share:
As reported...................... $ 0.18 $ (0.21)
Pro forma........................ $ (0.05) $ (0.45)
</TABLE>
Weighted average shares used to calculate pro forma loss per diluted share
were determined as described in Note 1. Historical income per common share are
not presented for periods prior to 1996 as it is not considered relevant given
the Company's initial public offering in 1996, which resulted in significant
changes in the Company's capital structure (see Note 1).
F-46
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of stock options as of December 31, 1997, 1996 and 1995 and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year...... 4,087,669 $ 6.73 2,096,713 $ 2.74 -- $ --
Granted............... 1,538,641 8.33 2,536,925 9.87 2,096,713 2.74
Canceled.............. (785,644) 10.71 (397,100) 7.62 -- --
Exercised............. (300,503) 3.65 (148,869) 1.70 -- --
--------- ------ --------- ------ --------- -----
Outstanding at end of
year................... 4,540,163 $ 6.78 4,087,669 $ 6.73 2,096,713 $2.74
========= ========= =========
Options exercisable at
end of year (see Note
11).................... 2,124,648 $ 5.62 1,344,949 $ 3.13 207,296 $1.23
Weighted average fair
value of options
granted................ $ 5.44 $ 7.17 $ 2.11
========= ========= =========
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------- ---------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
--------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ .01-$ 1.46 473,265 7.37 years $ 1.26 275,911 $ 1.25
$3.75-$ 9.00 3,476,135 8.79 years $ 6.27 1,726,796 $ 5.64
$9.38-$22.13 590,763 8.73 years $14.19 121,941 $15.10
========= =========
$ .01-$22.13 4,540,163 8.63 years $ 6.78 2,124,648 $ 5.62
========= =========
</TABLE>
(9)INCOME TAXES:
Mastering, Inc. was an S corporation for federal and state income tax
purposes until September 29, 1995. Accordingly, Mastering, Inc. was not
subject to income tax, as all of its taxable income or loss was reported in
the tax return of its shareholders for the period from inception through
September 29, 1995. Upon Mastering, Inc.'s conversion to a C corporation, a
net deferred tax asset of approximately $502,000 was recorded by the Company
which was fully reserved for by a valuation allowance as of December 31, 1995.
GM and Mastering Computers were S corporations for federal and state income
tax purposes prior to merging with Mastering, Inc. on June 21, 1996 and August
1, 1996, respectively. Accordingly, GM and Mastering Computers were not
subject to income tax prior to those dates, as all taxable income or loss of
GM and Mastering Computers was reported in the tax returns of their
shareholders for the period from inception through their respective merger
dates. Upon merger with the Company, net deferred tax assets of $30,000 and
$125,000 relating to GM and Mastering Computers, respectively, were recorded
by the Company.
Through December 31, 1995, the Company provided a valuation allowance to
fully offset its net deferred tax asset, which consisted primarily of the
benefit of its net operating loss. Such net operating loss was primarily the
result of the Company's investment in infrastructure to significantly expand
its interactive business and, to a much lesser degree, losses from its outdoor
media business segment. During 1996, as required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), the
Company reviewed the realization of its deferred tax asset, and as a result of
this review, reversed a portion of the valuation allowance. This reversal was
based on management's determination that it is more likely than not that the
related
F-47
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
deferred tax asset would be realized as a result of taxable income generated
by the Company's future years' operations.
During 1996, the Company recorded an income tax benefit for the deferred
income tax asset created by 1995 and 1996 operating losses, which resulted in
a deferred tax asset at December 31, 1996 of approximately $2.3 million.
During 1997, the Company recorded an approximately $2.1 million tax
provision from continuing operations and an approximate $0.8 million tax
benefit from discontinued operations. In addition, during 1997 the Company
recorded an approximately $1.2 million deferred tax asset resulting from the
exercise of non-qualified stock options by employees. At December 31, 1997, in
accordance with the provisions of SFAS No. 109, management has determined that
it is more likely than not that the tax asset of approximately $2.4 million as
of December 31, 1997 will be realized.
The Company bases its determination on the significant growth that has
occurred in its IT training business during 1996 and 1997. The Company's
revenue increased from $21 million for 1996 to $41 million for 1997, a 95%
increase. Income from continuing operations for 1996 was $0.5 million which
increased to $3.6 million in 1997, a 620% increase. Based on its projections,
the Company's management believes that profitable operations will be sustained
in future periods.
The Company's deferred income taxes result primarily from a net operating
loss carryforward ("NOL"), the use of accelerated depreciation methods for
income tax purposes, amortization differences relating to certain intangible
assets, and certain accrued expenses which are not deductible for income tax
purposes until paid. As of December 31, 1997, the Company had a tax NOL of
approximately $6.0 million, which expires in 2011.
Management believes that taxable income during the carryforward period will
be sufficient to utilize fully the NOLs before they expire. Management
anticipates that taxable income during the carryforward period will arise
primarily as a result of the Company's continued growth in its IT training
business and operating efficiencies which may be gained under the Company's
current strategies.
The components of the net deferred income tax assets at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $2,328,000 $1,724,000
Depreciation and amortization.................... -- 602,000
Allowance for bad debts.......................... 109,000 127,000
Non-deductible accruals.......................... 358,000 390,000
Compensation related to options granted below
fair market value............................... 130,000 130,000
Tax credit carryforwards and other............... 350,000 --
Less--valuation allowance........................ (254,000) (424,000)
---------- ----------
Total deferred tax assets...................... 3,021,000 2,549,000
---------- ----------
Deferred tax liabilities:
Depreciation and amortization.................... 120,000 --
Deferred revenue................................. 524,000 235,000
Other............................................ -- 18,000
---------- ----------
Total deferred tax liabilities................. 644,000 253,000
---------- ----------
Net deferred tax assets........................ $2,377,000 $2,296,000
========== ==========
</TABLE>
F-48
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income tax provision from continuing operations at the
statutory rate to the Company's effective rate is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed at the expected statutory rate......................... 34% 34%
Non-deductible expenses......................................... 2% 2%
State income tax benefit........................................ 4% 4%
Change in valuation allowance................................... (3%) (6%)
Loss from S corporation......................................... -- 14%
Other........................................................... -- (1%)
--- ---
Income tax provision--effective rate............................ 37% 47%
=== ===
</TABLE>
(10)COMMITMENTS AND CONTINGENCIES:
LICENSING AGREEMENT
On December 30, 1996, the Company signed a licensing agreement with a third
party to license a software development engine and over 100 existing computer
based training titles, as well as over 300 titles to be developed in the
eighteen months following the signing of the agreement. The Company is
committed to paying the third party future minimum royalties and license fees
of $600,000 in 1997 and $400,000 in 1998 as well as royalties for each CBT
title sold beyond the amount required to fulfill the minimum royalty
obligation.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain key
employees. Such employment agreements provide for severance benefits in
certain circumstances, as well as for bonus payments upon the attainment of
certain criteria, primarily related to operating income.
