<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BORLAND INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-2895440
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
----------------
100 BORLAND WAY
SCOTTS VALLEY, CA 95066-3249
(408) 431-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL W. EMERY, II
VICE PRESIDENT AND SECRETARY
100 BORLAND WAY
SCOTTS VALLEY, CA 95066-3249
(408) 431-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
PETER M. ASTIZ JOHN A. BURGESS
ANDREW D. ZEIF RICHARD N. KIMBALL
BAKER & MCKENZIE JOSEPH E. MULLANEY III
660 HANSEN WAY HALE AND DORR
PALO ALTO, CA 94304 60 STATE STREET
BOSTON, MA 02109
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: as soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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==================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(3)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share(1)... 5,760,787 Not Applicable Not Applicable $9,588.09
=================================================================================
</TABLE>
(1) The amount of shares of Common Stock of the Registrant to be issued is
based upon the number of outstanding shares of and options to purchase
common stock of OPEN ENVIRONMENT CORPORATION ("OEC") as of September 30,
1996.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the maximum number of shares of OEC common stock to be
exchanged in the Merger, computed in accordance with Rule 457(c) on the
basis of the average of the high and low prices per share of such stock on
the Nasdaq National Market on October 8, 1996.
(3) A registration fee of $19,564.00 was paid on June 7, 1996 in accordance
with Rule 0-11 under the Securities Exchange Act.
----------------
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 THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
BORLAND INTERNATIONAL, INC.
----------------
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4
AND PROSPECTUS PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus................................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................... Table of Contents; Available Information; Incorporation of
Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information.................................... Summary; Risk Factors; The Merger; The Companies
4. Terms of the Transaction.................................. Incorporation of Certain Documents by Reference; Summary; The
Special Meeting; The Merger; Certain Provisions of the
Merger Agreement; The Companies; Comparisons of Stockholders'
Rights
5. Pro Forma Financial Information........................... Summary; Unaudited Combined Condensed Pro Forma Financial
Information
6. Material Contacts with Company Being Acquired............. Summary; The Merger; Certain Provisions of the Merger Agreement
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters............ Not Applicable
8. Interests of Named Experts and Counsel.................... Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants............... Available Information; Incorporation of Certain Documents by
Reference; Summary; The Companies; The Merger
11. Incorporation of Certain Information by Reference......... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants........ Not Applicable
13. Incorporation of Certain Information by Reference......... Not Applicable
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants....................................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies................. Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<S> <C>
16. Information with Respect to S-2 or S-3 Companies.......... Not Applicable
17. Information with Respect to Companies Other Than S-2 or
S-3 Companies............................................ Outside Front Cover Page; Available Information; Incorporation
of Certain Documents by Reference; Summary; The Companies;
The Merger
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations Are to be Solicited........... Available Information; Incorporation of Certain Documents by
Reference
(1) Date, Time and Place Information...................... Outside Front Cover Page; Summary; The Special Meeting
(2) Revocability of Proxy................................. Summary; The Special Meeting
(3) Dissenters' Rights of Appraisal....................... Summary; Comparisons of Stockholders' Rights
(4) Persons Making the Solicitation....................... Outside Front Cover Page; Summary; The Special Meeting
(5) Interest of Certain Persons in Matters to be
Acted Upon and Voting Securities and Principal
Holders Thereof....................................... Summary; The Special Meeting; The Merger; Certain Provisions
of the Merger Agreement
(6) Vote Required for Approval............................ Summary; The Special Meeting
(7) Directors and Executive Officers' Executive
Compensation, and Certain Relationships and Related
Transactions.......................................... Summary; The Merger; Certain Provisions of the Merger
Agreement; The Companies
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer............. Not Applicable
</TABLE>
<PAGE>
OPEN ENVIRONMENT CORPORATION
25 TRAVIS STREET
BOSTON, MASSACHUSETTS 02134
To the Stockholders of OPEN ENVIRONMENT CORPORATION:
Enclosed are a Notice of Special Meeting of Stockholders, a Prospectus/Proxy
Statement, and a Proxy for a Special Meeting of Stockholders (the "Special
Meeting") of Open Environment Corporation ("OEC") to be held on Monday,
November 18, 1996 at 10:00 a.m., Boston time, at the offices of Hale and Dorr,
60 State Street, Boston, Massachusetts.
At the Special Meeting you will be asked to consider and vote on a proposal
to approve and adopt a Merger Agreement and the transactions contemplated
thereby pursuant to which a wholly-owned subsidiary of Borland International,
Inc. ("Borland") will be merged with and into OEC (the "Merger"), as a result
of which OEC will become a wholly-owned subsidiary of Borland. The terms of
the Merger Agreement provide that holders of the Common Stock of OEC will
receive for each share of OEC Common Stock owned as of the effective time of
the Merger 0.66 of a share of common stock of Borland, par value $0.01 per
share (the "Exchange Ratio"). Details of the matters to be considered at the
Special Meeting are set forth in the accompanying Prospectus/Proxy Statement,
which you should read carefully.
After careful consideration, the Board of Directors of OEC has unanimously
approved the Merger Agreement and recommends that all stockholders vote for
its approval. The Board of Directors of OEC has received a written opinion
from its financial advisor, Donaldson, Lufkin & Jenrette Securities
Corporation, dated as of July 30, 1996, that the Exchange Ratio is fair from a
financial point of view to the holders of OEC Common Stock as of that date.
All stockholders are invited to attend the Special Meeting in person. The
affirmative vote of a majority of the outstanding shares of Common Stock of
OEC will be necessary for approval and adoption of the Merger Agreement.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
If you attend the Special Meeting in person you may, if you wish, vote
personally on all matters brought before the Special Meeting even if you have
previously returned your Proxy.
Sincerely,
Philip R. Copeland
Acting Chief Executive Officer
October 17, 1996
<PAGE>
OPEN ENVIRONMENT CORPORATION
25 TRAVIS STREET
BOSTON, MASSACHUSETTS 02134
TEL: (617) 562-0900
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 1996
---------------
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Stockholders (the "Special
Meeting") of Open Environment Corporation, a Delaware corporation ("OEC"),
will be held on Monday, November 18, 1996 at 10:00 a.m., Boston time, at the
offices of Hale and Dorr, 60 State Street, Boston, Massachusetts, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of May 11, 1996, as amended by Amendment No. 1
dated July 31, 1996 and Amendment No. 2 dated October 8, 1996 (the "Merger
Agreement") among Borland International, Inc., a Delaware corporation
("Borland"), Aspen Acquisition Corp., a Delaware corporation and a wholly-
owned subsidiary of Borland ("Merger Subsidiary"), and OEC, and the
transactions contemplated by the Merger Agreement, pursuant to which, among
other things (a) Merger Subsidiary would be merged (the "Merger") with and
into OEC, as a result of which OEC would become a wholly-owned subsidiary
of Borland and (b) each stockholder of OEC would receive for each share of
OEC common stock, par value $.01 per share ("OEC Common Stock") owned as of
the effective time of the Merger, 0.66 of a share of Borland common stock,
par value $0.01 per share, as described in the accompanying
Prospectus/Proxy Statement. A copy of the Merger Agreement is attached to
the Prospectus/Proxy Statement as Appendix A-1, A-2 and A-3.
2. To grant the Board of Directors of OEC discretionary authority to
adjourn the Special Meeting in order to solicit additional votes for the
Merger.
3. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Stockholders of record of OEC Common Stock at the close of business on
October 7, 1996 will be entitled to vote as set forth in the accompanying
Prospectus/Proxy Statement at the Special Meeting and any adjournments or
postponements thereof. Only holders of record of OEC Common Stock at the close
of business on the record date are entitled to notice of, and to vote at, the
Special Meeting. A complete list of stockholders entitled to vote at the
Special Meeting will be available for examination by any OEC Common
Stockholder entitled to vote at the Special Meeting at OEC's headquarters at
25 Travis Street, Boston, Massachusetts, for purposes pertaining to the
Special Meeting, during normal business hours for a period of ten days prior
to the Special Meeting.
You are cordially invited to attend the Special Meeting in person. Whether
or not you plan to attend, please complete, sign, date and promptly return the
enclosed Proxy in the enclosed self-addressed, stamped envelope. A stockholder
of OEC who has given a proxy may revoke such proxy at any time prior to its
exercise at the Special Meeting.