RETIREMENT AND PROFIT SHARING PLANS
The Company has adopted a 401(k) retirement savings plan (the "Plan"). All
of the Company's employees are eligible to participate beginning on the first
day of the month following ninety days of employment and may elect to
contribute up to 15% of their annual compensation to the Plan. The Company
will provide a matching contribution of 50% of the employee's contribution up
to an annual maximum of 3% of the employee's annual compensation. The
Company's matching contributions vest over a four-year period beginning on the
date the employee was hired. During 1997 and 1996, the Company contributed
approximately $235,000 and $51,000, respectively, to the Plan, for employees
included in continuing operations.
LEGAL MATTERS
The Company is party to various claims and lawsuits arising out of the
normal course of business. Management believes that the ultimate liability, if
any, in excess of amounts already provided for, is not likely to have a
material adverse effect on the Company's annual results of operations or
financial condition.
F-49
<PAGE>
MASTERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPERATING LEASES
The Company has entered into operating leases for office space and
equipment. As of December 31, 1997, future minimum lease payments required
under such operating leases are as follows:
<TABLE>
<S> <C>
1998......................... $ 1,275,282
1999......................... 1,546,030
2000......................... 1,546,030
2001......................... 1,540,257
2002......................... 1,540,257
Thereafter................... 8,748,055
-----------
Total........................ $16,195,911
===========
</TABLE>
Rent expense included in continuing operations in the accompanying
consolidated statements of operations for the years ended December 31, 1997,
1996 and 1995 was approximately $285,000, $200,000 and $140,000, respectively.
(11)SUBSEQUENT EVENT (UNAUDITED):
In February 1998, the Company announced that it had reached an agreement
whereby it would be merged with a wholly-owned subsidiary of PLATINUM
technology, inc. ("PT" and the "Merger"). In management's opinion, the Merger
is expected to be completed in the second quarter of 1998 and accounted for as
a pooling of interests. Consummation of the Merger must be approved by the
Company's shareholders. If the Merger is approved, PT will exchange 0.448 of a
share of PT common stock for each share of the Company's common stock. In
addition, in accordance with the terms of the outstanding stock option plans,
all outstanding unvested stock options will vest upon the consummation of the
Merger and all outstanding options will be assumed by PT.
F-50
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
PLATINUM technology, inc.:
Under date of February 9, 1998 (except as to Note 18, which is as of March
14, 1998), we reported on the consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements and our report thereon are included
herein. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, based on our audits, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
February 9, 1998, except for
Note 18, which is as of March
14, 1998
S-1
<PAGE>
SCHEDULE II
PLATINUM TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
FOR TRADE AND INSTALLMENT BEGINNING BAD DEBT ENDING
RECEIVABLES BALANCE EXPENSE WRITE-OFFS BALANCE
- ------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997..... $3,714,000 $9,146,000 $(8,753,000) $4,107,000
Year ended December 31, 1996..... 2,809,000 905,000 -- 3,714,000
Year ended December 31, 1995..... 1,522,000 1,287,000 -- 2,809,000
</TABLE>
S-2
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
PLATINUM TECHNOLOGY, INC.,
PT ACQUISITION CORPORATION I
AND
MASTERING, INC.
DATED AS OF FEBRUARY 18, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
1. THE MERGER............................................................ A-1
1.1 The Merger...................................................... A-1
1.2 Effective Time.................................................. A-1
1.3 Effect of the Merger............................................ A-1
1.4 Name; Certificate of Incorporation; Bylaws...................... A-2
1.5 Directors and Officers.......................................... A-2
1.6 Effect on Capital Stock......................................... A-2
1.7 No Dissenters' Rights........................................... A-3
1.8 Surrender of Certificates....................................... A-3
1.9 No Further Ownership Rights in Company Capital Stock............ A-4
1.10 Lost, Stolen or Destroyed Certificates.......................... A-4
1.11 Tax and Accounting Consequences................................. A-4
1.12 Taking of Necessary Action; Further Action...................... A-4
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... A-4
2.1 Organization of the Company..................................... A-4
2.2 Company Capital Structure....................................... A-5
2.3 Obligations With Respect to Capital Stock....................... A-5
2.4 Authority; No Conflicts......................................... A-6
2.5 SEC Filings; Company Financial Statements....................... A-7
2.6 Absence of Certain Changes of Events............................ A-7
2.7 Liabilities..................................................... A-8
2.8 Taxes........................................................... A-8
2.9 Restrictions on Business Activities............................. A-9
2.10 Absence of Liens and Encumbrances............................... A-9
2.11 Intellectual Property........................................... A-9
2.12 Agreements, Contracts and Commitments........................... A-11
2.13 No Default...................................................... A-12
2.14 Governmental Authorization...................................... A-12
2.15 Litigation...................................................... A-12
2.16 Insurance....................................................... A-13
2.17 Labor Matters................................................... A-13
2.18 Employee Benefits............................................... A-13
2.19 Relationships with Related Persons.............................. A-14
2.20 State "Anti-Takeover" Statutes.................................. A-15
2.21 Pooling of Interests............................................ A-15
2.22 Change of Control Payments...................................... A-15
2.23 Registration Statements; Proxy Statements/Prospectus............ A-15
2.24 Board Approval.................................................. A-15
2.25 Fairness Opinion................................................ A-15
2.26 Brokers' and Finders' Fees...................................... A-16
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............... A-16
3.1 Organization of Parent.......................................... A-16
3.2 Absence of Certain Changes of Events............................ A-16
3.3 Capital Structure............................................... A-16
3.4 Authority; No Conflict.......................................... A-18
3.5 SEC Filings; Parent Financial Statements........................ A-18
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
3.6 Pooling of Interests.... A-19
Registration Statement;
Proxy
3.7 Statement/Prospectus.... A-19
3.8 Board Approval.......... A-19
3.9 Fairness Opinion........ A-19
Brokers' and Finders'
3.10 Fees.................... A-19
Operations of Merger
3.11 Sub..................... A-19
3.12 Employee Benefits....... A-20
3.13 Liabilities............. A-20
3.14 Taxes................... A-20
3.15 Intellectual Property... A-20
Governmental
3.16 Authorization........... A-21
3.17 Litigation.............. A-21
CONDUCT PRIOR TO THE EFFECTIVE
4. TIME.......................... A-21
Conduct of Business of
4.1 the Company............. A-21
4.2 Conduct by Parent....... A-23
5. ADDITIONAL AGREEMENTS......... A-23
Proxy
Statement/Prospectus;
5.1 Registration Statement.. A-23
Meeting of
5.2 Stockholders............ A-23
Access to Information;
5.3 Confidentiality......... A-23
5.4 No Solicitation......... A-24
5.5 Expenses................ A-25
5.6 Break-Up Fee............ A-25
5.7 Public Disclosure....... A-26
5.8 Pooling Accounting...... A-26
5.9 Auditors' Letters....... A-26
5.10 Affiliate Agreements.... A-26
5.11 Legal Requirements...... A-26
5.12 Blue Sky Laws........... A-27
Reasonable Commercial
Efforts and Further
5.13 Assurances.............. A-27
5.14 Certain Benefit Plans... A-27
Tax-Free
5.15 Reorganization.......... A-28
5.16 Nasdaq Listing.......... A-28
5.17 Indemnification......... A-28
5.18 Notification............ A-28
Company Stock Options;
Employee Stock Purchase
5.19 Plan.................... A-28
6. CONDITIONS TO THE MERGER...... A-29
Conditions to
Obligations of Each
Party to Effect the
6.1 Merger.................. A-29
Additional Conditions to
Obligations of The
6.2 Company................. A-29
Additional Conditions to
Obligations of Parent
6.3 and Merger Sub.......... A-31
TERMINATION, AMENDMENT AND
7. WAIVER........................ A-33
7.1 Termination............. A-33
7.2 Effect of Termination... A-34
7.3 Notice of Termination... A-35
7.4 Amendment............... A-35
7.5 Extension; Waiver....... A-35
8. GENERAL PROVISIONS............ A-35
Non-Survival of
Representations and
8.1 Warranties.............. A-35
8.2 Notices................. A-35
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <C> <S> <C>
8.3 Interpretation.................................................. A-36
8.4 Counterparts.................................................... A-36
8.5 Entire Agreement................................................ A-36
8.6 Severability.................................................... A-36
8.7 Other Remedies.................................................. A-36
8.8 Governing Law................................................... A-37
8.9 Rules of Construction........................................... A-37
8.10 Assignment...................................................... A-37
</TABLE>
(iii)
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<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
"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
"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
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
"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
"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>
(v)
<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 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.