THE BOARD OF DIRECTORS OF OEC HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT. THE BOARD OF DIRECTORS OF OEC RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. IN ORDER TO ASSURE
YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND
MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS OF OEC, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR
COOPERATION IS APPRECIATED. DO NOT SEND ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
By order of the Board of Directors,
OPEN ENVIRONMENT CORPORATION
James J. Driscoll
Secretary
Boston, Massachusetts
October 17, 1996
<PAGE>
PROSPECTUS/PROXY STATEMENT
- --------------------------
BORLAND INTERNATIONAL, INC. OPEN ENVIRONMENT CORPORATION
PROSPECTUS FOR THE ISSUANCE OF PROXY STATEMENT FOR THE SPECIAL
5,760,787 SHARES OF COMMON STOCK, PAR MEETING OF STOCKHOLDERS TO BE HELD
VALUE $0.01 PER SHARE NOVEMBER 18, 1996
This Prospectus/Proxy Statement (the "Prospectus/Proxy Statement") is being
furnished to the stockholders of Open Environment Corporation, a Delaware
corporation ("OEC"), in connection with the solicitation of proxies by the
Board of Directors of OEC (the "OEC Board") for use at a special meeting of
stockholders of OEC to be held on Monday, November 18, 1996, at the offices of
Hale and Dorr, 60 State Street, Boston, Massachusetts, commencing at 10:00
a.m., Boston time, and any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, holders of shares of common stock, par value $0.01
per share, of OEC ("OEC Common Stock") will consider and vote upon a proposal
to approve and adopt an Agreement and Plan of Merger dated as of May 11, 1996,
as amended by Amendment No. 1 dated July 31, 1996 and Amendment No. 2 dated
October 8, 1996 (the "Merger Agreement"), among Borland International, Inc., a
Delaware corporation ("Borland"), Aspen Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Borland ("Merger Subsidiary"),
and OEC, and the transactions contemplated thereby, pursuant to which Merger
Subsidiary will merge with and into OEC (the "Merger"). As a result of the
Merger, OEC will become a wholly-owned subsidiary of Borland and each share of
OEC Common Stock outstanding at the effective time of the Merger (the
"Effective Time") will be converted into the right to receive 0.66 of a share
of common stock of Borland, par value $0.01 per share (the "Borland Common
Stock"). A copy of the Merger Agreement is attached to this Prospectus/Proxy
Statement as Appendix A-1, A-2 and A-3 and is incorporated herein by
reference. The stockholders of OEC also will consider and vote upon such other
business as may come before the Special Meeting or any adjournments or
postponements thereof.
This Prospectus/Proxy Statement also constitutes the prospectus for the
offering of shares of Borland Common Stock to be issued in the Merger to the
holders of OEC Common Stock. Borland has filed a Registration Statement on
Form S-4 (together with any amendments thereto, the "Registration Statement")
with the Securities and Exchange Commission (the "Commission") of which this
Prospectus/Proxy Statement is a part. All information concerning OEC contained
or incorporated by reference in this Prospectus/Proxy Statement has been
furnished by OEC, and all information concerning Borland and Merger Subsidiary
contained or incorporated by reference in this Prospectus/Proxy Statement has
been furnished by Borland.
SEE "RISK FACTORS" ON PAGE 15 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
OEC STOCKHOLDERS REGARDING THE SECURITIES OFFERED HEREBY.
This Prospectus/Proxy Statement and the accompanying proxy are first being
mailed to OEC stockholders on or about October 17, 1996.
----------------
THE SECURITIES TO BE ISSUED IN THE MERGER 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 PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus/Proxy Statement is October 17, 1996.
<PAGE>
AVAILABLE INFORMATION
Borland and OEC are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements (if required) and other
information with the Commission. The reports, proxy statements and other
information filed by Borland or OEC with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at 7 World Trade Center, 13th Floor,
New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The shares of
Borland Common Stock and OEC Common Stock are quoted on the Nasdaq National
Market, and certain of Borland's and OEC's reports, proxy materials and other
information may be available for inspection at the offices of The Nasdaq Stock
Market at 1735 "K" Street, N.W., Washington, D.C. 20006.
Borland has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Borland Common Stock to be issued
pursuant to the Merger. This Prospectus/Proxy Statement does not contain all
the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which were omitted as permitted by the rules and
regulations of the Commission. Such additional information may be obtained
from the Commission's principal office in Washington, D.C. Statements
contained in this Prospectus/Proxy Statement or in any document incorporated
by reference in this Prospectus/Proxy Statement as to the contents of any
contract or other document referred to herein or therein 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 or such
other document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Borland (File No. 0-
16096) are incorporated by reference in this Prospectus/Proxy Statement:
1. Annual Report on Form 10-K for the year ended March 31, 1996 (the
"Borland 1996 Form 10-K");
2. Quarterly Report on Form 10-Q for the three months ended June 30,
1996;
3. Proxy Statement with respect to Borland's Annual Meeting of
Stockholders on September 5, 1996 filed with the Commission on August 7,
1996;
4. The description of Borland's Preferred Share Purchase Rights (the
"Borland Stockholders' Rights Plan") contained in its Registration
Statement on Form 8-A filed with the Commission on December 23, 1994; and
5. The description of Borland Common Stock contained in its Registration
Statement filed with the Commission under the Exchange Act, as amended.
All documents filed by Borland or OEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus/Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein from the date of filing such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein (or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein) modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.
2
<PAGE>
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
APPENDICES TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM, IN THE CASE
OF DOCUMENTS RELATING TO BORLAND, ATTN: CORPORATE SECRETARY, AT 100 BORLAND
WAY, SCOTTS VALLEY, CALIFORNIA 95066-3249, (408) 431-1000, AND IN THE CASE OF
DOCUMENTS RELATING TO OEC, ATTN: CORPORATE SECRETARY, AT 25 TRAVIS STREET,
BOSTON, MASSACHUSETTS 02134, (617) 562-0900. TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 11, 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT OR IN THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATION
AND THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BORLAND
OR OEC. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF
AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS
PROSPECTUS/PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF BORLAND OR
OEC SINCE THE DATE OF THIS PROSPECTUS/PROXY STATEMENT OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
Entera, DCE Adapter, Entera Workbench for Windows, App Designer, Entera/Fx,
QuickRPC and Enterprise Learning Center are trademarks of OEC. Borland and
Delphi are trademarks of Borland. This Prospectus/Proxy Statement may also
include trademarks and trade names of companies other than OEC and Borland
which are the property of their respective owners.
NOTICE TO NEW HAMPSHIRE RESIDENTS: Neither the fact that a registration
statement or an application for a license has been filed with the State of New
Hampshire nor the fact that a security is effectively registered or a person
is licensed in the State of New Hampshire constitutes a finding by the
Secretary of State that any documents filed under RSA 421-B of the New
Hampshire Uniform Securities Act is true, complete and not misleading. Neither
any such fact nor the fact that an exemption or exception is available for a
security or transaction means that the Secretary of State has passed in any
way on the merits or qualifications. It is unlawful to make, or cause to be
made, to any prospective purchaser, customer or client any representation
inconsistent with the provisions of this paragraph.