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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 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
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<PAGE>
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.
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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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, 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 (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
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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 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
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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,
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.
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(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.
(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.
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
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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 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.
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(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 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 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;
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(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.
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
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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
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).
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(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.
(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 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
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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
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.
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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 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
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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
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, 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.
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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.
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
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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 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.
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3.12 Employee Benefits.
(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.
(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,
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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.
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
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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;
(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 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;
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(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.
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
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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 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.
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(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 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 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.
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(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 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
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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.
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 to (i) waive any pre-existing condition
limitations otherwise applicable on and after the Effective Time to the
extent that such conditions are
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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 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
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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.
(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
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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.
(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.
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.
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(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:
(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.
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(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.
(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 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.
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(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
(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
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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:
(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 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
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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):
(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
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(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.
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.
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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.
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.
/s/ Larry S. Freedman /s/ Marc Pinto
By: _________________________________ By: _________________________________
Name: Larry S. Freedman Name: Marc Pinto
Title: Senior Vice President and Title: Executive Vice President
General Counsel and Chief Financial Officer
PT Acquisition Corporation I
/s/ Larry S. Freedman
By: _________________________________
Name: Larry S. Freedman
Title: Authorized Signatory
A-37
<PAGE>
APPENDIX B
February 18, 1998
PERSONAL & CONFIDENTIAL
Board of Directors
Mastering, Inc.
9201 East Mountain View Road
Suite 200
Scottsdale, Arizona 85258
Members of the Board:
We understand that PLATINUM technology, inc., a Delaware corporation
("PLATINUM" or the "Acquiror"), PT Acquisition Corporation I, a Delaware
corporation ("Acquisition Sub"), and Mastering, Inc., a Delaware corporation
("Mastering" or the "Company") propose to enter into an Agreement and Plan of
Merger (the "Agreement") pursuant to which the Acquisition Sub will be merged
with and into the Company in a transaction (the "Transaction") in which each
outstanding share of the Company's common stock, $.001 par value per share
(the "Company Shares") will be converted into the right to receive 0.448
shares (the "Exchange Ratio") of the common stock of PLATINUM, par value
$0.001 per share (the "Acquiror Shares"). You have requested our opinion as to
whether the Exchange Ratio is fair, from a financial point of view, to the
holders of Company Shares.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, underwritings and
secondary distributions of securities, private placements, and valuations for
estate, corporate and other purposes. For our services in rendering this
opinion, the Company will pay us a fee and indemnify us against certain
liabilities. In the ordinary course of its business, we and our affiliates may
actively trade securities of the Company and PLATINUM for our own account or
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. Reviewed the draft dated February 17, 1998 of the Agreement.
2. Reviewed the Report on Form 10-K for the Company for the fiscal year
ended December 31, 1996.
3. Reviewed the Reports on Form 10-Q for the Company for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997.
4. Reviewed the earnings release issued by the Company for the fiscal year
ended December 31, 1997.
5. Reviewed the earnings release issued by PLATINUM for the fiscal year
ended December 31, 1997.
6. Reviewed the Reports on Form 10-K for PLATINUM for the three fiscal
years ended December 31, 1996.
7. Reviewed the Reports on Form 10-Q for PLATINUM for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997.
8. Reviewed financial forecasts prepared by Company management for the five
fiscal years ending December 31, 1998 through 2002 ("Five-Year Financial
Forecasts").
9. Visited the headquarters of the Company and conducted discussions with
members of senior management of the Company, including the Chief
Executive Officer, the President, the Executive Vice President and Chief
Financial Officer and other members of senior management. Topics
discussed included, but were not limited to, the background and
rationale of the proposed Transaction, the financial condition,
operating performance and the balance sheet characteristics of the
Company and the prospects for the Company.
B-1
<PAGE>
10. Conducted discussions with members of senior management of PLATINUM,
including the Chief Executive Officer and the Executive Vice President
and Chief Financial Officer. Topics discussed included, but were not
limited to, the background and rationale of the proposed Transaction,
the financial condition, operating performance and the balance sheet
characteristics of PLATINUM and the prospects for PLATINUM.
11. Conducted discussions with PLATINUM's auditors. Topics discussed
included, but were not limited to, PLATINUM's financial accounting
policies and procedures and other financial and accounting matters.
12. Reviewed the historical prices and trading activity for PLATINUM common
stock.
13. Performed discounted cash flow analysis on the Five-Year Financial
Forecasts.
14. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant.
15. Compared certain financial data of the Company and PLATINUM with
certain financial and securities data of companies deemed similar to
the Company and PLATINUM or representative of the business sectors in
which they operate.
16. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by the Company and
PLATINUM or otherwise made available to us and have not assumed responsibility
independently to verify such information. We have further relied upon the
assurances of the Company's and PLATINUM's management that the information
provided has been prepared on a reasonable basis in accordance with industry
practice, and, with respect to financial planning data, reflects the best
currently available estimates and judgment of the Company's and PLATINUM's
management as to the expected future financial performance of the Company and
PLATINUM and that they are not aware of any information or facts that would
make the information provided to us incomplete or misleading. Without limiting
the generality of the foregoing, for the purpose of this opinion, we have
assumed that neither the Company nor PLATINUM are a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Transaction or in the ordinary course of
business. We have also assumed that the Transaction will be free of Federal
tax to the Company, PLATINUM, and the holders of Company Shares and that the
Transaction will be accounted for as a pooling of interests under generally
accepted accounting principles. In arriving at our opinion, we have assumed
that all the necessary regulatory approvals and consents required for the
Transaction will be obtained in a manner that will not change the purchase
price for the Company. We also note that Mr. Filipowski, a director of the
Company, is the Chief Executive Officer of PLATINUM.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Company or PLATINUM and
have not been furnished with any such appraisals or valuations. Without
limiting the generality of the foregoing, we have undertaken no independent
analysis of any pending or threatened litigation, possible unasserted claims
or other contingent liabilities, to which the Company, PLATINUM or any of
their respective affiliates is a party or may be subject and, at the Company's
direction and with its consent, our opinion makes no assumption concerning and
therefore does not consider, the possible assertion of claims, outcomes or
damages arising out of any such matters.