3
<PAGE>
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION.................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
SUMMARY.................................................................. 5
Risk Factors............................................................ 5
The Companies........................................................... 5
The Special Meeting..................................................... 5
The Merger and Certain Provisions of the
Merger Agreement....................................................... 6
Principal Stockholder Agreements........................................ 9
Comparisons of Stockholders' Rights..................................... 9
Accounting Treatment.................................................... 9
Exchange Procedures..................................................... 10
No Appraisal Rights..................................................... 10
Selected Historical Consolidated and Pro Forma Unaudited Combined
Condensed Financial Information........................................ 11
Selected Historical Consolidated Financial Information.................. 11
Summary Pro Forma Unaudited Combined Condensed Financial Information.... 12
Comparative Per Share Data.............................................. 13
Comparative Market Price Data........................................... 14
RISK FACTORS............................................................. 15
THE SPECIAL MEETING...................................................... 19
General................................................................. 19
Purposes of the Special Meeting......................................... 20
Vote Required........................................................... 20
Voting of Proxies....................................................... 20
Revocability of Proxies................................................. 20
Solicitation of Proxies................................................. 20
Record Date; Shares Entitled to Vote.................................... 21
Quorum.................................................................. 21
THE MERGER............................................................... 21
General................................................................. 21
Background of the Merger................................................ 22
Potential Advantages and Disadvantages of the Merger to Borland and
OEC.................................................................... 26
OEC's Reasons for the Merger; Recommendation
of OEC's Board of Directors............................................ 27
Opinion of Financial Advisor............................................ 28
Borland's Reasons for the Merger........................................ 32
Effective Time.......................................................... 33
Terms of the Merger..................................................... 33
Certain United States Federal Income Tax Consequences................... 33
Regulatory Approvals.................................................... 34
Accounting Treatment.................................................... 35
Nasdaq Listing.......................................................... 35
Exchange Procedures..................................................... 35
Interests of Certain Persons; Possible Conflicts
of Interest............................................................ 36
Restrictions on Resales by Affiliates................................... 37
Management of OEC After the Merger...................................... 37
</TABLE>
<TABLE>
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................ 38
Exchange Procedures...................................................... 38
Certain Representations and Warranties................................... 39
Conduct of Business Pending the Merger................................... 40
No Solicitation of Transactions.......................................... 40
Indemnification of Directors and Officers................................ 41
Conditions to the Consummation of the Merger............................. 41
Termination.............................................................. 42
Alternative Proposal Fee; Expenses; Damages.............................. 43
Amendment and Waiver..................................................... 43
Effect of the Merger on Stock Options.................................... 44
Effect of the Merger on Certain Benefit Plans............................ 44
PRINCIPAL STOCKHOLDER AGREEMENTS.......................................... 45
Voting and Proxy......................................................... 45
Abstention from Voting................................................... 45
Covenants and Representations............................................ 45
No Solicitation.......................................................... 46
THE COMPANIES............................................................. 47
Borland International, Inc............................................... 47
Open Environment Corporation............................................. 47
Liquidity and Capital Resources.......................................... 65
Merger Subsidiary........................................................ 69
PRO FORMA UNAUDITED COMBINED CONDENSED
FINANCIAL INFORMATION.................................................... 70
COMPARISONS OF STOCKHOLDERS' RIGHTS....................................... 74
Capital Stock............................................................ 74
Introduction of Business by Stockholders at
Meetings of Stockholders................................................ 74
Number and Classification of Directors................................... 74
Quorum and Interested Transactions....................................... 74
Amendment of Bylaws Provisions
Regarding Directors..................................................... 75
Payment of Dividends..................................................... 75
No Appraisal Rights...................................................... 75
LEGAL MATTERS............................................................. 75
EXPERTS................................................................... 75
STOCKHOLDER PROPOSALS..................................................... 75
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
APPENDIX A--Merger Agreement.............................................. A-1
Amendment No. 1 to Merger Agreement...................................... A-2
Amendment No. 2 to Merger Agreement...................................... A-3
APPENDIX B--Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation............................................................. B-1
APPENDIX C--Principal Stockholder Agreements.............................. C-1
</TABLE>
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Prospectus/Proxy Statement. It does not
purport to be complete and is qualified in its entirety by the full text,
including the Appendices attached hereto. Certain capitalized terms used in
this Summary are defined elsewhere in this Prospectus/Proxy Statement. The
information contained in this Prospectus/Proxy Statement with respect to
Borland and its affiliates has been provided by Borland, and the information
with respect to OEC and its affiliates has been provided by OEC.
RISK FACTORS
STOCKHOLDERS OF OEC SHOULD CAREFULLY EVALUATE CERTAIN RISK FACTORS RELATING
TO OWNERSHIP OF BORLAND COMMON STOCK AFTER THE MERGER. SEE "RISK FACTORS."
THE COMPANIES
Borland. Borland develops software development tools, including programming
language software and database management systems, for the business and
independent software developer community. Borland has several product lines and
a series of additional complementary products and services which are targeted
to meeting the needs of software developers for the desktop, local area network
and client/server and Internet environments.
Borland was incorporated in Delaware in July 1989 and in October 1989
succeeded to the business of a predecessor corporation incorporated in
California in May 1983. Borland's principal executive office is located at 100
Borland Way, Scotts Valley, California 95066-3249, and its telephone number is
(408) 431-1000.
OEC. OEC develops, markets and supports software that enables companies to
create applications for distributed, client/server computing systems. OEC
pioneered a multi-tiered software architecture that allows customers to rapidly
develop, deploy and manage software applications to access critical information
quickly on an enterprise-wide basis. OEC's principal executive office is
located at 25 Travis Street, Boston, Massachusetts 02134, and its telephone
number is (617) 562-0900.
Merger Subsidiary. Merger Subsidiary was formed on May 3, 1996 by Borland
solely for the purpose of effecting the Merger. It has no material assets and
has not engaged in any activities except in connection with the Merger. Its
principal executive office is located at 100 Borland Way, Scotts Valley,
California 95066-3249, and its telephone number is (408) 431-1000.
Prior to the discussions which led to the proposed Merger, there was no
affiliation between OEC and Borland.
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting is scheduled to be held on Monday,
November 18, 1996 at 10:00 a.m., Boston time, at the offices of Hale and Dorr,
60 State Street, Boston, Massachusetts.
Purposes of the Special Meeting. The purposes of the Special Meeting are to
(i) consider and vote upon a proposal to approve and adopt the Merger
Agreement, and (ii) transact such other business as may properly be brought
before the Special Meeting or any adjournments or postponements thereof.
Vote Required. Assuming that a quorum is present, the affirmative vote of the
holders of a majority of all outstanding shares of OEC Common Stock is required
to approve and adopt the Merger Agreement. As a result,
5
<PAGE>
abstentions, failures to vote and broker non-votes will have the same effect as
votes against the Merger Agreement since they are not votes for approval.
Pursuant to the Principal Stockholder Agreements (as hereafter defined) between
Borland and certain stockholders of OEC, the Principal Stockholder Shares (as
hereafter defined) (representing beneficial ownership of approximately 33% of
the outstanding shares of OEC Common Stock) will be present and voted at the
Special Meeting in favor of the Merger Agreement. See "Principal Stockholder
Agreements."
Voting of Proxies. Shares of OEC Common Stock represented by properly
executed proxies received at or prior to the Special Meeting, and which have
not thereafter been properly revoked as described below, will be voted in
accordance with the instructions indicated therein. If no instructions are
indicated, such proxies will be voted FOR approval and adoption of the Merger
Agreement, and in the discretion of the proxy holder as to any other matter
that may properly come before the Special Meeting. See "The Special Meeting--
Voting of Proxies."
Revocability of Proxies. An OEC stockholder who has given a proxy may revoke
such proxy at any time prior to its exercise at the Special Meeting by any
manner permitted by law, including (i) giving written notice of revocation by
mail or facsimile to OEC prior to the Special Meeting or (ii) properly
submitting to OEC by mail or facsimile a duly executed proxy bearing a later
date. Submissions to OEC should be made to Open Environment Corporation, Attn:
Corporate Secretary, at 25 Travis Street, Boston, Massachusetts 02134,
facsimile number (617) 562-5942. Any beneficial owner whose shares of OEC
Common Stock are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to change such stockholder's vote
should contact such registered holder promptly and instruct such registered
holder on such beneficial owner's behalf. There is no guarantee that there will
be sufficient time prior to the Special Meeting for the registered holder to
deliver a revocation upon instruction by the beneficial owner. See "The Special
Meeting--Revocability of Proxies."
Record Date; Shares Entitled to Vote. The close of business on October 7,
1996 has been fixed by the OEC Board as the record date (the "Record Date") for
determining holders of shares of OEC Common Stock entitled to notice of and to
vote at the Special Meeting. As of the Record Date, 7,562,749 shares of OEC
Common Stock were outstanding and held of record by 110 holders. The OEC Common
Stock is the only class of capital stock of OEC issued and outstanding. Each
stockholder of record as of the close of business on the Record Date is
entitled at the Special Meeting to one vote for each share of OEC Common Stock
held. See "The Special Meeting--Record Date; Shares Entitled to Vote."
Quorum. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of OEC Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum for the transaction of business at
the Special Meeting. Pursuant to the Principal Stockholder Agreements, the
Principal Stockholder Shares will be present and voted at the Special Meeting
in favor of the Merger Agreement. See "The Special Meeting--Quorum" and
"Principal Stockholder Agreements."