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof; events occurring after the date
hereof could materially affect the assumptions used in preparing this opinion.
We have not undertaken to reaffirm or revise this opinion or otherwise comment
upon any events occurring after the date hereof and do not have any obligation
to update, revise or reaffirm this opinion. We are not expressing any opinion
herein as to the prices at which the Company Shares or the Acquiror Shares
will trade following the consummation of the Transaction or the prices at
which the Company Shares or the Acquiror Shares will trade between the date
hereof and the consummation of the Transaction. In addition, we express no
opinion or recommendation as to how the holders of Company Shares should vote
at the stockholders meeting to be held in connection with the Transaction.
B-2
<PAGE>
This opinion is for the benefit of the Board of Directors of the Company in
evaluating the Transaction and shall not be published or otherwise used, nor
shall any public references to Piper Jaffray be made without our prior written
consent. In connection with this opinion, we were not requested to opine as
to, and this opinion does not address (except to the extent expressly set
forth in the next paragraph), the underlying business decision to proceed with
or effect the Transaction.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the Exchange Ratio is fair, from
a financial point of view, to the holders of Company Shares, as of the date
hereof.
Sincerely,
/s/ Piper Jaffray
PIPER JAFFRAY INC.
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ten of PLATINUM's Restated Certificate of Incorporation provides
that PLATINUM shall indemnify its directors to the full extent permitted by
the Delaware General Corporation Law and may indemnify its officers to such
extent, except that PLATINUM shall not be obligated to indemnify any such
person (i) with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense, or (ii) for any
amounts paid in settlement of an action indemnified against by PLATINUM
without the prior written consent of PLATINUM. With the approval of its
stockholders, PLATINUM has entered into indemnity agreements with each of its
directors and certain of its officers. These agreements may require PLATINUM,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers, to advance expenses to them as they are incurred, provided that
they undertake to repay the amount advanced if it is ultimately determined by
a court that they are not entitled to indemnification, and to obtain
directors' and officers' liability insurance if available on reasonable terms.
In addition, Article Nine of PLATINUM's Restated Certificate of
Incorporation provides that a director of PLATINUM shall not be personally
liable to PLATINUM or its stockholders for monetary damages for breach of his
or her fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to PLATINUM or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derives an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
PLATINUM has purchased an insurance policy under which it is entitled to be
reimbursed for certain indemnity payments it is required or permitted to make
to its directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
2.1 Agreement and Plan of Merger among the Registrant, PT Acquisition
Corporation I and Mastering, Inc. ("Mastering"), dated as of February
18, 1998 (the "Merger Agreement") (incorporated by reference to
Appendix A to the Proxy Statement/Prospectus contained in the
Registrant's Registration Statement on Form S-4, File No. 333-48965
(the "Original S-4")). The exhibits to the Merger Agreement are
omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant
agrees to furnish supplementally to the Commission, upon request, a
copy of any omitted exhibits.
2.2 First Amendment to Agreement and Plan of Merger dated as of April 7,
1998 between the Registrant, PT Acquisition Corporation I and
Mastering (attached as Appendix A to the Supplement to the Proxy
Statement/Prospectus contained in this Registration Statement).*
2.3 Form of Stockholder Agreement, dated April 7, 1998, between the
Registrant and certain stockholders of Mastering, Inc.*
3.1 Restated Certificate of Incorporation of the Registrant, incorporated
by reference to Exhibit 3.1 to PLATINUM's Registration Statement on
Form S-1, Registration Statement No. 33-39233 (the "IPO S-1
Registration Statement").
3.2 Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 to
the IPO S-1 Registration Statement.
4.1 Specimen stock certificate representing Common Stock, incorporated by
reference to Exhibit 4.1 to the IPO S-1 Registration Statement.
</TABLE>
II-1
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<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
4.2 Rights Agreement dated as of December 21, 1995 between the Company
and Harris Trust and Savings Bank, incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form 8-A, filed
December 26, 1995 (the "1995 8-A").
4.3 Certificate of Designations of the Class II Series A Junior
Participating Preferred Stock, incorporated by reference to Exhibit
4.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
4.4 Indenture between the Company and American National Bank and Trust
Company, as Trustee, dated as of November 18, 1996, incorporated by
reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 ("1997 10-K").
4.5 Form of Note for the Company's convertible subordinated notes due
2001, incorporated by reference to Exhibit 4.5 to the 1997 10-K.
4.6 Indenture between the Company and American National Bank and Trust
Company, as Trustee, dated as of December 15, 1997, incorporated by
reference to Exhibit 4.6 to the 1997 10-K.
4.7 Form of Note for the Company's convertible subordinated notes due
2002, incorporated by reference to Exhibit 4.7 to the 1997 10-K.
5.1 Opinion of Katten Muchin & Zavis as to the legality of the securities
being issued.*
8.1 Opinion of Katten Muchin & Zavis as to tax matters.*
10.1 1989 Stock Option Plan, incorporated by reference to Exhibit 10.1 to
the IPO S-1 Registration Statement.
10.2 Forms of Stock Option Agreements, incorporated by reference to
Exhibit 10.2 to the IPO S-1 Registration Statement.
10.3 Chief Executive Stock Option Plan, incorporated by reference to
Exhibit 10.3 to the IPO S-1 Registration Statement.
10.4 Chief Executive Stock Option Agreement, incorporated by reference to
Exhibit 10.4 to the IPO S-1 Registration Statement.
10.5 1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 to
the IPO S-1 Registration Statement.
10.6 Amended and Restated Employment Agreement between Andrew J.
Filipowski and the Company, dated as of January 1, 1996, incorporated
by reference to Exhibit 10.6 to the 1997 10-K.
10.7 Amended and Restated Employment Agreement between Michael P.
Cullinane and the Company, dated as of January 1, 1996, incorporated
by reference to Exhibit 10.7 to the 1997 10-K.
10.8 Amended and Restated Employment Agreement between Paul L. Humenansky
and the Company, dated as of October 28, 1997, incorporated by
reference to Exhibit 10.8 to the 1997 10-K.
10.9 Form of Indemnification Agreement between the Company and each of
Andrew J. Filipowski, Michael P. Cullinane, Paul L. Humenansky, Casey
G. Cowell, James E. Cowie, Steven D. Devick and Gian Fulgoni,
incorporated by reference to Exhibit 10.10 to the IPO S-1
Registration Statement.
10.10 Forms of Affiliate Agreements, incorporated by reference to Exhibit
10.11 to the IPO S-1 Registration Statement.
10.11 Form of Master Product License Agreement, incorporated by reference
to Exhibit 10.11 to the 1995 10-K.
10.12 Office Lease, dated May 6, 1992, between the Company and LaSalle
National Trust N.A. as Trustee (the "Oakbrook Terrace Lease"),
incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
</TABLE>
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<TABLE>
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EXHIBITS
<C> <S>
10.13 PLATINUM technology, inc. 1993 Directors' Stock Option Plan,
incorporated by reference to Exhibit 10.18 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 (the "June
1994 10-Q").
10.14 PLATINUM technology, inc. 1994 Stock Incentive Plan, incorporated by
reference to Exhibit 10.19 to the June 1994 10-Q.
10.15 Amendments to the PLATINUM technology, inc. 1994 Stock Incentive
Plan, incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8, Registration No. 33-85798 (the
"1994 S-8").
10.16 Form of Option Agreement under the PLATINUM technology, inc. 1993
Director's Stock Option Plan, incorporated by reference to Exhibit
4.4 to the 1994 S-8.
10.17 Form of Option Agreement under the PLATINUM technology, inc. 1994
Stock Incentive Plan, incorporated by reference to Exhibit 4.5 to the
1994 S-8.
10.18 Amendment Number One, dated as of May 3, 1993, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.19 to the 1994
10-K.
10.19 Amendment Number Two, dated as of October 26, 1993, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.20 to the 1994
10-K.
10.20 Amendment Number Three, dated as of December 22, 1994, to the
Oakbrook Terrace Lease, incorporated by reference to Exhibit 10.21 to
the 1994 10-K.
10.21 Office Lease, dated August 8, 1994, between the Company and L.J.
Sheridan & Co. as court appointed receiver, incorporated by reference
to Exhibit 10.22 to the 1994 10-K.
10.22 PLATINUM technology, inc. Employee Incentive Compensation Plan,
incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-4, Registration No. 33-94410 (the
"1995 S-4").
10.23 Lease Agreement, dated as of March 30, 1995, between the Company and
Lisle Property Venture, Inc. (the "March 1995 Lisle Lease"),
incorporated by reference to Exhibit 10.24 to the 1995 S-4.
10.24 First Amendment, dated as of September 15, 1995, to the March 1995
Lisle Lease, incorporated by reference to Exhibit 10.25 to the 1995
10-K.
10.25 Second Amendment, dated as of September 15, 1995, to the March 1995
Lisle Lease, incorporated by reference to Exhibit 10.26 to the 1995
10-K.
10.26 Third Amendment, dated as of January 3, 1996, to the March 1995 Lisle
Lease, incorporated by reference to Exhibit 10.27 to the 1995 10-K.
10.27 Lease Agreement, dated as of October 31, 1995, between Lisle Property
Venture, Inc. and the Company (the "October 1995 Lisle Lease"),
incorporated by reference to Exhibit 10.28 to the 1995 10-K.
10.28 Amendment Number Four, dated as of March 9, 1995, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.29 to the 1995
10-K.
10.29 Loan Agreement, dated as of December 31, 1995, between the Company
and American National Bank and Trust Company of Chicago (the "Loan
Agreement"), incorporated by reference to Exhibit 10.30 to the 1995
10-K.
10.30 First Amendment, dated as of December 31, 1996, to the Loan
Agreement, incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996 (the "1996 10-K").
10.31 First Amendment, dated as of May 23, 1996, to the October 31, 1995
Lisle Lease, incorporated by reference to Exhibit 10.31 to the 1996
10-K.
</TABLE>
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EXHIBITS
<C> <S>
10.32 Second Amendment, dated as of May 24, 1996, to the October 31, 1995
Lisle Lease, incorporated by reference to Exhibit 10.32 to the 1996
10-K.
10.33 Lease Agreement, dated as of July 17, 1996, between the Company and
Oakbrook Tower Limited Partnership, incorporated by reference to
Exhibit 10.33 to the 1996 10-K.
10.34 PLATINUM technology, inc. 1996 Stock Purchase Plan, incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8, Registration No. 333-03284 (the "April 1996
S-8").
10.35 PLATINUM technology, inc. Amended and Restated 1993 Directors' Stock
Option Plan, incorporated by reference to Exhibit 4.2 to the April
1996 S-8.
10.36 Amendment to the PLATINUM technology, inc. 1994 Stock Incentive Plan,
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 (the "June 1996 10-Q").
10.37 First Amendment to the PLATINUM technology, inc. Employee Incentive
Compensation Plan, incorporated by reference to the June 1996 10-Q.
10.38 Second Amendment to the PLATINUM technology, inc. Employee Incentive
Compensation Plan, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (the "June 1997 10-Q").
10.39 Amendment Number Five, dated as of December 1, 1996, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.2 to the June
1997 10-Q.
10.40 Amendment Number Six, dated as of April 30, 1997, to the Oakbrook
Terrace Lease, incorporated by reference to Exhibit 10.3 to the June
1997 10-Q.
10.41 Amendment Number Seven, dated as of September 16, 1997, to the
Oakbrook Terrace Lease, incorporated by reference to Exhibit 10.42 to
the Company's Registration Statement on Form S-1, Registration No.
333-40075.
10.42 Credit Agreement, dated as of December 22, 1997, between the Company
and American National Bank and Trust Company of Chicago, as Agent,
incorporated by reference to Exhibit 10.42 to the 1997 10-K.
12 Computation of Ratios of Earnings to Fixed Charges, incorporated by
reference to Exhibit 12 to the 1997 10-K.
21 Subsidiaries of the Company, incorporated by reference to Exhibit 21
to the 1997 10-K.
23.1 Consent of Katten Muchin & Zavis (included in their opinions filed as
Exhibits 5.1 and 8.1 herewith).*
23.2 Consent of KPMG Peat Marwick LLP.*
23.3 Consent of Arthur Andersen LLP.*
23.4 Consent of Piper Jaffray Inc.*
24.1 Power of Attorney (included on the signature page).*
99.1 Form of proxy card to be used in soliciting Mastering's stockholders
for its special meeting, incorporated by reference to Exhibit 99.1 to
the Original S-4.
99.2 Additional form of proxy card to be used in soliciting Mastering's
stockholders for its special meeting.*
</TABLE>
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*Filed herewith
(b) See Schedule II--Valuation and Qualifying Accounts in the Proxy
Statement/Prospectus contained in this Registration Statement.
II-4
<PAGE>
(c) The opinion of Piper Jaffray Inc. is included as Appendix B to the
Supplement to the Proxy Statement/Prospectus contained in this Registration
Statement.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the registrant,
PLATINUM technology, inc., a Delaware corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Chicago, State of Illinois on the 10th day of
April, 1998.
PLATINUM technology, inc.