THE MERGER AND CERTAIN PROVISIONS OF THE MERGER AGREEMENT
General. If the OEC stockholders approve the Merger and all other conditions
to the Merger are satisfied (or waived, if legally permissible), then at the
Effective Time, Merger Subsidiary will be merged with and into OEC, with OEC to
be the surviving corporation (the "Surviving Corporation"). The name of the
Surviving Corporation shall initially be Open Environment Corporation. In the
Merger, each share of OEC Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares of OEC Common Stock held by OEC,
Borland or a subsidiary of either of them ("Cancelable Shares")) will be
converted into the right to 0.66 of a share of Borland Common Stock (the
"Exchange Ratio"). Based on the 7,538,249 shares of OEC Common Stock
outstanding as of September 30, 1996, the number of shares of Borland Common
Stock to be issued pursuant to the Merger is approximately 4,975,000 or
approximately 16% of the total number of shares of Borland Common Stock
outstanding as of that date. In addition, Borland is assuming options for the
purchase of
6
<PAGE>
approximately 1,190,216 shares of OEC Common Stock which will be converted to
options to purchase approximately 786,000 shares of Borland Common Stock upon
completion of the Merger. No fractional shares of Borland Common Stock will be
issued. OEC stockholders will receive cash in lieu of any fractional shares
they would have been entitled to. See "Certain Provisions of the Merger
Agreement--Exchange Procedures."
Recommendation of the Board of Directors of OEC. THE OEC BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS
OF OEC VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. The recommendation of the
OEC Board is based on a number of factors described in "The Merger--Background
of the Merger" and "The Merger--OEC's Reasons for the Merger; Recommendation of
OEC's Board of Directors."
Fairness Opinion. On July 30, 1996, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), financial advisor to OEC, delivered an oral opinion to the
OEC Board, which was also confirmed in writing as of July 30, 1996, to the
effect that the Exchange Ratio is fair from a financial point of view to the
holders of shares of OEC Common Stock as of such date. The OEC Board has not
requested that DLJ update its opinion. The full text of the written opinion of
DLJ, which sets forth the procedures followed and the factors considered by
DLJ, is attached as Appendix B to this Prospectus/Proxy Statement. HOLDERS OF
SHARES OF OEC COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. See "The Merger--Opinion of Financial Advisor."
Effective Time. The Effective Time will occur as soon as practicable after
the requisite approval of the stockholders of OEC has been obtained and all
other conditions have been satisfied or waived, and in no event later than the
first business day after all conditions to the Merger have been satisfied or
waived, unless the parties agree otherwise. The Effective Time will occur upon
the filing of a Certificate of Merger with the Secretary of State of the State
of Delaware.
Certain United States Federal Income Tax Consequences. The Merger is
structured to qualify, for federal income tax purposes, as a "tax-free
reorganization" so that generally no gain or loss would be recognized by OEC
stockholders who exchange their OEC Common Stock solely for shares of Borland
Common Stock. Holders of shares of OEC Common Stock who receive cash in lieu of
fractional shares will generally be treated as if the fractional shares had
been issued and subsequently redeemed by Borland in a taxable transaction. Each
of Borland and OEC have received opinions of counsel (the "Tax Opinions") that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The Tax
Opinions are not binding on the Internal Revenue Service and it is possible
that the Merger might not be treated as a reorganization within the meaning of
Section 368(a) of the Code, as a result of which each holder of shares of OEC
Common Stock would recognize gain or loss in the amount of the difference
between the fair market value of the shares of Borland Common Stock and/or cash
in lieu of fractional shares, and such holder's adjusted tax basis in the OEC
Common Stock exchanged therefor. See "The Merger--Certain United States Federal
Income Tax Consequences."
Regulatory Approvals. Borland and OEC are aware of no government regulatory
approvals remaining to be obtained for consummation of the Merger, other than
compliance with federal and state securities laws. The Merger was subject to
the premerger notification provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). Filings were made under
the HSR Act by Borland and OEC with the Federal Trade Commission and the
Department of Justice Antitrust Division. On June 24, 1996, early termination
of the waiting period under the HSR Act was granted, thus permitting the Merger
to proceed pursuant to the HSR Act, subject to stockholder approval and the
other conditions described herein. Borland, OEC and Merger Subsidiary have each
agreed to use their best efforts to obtain any additional regulatory approvals.
See "The Merger--Regulatory Approvals."
7
<PAGE>
Accounting Treatment. Borland intends to account for the Merger as a pooling-
of-interests of OEC in accordance with generally accepted accounting principles
("GAAP"). See "The Merger--Accounting Treatment."
Nasdaq Listing. The shares of Borland Common Stock to be issued in connection
with the Merger will be listed on the Nasdaq National Market System ("Nasdaq").
Evidence from Nasdaq that the shares of Borland Common Stock to be issued in
connection with the Merger will be listed on Nasdaq immediately following the
Effective Time is a condition to consummation of the Merger. See "Certain
Provisions of the Merger Agreement--Conditions to the Consummation of the
Merger."
Interests of Certain Persons in the Merger. In considering the recommendation
of the OEC Board with respect to the Merger Agreement and the transactions
contemplated thereby, stockholders should be aware that certain members of the
management of OEC and of the OEC Board have certain interests in the Merger
that are in addition to the interests of stockholders of OEC generally,
including, without limitation, the rights to receive certain severance and
other employee benefits and to indemnification. See "The Merger--Interests of
Certain Persons; Possible Conflicts of Interest" and "The Merger--Management of
OEC After the Merger."
Management. The officers and directors of Borland will not change as a result
of the Merger. Pursuant to the Merger Agreement, upon the consummation of the
Merger, the officers and directors of Merger Subsidiary immediately prior to
the Effective Time will be the initial officers and directors of the Surviving
Corporation. See "The Merger--Management of OEC After the Merger."
Representations and Warranties. The Merger Agreement contains various
representations and warranties of Borland, Merger Subsidiary and OEC. See
"Certain Provisions of the Merger Agreement--Certain Representations and
Warranties."
Conduct of Business Pending the Merger; No Solicitations. The Merger
Agreement restricts the ability of OEC to take certain actions and enter into
certain transactions pending the Merger. See "Certain Provisions of the Merger
Agreement--Conduct of Business Pending the Merger" and "--No Solicitation of
Transactions."
Conditions to the Consummation of the Merger. The respective obligations of
Borland, Merger Subsidiary and OEC to consummate the Merger are subject to the
satisfaction or, where legally permissible, waiver of various conditions,
including, among others: (i) the effectiveness of the Registration Statement
and the absence of any stop order suspending the effectiveness thereof; (ii)
approval of the Merger Agreement and the transactions contemplated thereunder
by the holders of a majority of the shares of OEC Common Stock; (iii) the
absence of any order, executive order, stay, decree, judgment, injunction,
statute, rule, or regulation issued by any United States (federal, state, or
local) or foreign government, or governmental, regulatory, or administrative
authority, agency, or commission or court of competent jurisdiction prohibiting
consummation of the Merger or making the Merger illegal; and (iv) evidence from
Nasdaq that the shares of Borland Common Stock to be issued to the stockholders
of OEC in the Merger will be quoted on Nasdaq immediately following the
Effective Time. See "Certain Provisions of the Merger Agreement--Conditions to
the Consummation of the Merger."
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time by mutual consent of Borland, Merger Subsidiary and OEC or by
either Borland or OEC if, subject to certain limitations, (i) the Effective
Time has not occurred on or before November 25, 1996; (ii) there exists any
order, executive order, stay, decree, judgment or injunction (each, an "Order")
which is final and nonappealable preventing the consummation of the Merger; or
(iii) the other party has breached any representation, warranty, covenant or
agreement in the Merger Agreement such that the related closing conditions
would not be satisfied (unless the breach is curable by the breaching party
through the exercise of its best efforts and it continues to exercise its best
efforts to cure the breach). In addition, Borland may terminate the Merger
Agreement if (i) a tender offer or
8
<PAGE>
exchange offer for 50% or more of the outstanding shares of OEC's capital stock
is commenced and the OEC Board fails to recommend against the stockholders of
OEC tendering their shares into such tender offer or exchange offer or (ii) the
stockholders of OEC fail to approve and adopt the Merger Agreement and the
transactions contemplated thereunder. See "Certain Provisions of the Merger
Agreement--Termination."