/s/ Andrew J. Filipowski
By: __________________________________
Andrew J. Filipowski
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Andrew J. Filipowski, Michael P. Cullinane and Matthew S. Brown, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, to sign on his behalf, individually and in each capacity stated
below, all amendments and post-effective amendments to this Registration
Statement on Form S-4 and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission under the Securities Act of 1933, granting into said attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully and to all intents and purposes as each might or could do in person,
hereby ratifying and confirming each act that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Andrew J. Filipowski President, Chief April 10, 1998
- ------------------------------------- Executive Officer
Andrew J. Filipowski (Principal
Executive Officer)
and a Director
/s/ Paul L. Humenansky Executive Vice April 10, 1998
- ------------------------------------- President--Product
Paul L. Humenansky Development, Chief
Operations Officer
and a Director
/s/ Michael P. Cullinane Executive Vice April 10, 1998
- ------------------------------------- President, Chief
Michael P. Cullinane Financial Officer,
Treasurer
(Principal
Financial and
Accounting Officer)
and a Director
Director
- -------------------------------------
James E. Cowie
/s/ Steven D. Devick Director April 10, 1998
- -------------------------------------
Steven D. Devick
/s/ Arthur P. Frigo Director April 10, 1998
- -------------------------------------
Arthur P. Frigo
/s/ Gian M. Fulgoni Director April 10, 1998
- -------------------------------------
Gian M. Fulgoni
II-6
<PAGE>
EXHIBIT 2.3
FORM OF STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (the "Agreement"), dated as of April 7, 1998, is
by and between PLATINUM technology, inc., a Delaware corporation ("Parent"), PT
Acquisition Corporation I, a Delaware corporation and wholly-owned subsidiary of
Parent ("Merger Sub"), and the stockholder or optionholder of Mastering, Inc., a
Delaware corporation (the "Company") indicated on the signature page hereof (the
"Stockholder").
RECITALS
A. Concurrent with the execution of this Agreement, Parent, Merger Sub and
the Company entered into a First Amendment (the "Amendment") to the Agreement
and Plan of Merger, dated February 18, 1998 (as amended from time to time, the
"Merger Agreement"), pursuant to which Merger Sub is to be merged with and into
the Company (the "Merger").
B. As an inducement and a condition to entering into the Amendment, Parent
required that the Stockholder agree, and the Stockholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Certain Definitions. In addition to the terms defined elsewhere
herein, capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities means having "beneficial ownership" of such securities as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(b) "Existing Shares" means shares of Company Capital Stock Beneficially
Owned by the Stockholder as of the date hereof.
(c) "Securities" means the Existing Shares together with any shares of
Company Capital Stock or other securities of the Company that become
Beneficially Owned by the Stockholder in any capacity after the date hereof and
prior to the termination of this Agreement, whether upon the exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution, split-
up, recapitalization, combination, exchange of shares or the like, gift,
bequest, inheritance or as a successor in interest in any capacity or otherwise.
2. Disclosure. The Stockholder hereby agrees to permit the Company and
Parent to publish and disclose in the Registration Statement and the
Prospectus/Proxy Statement (including all documents and schedules filed with the
SEC), and any press release or other disclosure document which Parent reasonably
determines to be necessary or desirable in
<PAGE>
connection with the Merger and any transactions related thereto, the
Stockholder's identity and ownership of Company Capital Stock and the nature of
the Stockholder's commitments, arrangements and understandings under this
Agreement.
3. Voting of Company Capital Stock. The Stockholder hereby agrees that,
during the period commencing on the date hereof and continuing until the first
to occur of (a) the Effective Time, (b) valid termination of the Merger
Agreement pursuant to Section 7.1(a), 7.1(b)(i), 7.1(c)(i), (c)(ii) or (c)(iv),
or 7.1(d), (c) 30 days after termination of the Merger Agreement pursuant to
Section 7.1(b)(ii) or (b)(iii) or 7.1(c)(iii) or 7.1(e) of the Merger Agreement
under circumstances where the last sentence of this Section 3 does not apply, or
(d) 180 days after the date hereof (the first to occur of clauses (a), (b) (c)
and (d), the "Termination Date"), at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the holders of Company
Capital Stock, however called, or in connection with any written consent of the
holders of Company Capital Stock, he, she or it will appear at the meeting or
otherwise cause the Securities to be counted as present thereat for purposes of
establishing a quorum and vote or consent (or cause to be voted or consented)
the Securities (A) in favor of the adoption of the Merger Agreement and the
approval of the other actions contemplated by the Merger Agreement and this
Agreement and any actions required in furtherance thereof and hereof; (B)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty, or any other obligation or agreement,
of the Company under the Merger Agreement or this Agreement; and (C) except as
otherwise agreed to in writing in advance by Parent in its sole discretion,
against the following actions (other than the Merger and the transactions
contemplated by this Agreement and the Merger Agreement): (1) any Acquisition
Proposal, (2) (u) any change in a majority of the individuals who constitute the
Company's Board of Directors; (v) any material change in the present
capitalization of the Company, including without limitation any proposal to sell
a substantial equity interest in the Company or its Subsidiaries or substantial
assets of the Company or its Subsidiaries; (w) any amendment of the Company's
Certificate of Incorporation or By-laws; (x) any other material change in the
Company's corporate structure or business; or (y) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone or materially adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Each of the
Stockholders agrees that he, she or it will not enter into any agreement or
understanding with any person the intended or reasonably anticipated effect of
which would be inconsistent with or violative of any provision contained in this
Section 3. In addition, the Stockholder hereby agrees that if the Merger
Agreement is terminated pursuant to Section 7.1(b)(ii) or (b)(iii), 7.1(c)(iii),
7.1(e) or 7.1(f) and, prior to such termination, there shall have been made a
Superior Proposal or Acquisition Proposal, then for a period of 365 days after
the date hereof the Stockholder will not vote in favor of such Superior Proposal
or Acquisition Proposal or any proposal made by the person or entity that made
such Superior Proposal or Acquisition Proposal or any affiliate of such person
or entity and will not sell the Securities (by means of a tender or otherwise)
to the person or entity making such Superior Proposal or Acquisition Proposal or
any affiliate of such person or entity.
4. Covenants, Representations and Warranties of Stockholder. The
Stockholder hereby represents and warrants to, and agrees with, Parent as
follows:
2
<PAGE>
(a) Ownership of Shares. The Stockholder is the sole record and Beneficial
Owner of the number of Existing Shares opposite the Stockholder's name on the
signature page hereof, and on the date hereof such Existing Shares constitute
all of the shares of Company Capital Stock owned of record or Beneficially Owned
by the Stockholder. The Stockholder has sole voting power and sole power to
issue instructions with respect to the matters set forth in Section 3 hereof,
sole power of disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Stockholder's Existing Shares
with no limitations, qualifications or restrictions on such rights, subject to
applicable securities laws, and the terms of this Agreement.
(b) Authorization. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement
enforceable against the Stockholder in accordance with its terms except (i) as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights and (ii) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents and
approvals as may be required under the Exchange Act and the Securities Act, (i)
no filing with, and no permit, authorization, consent or approval of, any state
or federal Governmental Entity is necessary for the execution of this Agreement
by the Stockholder and the consummation by the Stockholder of the transactions
contemplated hereby and (ii) none of the execution and delivery of this
Agreement by the Stockholder, the consummation by the Stockholder of the
transactions contemplated hereby or compliance by the Stockholder with any of
the provisions hereof will (A) conflict with or result in any breach of the
organizational documents of the Stockholder (if applicable), (B) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which the Stockholder is a party or by
which the Stockholder or any of its properties or assets may be bound, or (C)
violate any order, written injunction, decree, judgment, statute, rule or
regulation applicable to the Stockholder or any of its properties or assets.
(d) No Encumbrances. Except as applicable in connection with the
transactions contemplated by Section 3 hereof, the Stockholder's Existing Shares
at all times during the term hereof will be Beneficially Owned by the
Stockholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for Existing Shares pledged to the Company.
(e) No Solicitation. The Stockholder will not, and will cause its
Affiliates (other than the Company), and officers, directors, employees,
partners, investment bankers, attorneys, accountants and other agents and
representatives of the Stockholder and such affiliates (such Affiliates,
officers, directors, employees, partners, investment bankers, attorneys,
accountants and other agents and representatives of any person are hereinafter
collectively referred to as the
3
<PAGE>
"Representatives" of such person) not to, directly or indirectly (other than
with Parent and its representatives in connection with the Merger), (i) solicit,
initiate or encourage (including by way of furnishing information) any inquiries
or the making of any proposal with respect to any Acquisition Proposal or (ii)
negotiate or otherwise engage in discussions with any Person with respect to any
Acquisition Proposal, or which may reasonably be expected to lead to a proposal
for an Acquisition Proposal, or enter into any agreement, arrangement or
understanding (including any letter of intent, agreement in principle or similar
agreement) with respect to any such Acquisition Proposal. The Stockholder will
promptly advise Parent of any inquiries or proposals received by, and any
information requested from, or any negotiations or discussions sought to be
initiated or continued with agents or representatives of the foregoing, in each
case from a person (other than Parent and its representatives) with respect to
an Acquisition Proposal, and a reasonable summary of the terms thereof,
including the identity of such third party, including any financing arrangement
or commitment in connection therewith. The Stockholder will, and will cause its
Representatives to, immediately cease and cause to be terminated any and all
existing activities, discussions or negotiations, if any, with any parties
conducted heretofore with respect to any Acquisition Proposal relating to the
Company, other than discussions or negotiations with Parent and its affiliates.
(f) Restriction on Transfer, Proxies and Non-Interference. From the date
hereof through the Termination Date, the Stockholder will not, directly or
indirectly (i) offer for sale, sell, transfer, tender, pledge, encumber, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of, any
or all of the Securities or any interest therein, (ii) grant any proxies or
powers of attorney, deposit the Securities into a voting trust or enter into a
voting agreement with respect to the Securities, or (iii) take any action that
would make any representation or warranty of the Stockholder contained herein
untrue or incorrect or would result in a breach by the Stockholder of its
obligations under this Agreement.
(g) Reliance by Parent. The Stockholder understands and acknowledges that
Parent is entering into the Amendment in reliance upon the Stockholder's
execution and delivery of this Agreement.
5. Stop Transfer Legend.
(a) The Stockholder agrees and covenants to Parent that the Stockholder
will not request that the Company register the transfer (book-entry or
otherwise) of any certificate or uncertificated interest representing any of the
Securities, unless such transfer is made in compliance with this Agreement.
(b) In the event of a stock dividend or distribution, or any change in the
Company Capital Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, other than
pursuant to the Merger, the terms "Shares" and "Securities" will be deemed to
refer to and include the shares of Company Capital Stock as well as all such
stock dividends and distributions and any shares into which or for which any or
all of the Securities
4
<PAGE>
may be changed or exchanged and appropriate adjustments shall be made to the
terms and provisions of this Agreement.
6. Termination. This Agreement will terminate upon the Termination Date
and all further obligations (other than obligations under the last sentence of
Section 3 and obligations for breaches occurring prior to the Termination Date)
shall terminate as of such date. All obligations of the Stockholder hereunder
and for any breach hereof shall terminate at the Effective Time.
7. Miscellaneous.
(a) Further Assurances. From time to time, at another party's request and
without further consideration, each party hereto will execute and deliver such
additional documents and take all such further lawful action as may be necessary
or reasonably desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
(b) Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
(c) Capacity, Binding Effect and Certain Permitted Activities. The
Stockholder agrees that this Agreement and the obligations hereunder will attach
to the Securities and will be binding upon any Person to which legal or
Beneficial Ownership of such Securities shall pass, whether by operation of law
or otherwise, including without limitation, any Stockholder's legal
representatives or successors or other transferees (for value or otherwise) and
any other successors in interest. Notwithstanding anything to the contrary in
this Agreement, the Stockholder is signing this Agreement solely in its capacity
as a stockholder of the Company and the Stockholder shall not be limited or
otherwise affected by this Agreement with respect to any action or inaction of
the Stockholder taken (i) in its capacity as a director, officer or employee of
the Company, (ii) in its capacity as a director, officer or employee of, or
consultant to, Parent and/or its subsidiaries or (iii) in conjunction with, vis-
a-vis or in relation to any other stockholder or family member or any entity
(other than, for purposes of this clause (iii), the Company and Parent or any of
their respective subsidiaries) as to which such a stockholder or family member
serves as a director, officer, trustee, member, partner, or fiduciary or other
similar position, or as to which the Stockholder exercises any dispositive or
voting control of any Securities held by such entity.
(d) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned or delegated (whether by operation of law
or otherwise) without the prior written consent of the other parties, provided
that Parent may assign, in its sole discretion, its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment will relieve Parent from any of its obligations
hereunder if such assignee does not perform such obligations. Subject to the
preceding sentence, this
5
<PAGE>
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
(e) Amendment and Modification. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified, except upon the execution
and delivery of a written agreement executed by the parties hereto.
(f) Notices. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally, on the next business
day after being sent by an overnight courier service, such as Federal Express,
or on the second business day after being sent by registered or certified mail,
return receipt requested, postage prepaid, to the parties at the following
addresses (or at such other address for a party as will be specified by like
notice):
If to the Stockholder to the address set forth for the Stockholder on the
signature page to this Agreement
if to Parent or Merger Sub:
PLATINUM technology, inc.
1815 South Meyers Road
Oak Brook Terrace, Illinois 60181
Attn: Andrew J. Filipowski
Larry Freedman
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661
Attn: Matthew S. Brown, Esq.
(g) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions of this Agreement will remain
in full force and effect and will in no way be affected, impaired or
invalidated.
(h) Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof and that the parties will be entitled to the
remedy of specific performance of the terms hereof, in addition to any other
remedy at law or equity.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in
6
<PAGE>
equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, will not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
(k) Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflict of laws thereof.
(l) Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding will be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein); provided, however, that no such consent to jurisdiction of said
court or in the State of Delaware shall be valid other than for such purposes.
Each party hereby waives any right to a trial by jury in connection with any
such action, suit or proceeding.
(m) Description Headings. The description headings used herein are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each of
which will be considered one and the same agreement and will become effective
when such counterparts have been signed by each of the parties and delivered to
the other parties, it being understood that all parties need not sign the same
counterpart.