Alternative Proposal Fee; Expenses. In connection with the termination of the
Merger Agreement, upon the occurrence of certain events, OEC would be required
to pay to Borland a fee (the "Alternative Proposal Fee") of $2.5 million (which
amount would be inclusive of all expenses incurred by Borland related to the
Merger). Upon the occurrence of certain other events, OEC would be required to
pay to Borland its expenses only. In addition, upon the occurrence of certain
other events, Borland would be required to pay to OEC its expenses only. See
"Certain Provisions of the Merger Agreement--Alternative Proposal Fee;
Expenses; Damages."
Treatment of Stock Options. Pursuant to the Merger Agreement, all options to
purchase shares of stock in OEC ("OEC Options") outstanding at the Effective
Time, whether or not exercisable, vested, or performance based, under OEC's
stock option plans shall remain outstanding following the Effective Time and
options held by certain OEC directors under OEC's 1995 Director Stock Option
Plan will become immediately exercisable upon consummation of the Merger. The
number of shares subject to such options and the exercise price thereof shall
be subject to proportional adjustment based upon the Exchange Ratio. See
"Certain Provisions of the Merger Agreement--Effect of the Merger on Stock
Options" and "The Merger--Interests of Certain Persons; Possible Conflicts of
Interest."
Treatment of Benefit Plans. OEC's 1995 Employee Stock Purchase Plan has been
terminated. See "Certain Provisions of the Merger Agreement--Effect of the
Merger on Certain Benefit Plans."
PRINCIPAL STOCKHOLDER AGREEMENTS
Borland has entered into agreements with J&S Limited Partnership, Legacy
Investment Partnership, the Appleby Trust, Frontenac Company and John J.
Donovan, Sr. (collectively the "Principal Stockholders"), which beneficially
own approximately 33% of the outstanding shares of OEC Common Stock (the
"Principal Stockholder Shares"), dated May 11, 1996 (the "Principal Stockholder
Agreements"), the form of which is attached to this Prospectus/Proxy Statement
as Appendix C. Pursuant to the terms of the Principal Stockholder Agreements,
the Principal Stockholders have agreed to vote the Principal Stockholder Shares
in favor of the Merger and the Merger Agreement, and to take certain other
actions consistent with, and refrain from certain actions inconsistent with,
the consummation of the Merger. See "Principal Stockholder Agreements."
COMPARISONS OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, stockholders of OEC immediately prior to the
Effective Time will become stockholders of Borland. Various differences exist
between their rights as stockholders of OEC and as stockholders of Borland. See
"Comparisons of Stockholders' Rights."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that OEC and
Borland shall have received letters from Ernst & Young LLP and Price Waterhouse
LLP, their respective independent accountants, regarding the appropriateness of
pooling of interests accounting treatment if the Merger is consummated in
accordance with the Merger Agreement. See "The Merger--Accounting Treatment"
and "Certain Provisions of the Merger Agreement--Conditions to the Consummation
of the Merger."
9
<PAGE>
EXCHANGE PROCEDURES
If the Merger becomes effective, a letter of transmittal will be mailed with
instructions to all holders of record of OEC Common Stock immediately prior to
the Merger for use in surrendering their stock certificates in exchange for
certificates representing shares of Borland Common Stock and a cash payment in
lieu of fractional shares, if any. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL
THE LETTER OF TRANSMITTAL IS RECEIVED. See "Certain Provisions of The Merger
Agreement--Exchange Procedures."
NO APPRAISAL RIGHTS
Holders of OEC Common Stock are not entitled to dissenters' appraisal rights
under the Delaware General Corporation Law ("Delaware Law") in connection with
the Merger because the OEC Common Stock is quoted on Nasdaq and the shares of
Borland Common Stock to be issued pursuant to the Merger will be quoted on
Nasdaq as of the Effective Time. See "The Merger--No Appraisal Rights."
10
<PAGE>
SELECTED HISTORICAL CONSOLIDATED
AND PRO FORMA UNAUDITED COMBINED CONDENSED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical consolidated financial information of
Borland and OEC has been derived from their respective historical consolidated
financial statements, and should be read in conjunction with such consolidated
financial statements and the notes thereto, included elsewhere or incorporated
by reference in this Prospectus/Proxy Statement. Borland's consolidated
financial statements for the fiscal years ended March 31, 1996, 1995, 1994,
1993 and 1992 were audited by Price Waterhouse LLP, independent accountants.
The consolidated financial statements for OEC for the fiscal years ended
December 31, 1995, 1994, 1993 and for the year ended December 31, 1992 from the
tools division of Cambridge Technology Group, Inc. ("CTG") were audited by
Ernst & Young LLP, independent accountants, except for the financial statements
of Jarrah Technologies Pty. Limited ("Jarrah Technologies"), a consolidated
subsidiary, for the four years ended December 31, 1994, which were audited by
other auditors. OEC recently elected to restate its results for the fiscal
periods beginning October 1994 to June 1996, as a result of which it has filed
amendments to its reports previously filed pursuant to the Exchange Act with
the Commission. See "The Companies--Open Environment Corporation--Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected pro forma unaudited combined condensed financial information of
Borland and OEC is derived from the pro forma combined condensed financial
statements and should be read in conjunction with such pro forma statements and
the notes thereto, which are included elsewhere in this Prospectus/Proxy
Statement. Historical and pro forma information for certain periods is derived
from consolidated financial statements not included herein or incorporated by
reference. For pro forma purposes, Borland's consolidated financial statements
for the three fiscal years ended March 31, 1996, 1995 and 1994 and for the
three months ended June 30, 1996 and 1995, have been combined with the
consolidated financial statements of OEC for the three fiscal years ended
December 31, 1995, 1994 and 1993 and for the three months ended June 30, 1996
and March 31, 1995 respectively. Upon the consummation of the proposed merger,
OEC's December 31 year end will be conformed to Borland's March 31 year end for
fiscal 1997. Accordingly, the pro forma unaudited combined condensed retained
earnings at June 30, 1996 has been adjusted as of the first day of fiscal 1997
to include the results of operations of OEC for the three months ended March
31, 1996. Revenues and net loss of OEC for the three months ended March 31,
1996 were $3,218,742 and $4,966,585, respectively. No dividends have been
declared or paid on either the Borland or OEC Common Stock during the past five
years.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated, nor is it necessarily
indicative of future operating results or financial position. All information
shown is in thousands except per share amounts.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
----------------- -------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- ------- -------- --------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS--BORLAND
Net revenues........... $ 34,537 $53,766 $215,206 $ 254,064 $393,519 $463,951 $ 482,510
Operating income
(loss)................ (17,276) 2,694 13,634 (122,904) (65,061) (44,482) (133,417)
Net income (loss)...... (14,128) 2,805 14,285 (12,177) (69,891) (49,206) (110,434)
Net income (loss) per
share................. $ (0.45) $ 0.10 $ 0.45 $ (0.43) $ (2.62) $ (1.87) $ (4.29)
Weighted average shares
and equivalent
shares................ 31,307 29,127 31,861 27,994 26,670 26,266 25,743
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------- --------------------------------------------
1996 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET--BORLAND
Total assets......... $234,807 $255,587 $244,996 $298,148 $341,683 $364,768
Long-term
obligations......... 14,035 14,275 16,520 19,943 23,271 29,597
Stockholders'
equity.............. 159,444 171,578 123,004 120,370 188,317 228,340
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ------- ------- ----
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS--OEC (A)
Net revenues........... $ 6,828 $14,283 $29,881 $18,121 $13,163 $ 4,149 $778
Operating income
(loss)................ (12,138) 1,743 160 502 1,144 (1,159) 45
Net income (loss)...... (12,646) 1,198 434 350 823 $(1,042) $ 43
Net income (loss) per
share................. $ (1.69) $ 0.16 $ 0.05 $ 0.05 $ 0.13 (b) (b)
Weighted average shares
outstanding (c)....... 7,498 7,617 8,039 6,415 6,558 (b) (b)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -------------------------------------
1996 1995 1994 1993 1992 1991
----------- ------- ---------- ------ ------ ----
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET--OEC (A)
Total assets................ $24,433 $36,647 $9,476 $4,244 $1,158 $140
Long-term obligations....... -- 27 206 -- -- --
Series A Convertible
Preferred Stock............ -- -- 5,854 -- -- --
Stockholder's equity
(deficit).................. 16,262 28,717 (1,521) 976 150 78
</TABLE>
SUMMARY PRO FORMA UNAUDITED
COMBINED CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------------------------------------
1996 1995 1996 1995 1994
--------- ----------------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues............... $ 38,146 $ 60,238 $245,087 $ 272,185 $406,682
Operating income (loss).... (24,250) 3,466 13,793 (122,402) (63,917)
Net income (loss).......... (21,806) 3,154 14,719 (11,827) (69,068)
Net income (loss) per
share..................... $ (0.60) $ 0.09 $ 0.40 $ (0.37) $ (2.23)
Weighted average shares and
equivalent shares......... 36,268 33,572 37,167 32,228 30,998
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
BALANCE SHEET
Total assets.................................................... $258,240
Long-term obligations........................................... 14,035
Stockholders' equity............................................ 163,206
</TABLE>
- --------
(a) Jarrah Technologies, prior to its acquisition by OEC in August 1995, paid
dividends of $142,000 and $68,000 in fiscal years ended December 31, 1995
and 1993, respectively. Borland does not expect to declare or pay
dividends to stockholders in the foreseeable future.