(o) Certain Sales and Transfers. Anything to the contrary in this
Agreement notwithstanding, the Stockholder may (i) sell, transfer or otherwise
dispose of all or any portion of the Parent Common Stock which it may acquire in
the Merger or which it may otherwise own and (ii) reorganize its internal
structure and composition and/or transfer all or any portion of the Securities
which it owns for tax, securities or estate planning purposes, for charitable
donation purposes or to another stockholder, as long as the recipient of the
voting and dispositive power with respect to such Securities under this
subsection (ii) agrees to abide by the provisions of and become a party to this
Agreement.
(p) Option Shares. Nothing contained herein shall require or compel the
Stockholder to exercise any option to purchase shares of Company Capital Stock.
7
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
PLATINUM technology, inc.
By:_______________________________________
Name:
Title:
PT Acquisition Corporation I
By:_______________________________________
Name:
Title:
STOCKHOLDER:
-----------
By:_______________________________________
Name:_____________________________________
Number of Existing Shares:________________
Address:
__________________________________________
__________________________________________
__________________________________________
8
<PAGE>
EXHIBIT 5.1
-----------
Katten Muchin & Zavis
525 W. Monroe, Suite 1600
Chicago, Illinois 60661
April 8, 1998
PLATINUM technology, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for PLATINUM technology, inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
registration statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement relates to the issuance of up to 10,056,005 shares
(the "Shares") of the Company's common stock, $.001 par value per share (the
"Common Stock") pursuant to and in connection with the Company's acquisition of
Mastering, Inc. ("Mastering"), a Delaware corporation. Capitalized terms used
but not defined herein shall have the meanings set forth in the Registration
Statement.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, (b) the Agreement and Plan of Reorganization dated as of February 18,
1998 ("Merger Agreement") among the Company, PT Acquisition Corporation I, a
wholly-owned subsidiary of the Company ("PT Acquisition"), and Mastering, (c)
First Amendment to the Agreement and Plan of Merger dated as of April 7, 1998
between the Company, PT Acquisition and Mastering, (d) the Restated Certificate
of Incorporation of the Company, (e) the By-laws of the Company, and (f) minutes
of meetings of the Board of Directors of the Company.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that the Shares,
when issued and exchanged by the Company for shares of capital stock of
Mastering in accordance with the Merger Agreement, will be legally issued, fully
paid and non-assessable shares of Common Stock.
<PAGE>
PLATINUM technology, inc.
April 8, 1998
Page 2
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation to
advise you of changes that may hereafter be brought to our attention.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ KATTEN MUCHIN & ZAVIS
<PAGE>
EXHIBIT 8.1
-----------
Katten Muchin & Zavis
525 W. Monroe, Suite 1600
Chicago, Illinois 60661
April 8, 1998
PLATINUM technology, inc.
1815 South Meyers Road
Oakbrook Terrace, Illinois 60181
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for PLATINUM technology, inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
registration statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement relates to the issuance of up to 10,056,005 shares
(the "Shares") of the Company's common stock, $.001 par value per share (the
"Common Stock") pursuant to and in connection with the Company's acquisition of
Mastering, Inc. ("Mastering"), a Delaware corporation. You have requested that
we confirm the accuracy of the statements contained in the Registration
Statement regarding certain federal tax consequences under the section "The
Merger - Certain U.S. Federal Income Tax Consequences" in the Registration
Statement.
We have examined the (a) Registration Statement, (b) the Agreement and Plan
of Merger dated as of February 18, 1998 ("Merger Agreement") among the Company,
PT Acquisition Corporation I, a wholly-owned subsidiary of the Company ("PT
Acquisition"), and Mastering, (c) the First Amendment to the Agreement and Plan
of Merger dated as of April 7, 1998 between the Company, PT Acquisition and
Mastering, and such other documents as we have deemed necessary to render our
opinions expressed below and within the Registration Statement.
Based upon and subject to the foregoing, we are of the opinion that the
statements set forth under the caption "The Merger-Certain U.S. Federal Income
Tax Consequences" in the Registration Statement are accurate in all material
respects.
Our opinion expressed above is limited to the federal tax laws of the
United States of America, and we do express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation to
advise you of changes that may hereafter be brought to our attention.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 8.1 to the Registration Statement.
Very truly yours,
/s/ KATTEN MUCHIN & ZAVIS
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PLATINUM technology, inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "EXPERTS" in this Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
April 9, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 19, 1998 (and to all references to our Firm) included in or made a
part of this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
April 9, 1998
<PAGE>
Exhibit 23.4
CONSENT OF PIPER JAFFRAY INC.
We hereby consent to the use of our opinion letter dated April 7, 1998 to
the Board of Directors of Mastering, Inc. (the "Company") attached as Appendix B
to the Supplement to the Proxy Statement/Prospectus (the "Supplement") of the
Company and PLATINUM technology, inc. ("PLATINUM") included in the Form S-4 of
PLATINUM (the "Registration Statement") and to the references to our firm in the
Supplement under the heading "Opinion of Mastering's Financial Advisor." In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended (the "Securities Act"), or the rules and regulations of the Securities
and Exchange Commission thereunder and we do not hereby admit that we are
experts with respect to any part of the Registration Statement under the meaning
of the term "expert" as used in the Securities Act.
PIPER JAFFRAY INC.
Minneapolis, Minnesota
April 9, 1998
<PAGE>
EXHIBIT 99.2
- -
PROXY PROXY
MASTERING, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terence M. Graunke and Marc Pinto, jointly
and individually, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as directed below, all shares of
Common Stock, par value $.001 per share, of Mastering, Inc., a Delaware
corporation ("Mastering"), that the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders of Mastering
described in the proxy statement/prospectus delivered to the undersigned on or
about April 1, 1998 and the accompanying Supplement (collectively, the "Proxy
Statement/Prospectus"), or any postponement or adjournment thereof.
UNLESS OTHERWISE SPECIFIED ON THIS PROXY, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
IF ANY OTHER BUSINESS IS PRESENTED AT SAID MEETING, THIS PROXY SHALL BE VOTED
IN THE DISCRETION OF THE PROXIES NAMED ABOVE.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(To be signed and dated on the reverse side.)
- --------------------------------------------------------------------------------
<PAGE>
- -
MASTERING, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
Approval of the Merger Agreement and the Merger (as such terms are defined in
the Proxy Statement/Prospectus).
For Against Abstain
[_] [_] [_]
Dated: _____________________ , 1998
Signature(s)_____________________________
_________________________________________
(PLEASE SIGN EXACTLY AS NAME APPEARS ON
STOCK CERTIFICATE. WHERE STOCK IS
REGISTERED JOINTLY, ALL OWNERS MUST SIGN.
CORPORATE OWNERS SHOULD SIGN FULL
CORPORATE NAME BY AN AUTHORIZED PERSON.
EXECUTORS, ADMINISTRATORS, TRUSTEES OR
GUARDIANS SHOULD INDICATE THEIR STATUS
WHEN SIGNING.)
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