(b) As OEC began operations in 1992 as a division of CTG, there were no shares
of capital stock outstanding in 1992 or 1991.
(c) For an explanation of the weighted average shares outstanding, see Note 1
of the Notes to Consolidated Financial Statements of OEC.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Borland
and OEC and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis assuming that 0.66
of a share of Borland Common Stock is issued in exchange for each share of OEC
Common Stock in the Merger. This data should be read in conjunction with the
selected historical consolidated financial information, the pro forma unaudited
combined condensed financial information and the separate historical
consolidated financial statements of Borland and OEC and notes thereto,
included elsewhere or incorporated by reference in this Prospectus/Proxy
Statement. The pro forma unaudited combined condensed financial information is
not necessarily indicative of the operating results that would have been
achieved had the transaction been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
--------------------- ----------------------------
1996 1995 1996 1995 1994
---------- ---------- ---------- ---------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL--BORLAND
Net income (loss) per
share.................. $(0.45) $ 0.10 $0.45 $(0.43) $(2.62)
Book value per share.... $ 5.08 $ (a) $5.51 $ (a) $ (a)
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
HISTORICAL--OEC
Net income (loss) per
share.................. $(1.69) $ 0.16 $0.05 $ 0.05 $ 0.13
Book value per share.... $ 2.16 $ (a) $3.85 $ (a) $ (a)
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
--------------------- ----------------------------
1996 1995 1996 1995 1994
---------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
PRO FORMA AND EQUIVALENT
COMBINED PER BORLAND
SHARE:
Net income (loss)....... $(0.60) $ 0.09 $0.40 $(0.37) $(2.23)
Book value.............. $ 4.50 (a) $5.55 (a) (a)
EQUIVALENT PRO FORMA PER
OEC SHARE:
Net income (loss)....... $(0.40) $(0.06) $0.26 $(0.24) $(1.47)
Book value.............. $ 2.97 (a) $3.66 (a) (a)
</TABLE>
- --------
(a) Not required to be presented.
13
<PAGE>
COMPARATIVE MARKET PRICE DATA
Borland Common Stock is quoted on Nasdaq, the Unlisted Securities Market (the
"USM") of the International Stock Exchange of the United Kingdom and the
Republic of Ireland Limited and the Pacific Stock Exchange. OEC Common Stock
has been quoted on Nasdaq since its listing commenced on April 13, 1995.
The table below sets forth, for the calendar quarters indicated, the high and
low sale price for Borland Common Stock and OEC Common Stock as reported on
Nasdaq, in each case based on published financial sources.
<TABLE>
<CAPTION>
BORLAND OEC
COMMON STOCK COMMON STOCK(1)
------------- ---------------
HIGH LOW HIGH LOW
------ ------ ---------------
<S> <C> <C> <C> <C>
CALENDAR 1994:
First Quarter..................................... $15.75 $12.38 -- --
Second Quarter.................................... 13.82 8.50 -- --
Third Quarter..................................... 14.13 10.00 -- --
Fourth Quarter.................................... 13.13 6.13 -- --
CALENDAR 1995:
First Quarter..................................... 9.88 6.63 -- --
Second Quarter.................................... 14.38 7.75 $ 23.00 $ 17.50
Third Quarter..................................... 17.25 10.13 21.25 17.00
Fourth Quarter.................................... 20.63 12.50 21.25 6.50
CALENDAR 1996:
First Quarter..................................... 21.25 13.38 14.50 5.88
Second Quarter.................................... 20.25 8.88 8.63 4.38
Third Quarter..................................... 10.25 6.06 5.75 3.75
</TABLE>
- --------
(1) OEC Common Stock began trading publicly on April 13, 1995, the date of
OEC's initial public offering.
On July 29, 1996, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the high
and low prices per share of Borland Common Stock and OEC Common Stock on Nasdaq
were $7.375 and $7.125 for Borland Common Stock and $4.25 and $3.75 for OEC
Common Stock. Assuming an average per share price of Borland Common Stock of
$7.25, the closing price of a share of Borland Common Stock on July 29, 1996,
each share of OEC Common Stock would be converted into the right to receive
$4.785 in Borland stock.
On October 7, 1996, the high and low sale prices per share on Nasdaq were
$6.50 and $6.125 for Borland Common Stock and $4.00 and $3.50 for OEC Common
Stock.
Because the market price of Borland Common Stock is subject to fluctuation
the market value of the Borland Common Stock that holders of OEC Common Stock
will receive in the Merger may increase or decrease prior to the Merger and as
of the Effective Time may be more or less than $4.785.
Neither Borland nor OEC has declared or paid any dividends during the periods
shown; however, Jarrah Technologies, prior to its acquisition by OEC, paid out
dividends of $142,000 and $68,000 in fiscal years ending December 31, 1995 and
1993, respectively. The Merger Agreement contains a prohibition on OEC and
Borland declaring any dividends prior to the Effective Time and Borland intends
to retain any earnings for use in its business and, therefore, does not
anticipate paying cash dividends on Borland Common Stock in the foreseeable
future.
HOLDERS OF OEC COMMON STOCK ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR SHARES
OF BORLAND COMMON STOCK AND SHARES OF OEC COMMON STOCK.
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<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus/Proxy Statement, the
following risk factors should be considered carefully by holders of OEC Common
Stock in evaluating whether to approve and adopt the Merger Agreement and
thereby invest in Borland Common Stock. The discussion in this
Prospectus/Proxy Statement contains certain forward-looking statements that
involve risks and uncertainties. Borland's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below as
well as those discussed elsewhere in Borland's filings with the Commission.
Such risk factors presently apply to Borland and will continue to apply
following the Merger. See also "The Companies--Open Environment Corporation--
Certain Factors That May Affect Future Results of OEC."
Operating Losses in Prior Years. Although Borland realized operating profits
in each of the four quarters ended March 31, 1996, Borland experienced a
substantial operating loss for the quarter ended June 30, 1996 as well as
operating losses for the four prior fiscal years ended March 31, 1995. Borland
expects to continue to experience operating losses, at least through the
fiscal year ending March 31, 1997. Among other matters, Borland's ability to
regain profitability will be substantially dependent upon its ability to
successfully complete and introduce new products, to successfully integrate
OEC and to stem the loss of management and other key personnel. There can be
no assurance that Borland will be able to successfully accomplish the
foregoing or to regain profitability in future periods.
Changes in Management and Key Personnel. In recent months, Borland has
experienced significant changes in management and other key personnel. In
particular, Borland has announced the resignation of its President and Chief
Executive Officer, its Senior Vice President for Research and Development and
its Chief Financial Officer. To date, Borland has only replaced the Chief
Financial Officer. In certain cases, management and other key personnel have
been lured away by competitors who have offered very substantial signing
bonuses and compensation packages which would be very difficult for Borland to
match. There can be no assurance that Borland will not be subject to further
losses of management and other key personnel. In addition, Borland may be
required to substantially increase the compensation, stock options or other
benefits offered to employees in order to attract or retain management and
other key personnel. The loss of management and other key personnel, and the
delays which may be experienced in recruiting new management and other
personnel as well as the additional costs which may be incurred in retaining
or attracting new personnel, may have a material adverse affect on Borland,
its product launches and its operating results. In particular, the disruptions
inherent in such a situation are particularly problematic for a company which
has experienced the types of problems which Borland has recently faced.
Significant Fluctuations in Quarterly Operating Results and
Seasonality. Borland's quarterly operating results have varied significantly
in the past and Borland expects that such results are likely to vary
significantly from time to time in the future. Such variations result from,
among other matters, the following: the size and timing of significant orders
and their fulfillment; demand for Borland's products; the number, timing and
significance of product enhancements and new product announcements by Borland
and its competitors; changes in pricing policies by Borland or its
competitors; changes in the level of operating expenses; changes in Borland's
sales incentive plans; budgeting cycles of its customers; customer order
deferrals in anticipation of enhancements or new products offered by Borland
or its competitors; product life cycles; product defects and other product
quality problems; personnel changes; seasonal trends and general domestic and
international economic and political conditions. Operating results can also be
adversely impacted by deferrals of customer orders in light of customer
uncertainty regarding Borland's short and long term prospects. As an
increasing percentage of Borland's revenues are from client/server products,
Borland expects that an increasing percentage of its revenues will be from
large orders. The timing of such orders and their fulfillment may cause
material fluctuations in Borland's operating results, particularly on a
quarterly basis. In addition, Borland intends to continue to expand its
domestic and international direct sales force. The timing of such expansion
and the rate at which new sales people become productive could also cause
material fluctuations in Borland's quarterly operating results.
15
<PAGE>
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for client/server application development software is rapidly evolving,
and Borland's sales cycle for client/server products, from initial evaluation
to purchase and the provision of support services, is lengthy and varies
substantially from customer to customer. Because Borland normally ships
products within a short time after it receives an order, it typically does not
have any material backlog. As a result, to achieve its quarterly revenue
objectives, Borland is dependent upon obtaining orders in any given quarter
for shipment in that quarter. Furthermore, because many customers place orders
toward the end of a quarter, Borland generally recognizes a substantial
portion of its revenues at the end of a quarter. As Borland's expense levels
are based in significant part on Borland's expectations as to future revenues
and are therefore relatively fixed in the short term, if revenue levels fall
below expectations, net income is likely to be disproportionately adversely
affected. There can be no assurance that Borland will be able to achieve or
maintain profitability on a quarterly or annual basis in the future. Due to
the foregoing factors, it is likely that in some future quarter Borland's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of Borland's Common Stock would likely be
materially and adversely affected.
Uncertainties Related to the Merger. The acquisition of OEC by Borland
presents numerous challenges to the combined company. The successful
combination of companies and product lines in the high technology industry may
be more difficult and require a greater period of time to accomplish than in
other industries. Borland has historically had only a limited presence in the
client/server applications market and accordingly may lack the management and
marketing experience that will be necessary to successfully operate the OEC
business following the Merger. The successful expansion of the combined
company's business will require communication and cooperation in product
development and marketing among the senior executives and key technical
personnel of Borland and OEC. Given the inherent difficulties involved in
completing a business combination, there can be no assurance that such
cooperation will occur or that the integration of the respective businesses
will be successful and will not result in disruptions in one or more sectors
of the combined company's businesses. Among the other uncertainties relating
to the Merger, there can be no assurance that Borland and OEC will retain key
technical and management personnel; that the market will favorably view
Borland's proposed expansion into the client/server field; that the geographic
separation between the OEC and Borland operations might not prove disruptive;
that there might not be duplication of effort or distraction of management
from the operation of the business; or that Borland will realize any of the
other anticipated benefits of the Merger. In particular, Borland has a limited
track record in managing acquisitions of the size of the Merger.
To date, a limited number of OEC management, technical and sales personnel
have left OEC or indicated that they do not intend to continue with Borland
following the Merger. In order to address the geographic separation, Borland
has moved a senior technical employee to Boston to help coordinate development
activities between Borland and OEC. However, the distance between OEC's
headquarters and Borland's headquarters inherently presents challenges in
maintaining communication and continuity in operations, particularly for an
integrated business.
Borland estimates that subsequent to the Merger it will charge to its
operations approximately $7 to $12 million to reflect the combination of the
two companies, including the elimination of duplicate facilities, property and
equipment write-offs, severance costs relating to the termination of certain
employees, cancellation of certain contract obligations and the write-off of
certain other assets. There can be no assurance that actual charges may not be
higher than those currently estimated. In addition, Borland and OEC will incur
aggregate transaction costs of approximately $3 million associated with the
Merger. See "Notes to Pro Forma Unaudited Combined Condensed Financial
Statements."
New Business Areas. Borland's acquisition of OEC is part of its strategy to
focus on software developers and the growth of the client/server market.
Borland's entry into this market is subject to a number of risks, including
among others, Borland's inexperience in this market; that the market itself is
new and evolving; that Borland must make choices regarding the operating
systems, database management systems and server software to focus upon; and,
that there are several very large and well entrenched businesses as well as a
number of smaller very successful companies already competing in this market.
Because of the inherent uncertainties of
16
<PAGE>
software development projects, there can be no assurance that Borland's
research and development efforts will result in successful product
introductions or increased revenue.
Anticipated Decline in Revenue from Desktop Database Products. Most of
Borland's revenues to date have been attributable to its desktop products.
Revenues derived from desktop products accounted for 73%, 83% and 95% of total
revenues for Borland in the three months ended June 30, 1996 and in fiscal
1996 and 1995, respectively. Revenues derived from the sale of these products,
particularly Borland's desktop database products, have declined over the last
three fiscal years. The decline in revenues has been due to a number of
factors, including, among others, the success of product "suites" offered by
competitors which have had an adverse impact on the sale of individual
products; the sale by Borland of its Quattro Pro spreadsheet product; and
continued competitive pricing pressures which have resulted in lower average
sales prices for desktop products. While Borland expects such decline to
continue, revenues from the sales of such products currently continue to
represent an important portion of Borland's revenues. Although Borland is
continuing to invest in the development, sales, marketing and support of such
products on a limited basis, there can be no assurance that revenues from such
products will not decline faster than expected. If revenues from such products
decline materially or at a more rapid rate than Borland currently anticipates,
Borland's business, operating results and financial condition would be
materially and adversely affected.
New Product Introductions. Borland's future sales will depend substantially
on its ability to continue to successfully design and market new products and
upgrades of current products for existing and new personal computer platforms
and operating environments. Borland has from time to time experienced delays
in the introduction of new products and product enhancements. In particular,
in certain cases Borland has experienced delays of more than a year. Such
delays can be caused by a variety of factors applicable to all software
companies, principally relating to the uncertainties of software development
and including changes in product features or architecture required due to the
discovery of flaws in the initial design or development of the product or
competitive factors and other changes in the industry. Although Borland has
taken certain steps to reduce the risks of such delays, including the
introduction of more structured development programs, there can be no
assurance that such new programs will be successful. Borland has recently
announced the loss of management and other key personnel. The loss of
personnel, particularly key research and development personnel, can have a
material adverse impact upon the timing of new product introductions. Delays
in the shipment of such products and product enhancements will have a material
adverse impact on Borland. Without the introduction of such new products and
product enhancements, Borland's products may become technologically obsolete,
and as a result Borland's revenues could be materially and adversely affected.
There can be no assurance that future development and marketing efforts by
Borland will be successful.
Extreme Volatility of Stock Price. Like the stock of other high technology
companies, the market price of Borland Common Stock has been and may continue
to be extremely volatile. During the past three fiscal years, the market price
of Borland Common Stock has ranged from a high of $21.25 to a low of $6.06.
See "Summary--Comparative Market Price Data." Factors such as quarterly
fluctuations in Borland's results of operations, the announcement of
technological innovations or the introduction of new products by Borland or
its competitors, and general conditions in the computer hardware and software
industries may have a significant impact on the market price of Borland Common
Stock.
Extremely Competitive Industry. The software industry is extremely
competitive. Borland competes with a large number of other companies,
including Microsoft Corporation ("Microsoft"), Computer Associates
International, Inc., Oracle Corporation and Sybase Corporation. Certain of its
competitors have substantially greater financial, management, marketing and
technical resources than Borland. In recent months competitors have utilized
their greater resources to provide substantial signing bonuses and other
inducements to lure away Borland management and other key personnel. In
addition, Microsoft is the developer of both the MS-DOS operating system and
the Windows operating environments. To the extent that Borland is unable to
obtain information regarding existing and future operating systems from the
developer of such systems, the release of Borland's products for such systems
may be delayed. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any one of
which could materially
17
<PAGE>
adversely affect Borland's business, operating results and financial
condition. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships, thereby increasing the
ability of their products to address the needs of Borland's prospective
customers. Accordingly, it is possible that new competitors may emerge, or
alliances among current and new competitors may be formed, that may rapidly
gain significant market share. Such competition could materially adversely
affect Borland's ability to sell additional licenses and maintenance and
support renewals on terms favorable to Borland. Further, competitive pressures
could require Borland to reduce the price of its products and related
services, which could materially adversely affect Borland's business,
operating results and financial condition. For example, Borland has recently
announced that it is reducing the price of certain versions of its Delphi
product in response to pricing rebates and related competitive efforts by
Microsoft. There can be no assurance that Borland will be able to compete
successfully against current and future competition, and the failure to do so
would have a material adverse effect upon Borland's business, operating
results and financial condition.
Risks Associated with International Operations and Sales. Revenues derived
from international operations accounted for 84%, 53%, 45% and 52% of total
revenues for Borland in the three months ended June 30, 1996 and in fiscal
1996, 1995 and 1994, respectively. There are certain risks inherent in doing
business on an international level, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment
cycles, problems in collecting accounts receivable, political instability,
fluctuations in currency exchange rates, seasonal reductions in business
activity during the summer months in Europe and certain other parts of the
world and potentially adverse tax consequences, any of which could adversely
impact the success of Borland's international operations. There can be no
assurance that one or more of such factors will not have a material adverse
effect on Borland's future international operations and, consequently, on
Borland's business, operating results and financial condition. In addition,
Borland's subsidiaries in Europe and Japan operate in local currencies, and
their results are translated monthly into U.S. dollars. If the value of the
U.S. dollar increases relative to foreign currencies, Borland's results of
operations could be materially adversely affected.
Anti-takeover Provisions. Borland's Stockholders' Rights Plan and certain
provisions of Borland's Certificate of Incorporation may discourage or prevent
certain types of transactions involving an actual or potential change in
control of Borland, including transactions in which the stockholders might
otherwise receive a premium for their shares over then current market prices,
and may limit the ability of stockholders to approve transactions that they
may deem to be in their best interests. In addition, the Borland Board of
Directors has the authority to fix the rights and preferences of and issue
shares of Preferred Stock without action by the stockholders, which may have
the effect of delaying or preventing a change in control of Borland.
Software Defects and Liability Claims. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. Although Borland has not experienced any material
adverse effects resulting from any such defects or errors to date, there can
be no assurance that, despite testing by Borland and by current and potential
customers, defects and errors will not be found in current versions, new
versions or enhancements after commencement of commercial shipments, resulting
in the loss of revenues, delay in market acceptance or unexpected re-
programming costs, which could have a material adverse effect upon Borland's
business, operating results and financial condition.
Borland's license agreements with its customers typically contain provisions
designed to limit Borland's exposure to potential product liability claims. It
is possible, however, that the limitation of liability provisions contained in
Borland's license agreements may not be effective as a result of existing or
future federal, state or local laws or ordinances or unfavorable judicial
decisions. A successful product liability claim brought against Borland could
have a material adverse effect upon Borland's business, operating results and
financial condition.
Dependence Upon Key Personnel; Need to Hire Additional Personnel. The
success of Borland depends in large part upon the ability of Borland to
recruit and retain qualified employees, particularly highly skilled engineers.
The competition for such personnel is intense and Borland has recently lost
management and other key personnel. There can be no assurance that Borland
will be successful in retaining or recruiting key personnel.
18
<PAGE>
In particular, there is a risk of losing key personnel in connection with the
consolidation of operations which results from any transaction such as the
Merger. Moreover, the announcement of the proposed Merger and the loss of
management and other key personnel may impede Borland's ability to attract and
retain personnel prior to and after the Merger. Any failure by Borland to
expand or retain its engineering and other key personnel would materially
adversely affect Borland's business, operating results and financial
condition.
Intellectual Property Rights. Borland relies on a combination of patent,
copyright, trademark and trade secret laws, non-disclosure agreements and
other intellectual property protection methods to protect its proprietary
technology. Despite Borland's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Borland's products or to
obtain and use information that Borland regards as proprietary. Policing
unauthorized use of Borland's products is difficult, and while Borland is
unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect Borland's
proprietary rights as fully as do the laws of the United States. There can be
no assurance that Borland's means of protecting its proprietary rights in the
United States or abroad will be adequate or that competition will not
independently develop similar technology.
Although there are no pending lawsuits against Borland regarding
infringement of any existing patents or other intellectual property rights or
any notices that Borland is infringing the intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. If any such claims are asserted and
determined to be valued, there can be no assurance that Borland will be able
to obtain licenses on reasonable terms. Borland's involvement in any patent
dispute or other intellectual property dispute or action to protect trade
secrets and know-how may have a material adverse effect on Borland's business,
operating results and financial condition. Adverse determinations in any
litigation may subject Borland to significant liabilities to third parties,
require Borland to seek licenses from third parties and prevent Borland from
manufacturing and selling its products. Any of these situations can have a
material adverse effect on Borland's business, operating results and financial
condition.
Interests of Certain Persons; Possible Conflicts of Interests of Certain
Persons in the Merger. Certain members of the management of OEC and the OEC
Board have interests in the Merger in addition to their interests as
stockholders of OEC. For instance, certain such persons may receive severance
and/or other employment benefits under their employment agreements or
applicable plans as a result of the Merger. See "The Merger--Interests of
Certain Persons; Possible Conflicts of Interest."
No Dividends. Borland has not paid dividends to holders of shares of Borland
Common Stock for more than five years. OEC has not paid dividends to holders
of OEC Common Stock since its initial public offering in April 1995. Borland
intends to retain all of its earnings for use in its business and, therefore,
does not anticipate paying cash dividends on Borland Common Stock in the
foreseeable future.
If OEC were to continue as an independent company, it would face risks
similar to those described above relating to Borland as well as those
associated with transitions in its management and uncertainties concerning
current operations. For a discussion of how the OEC Board evaluated the future
prospects and risks facing OEC if it remained independent in the context of
evaluating the Merger, see "The Merger--OEC's Reasons For the Merger;
Recommendation of OEC's Board of Directors" and "The Companies--Open
Environment Corporation."
THE SPECIAL MEETING
GENERAL
This Prospectus/Proxy Statement is being furnished to holders of OEC Common
Stock in connection with the solicitation of proxies by the OEC Board for use
at the Special Meeting of stockholders to be held on Monday, November 18, 1996
at 10:00 a.m., Boston time, at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts, and at any adjournments or postponements thereof.
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This Prospectus/Proxy Statement also constitutes the Prospectus with respect
to the shares of Borland Common Stock issuable in connection with the Merger.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, holders of shares of OEC Common Stock will consider
and vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby. OEC stockholders may also transact such
other business as may properly be brought before the Special Meeting or any
adjournments or postponements thereof. THE OEC BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS
THAT OEC STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
VOTE REQUIRED
Assuming that a quorum is present, the affirmative vote of the holders of a
majority of all outstanding shares of OEC Common Stock is required to approve
and adopt the Merger Agreement and the transactions contemplated thereby. As a
result, abstentions, failures to vote and broker non-votes will have the same
effect as votes against the Merger Agreement since they are not votes for
approval. Pursuant to the Principal Stockholder Agreements, the Principal
Stockholder Shares (representing approximately 33% of beneficial ownership of
the outstanding shares of OEC Common Stock) will be present and voted at the
Special Meeting in favor of the Merger Agreement. See "Principal Stockholder
Agreements."
VOTING OF PROXIES
Shares of OEC Common Stock represented by properly executed proxies received
at or prior to the Special Meeting, and which have not thereafter been
properly revoked as described below, will be voted in accordance with the
instructions indicated therein. If no instructions are indicated, such proxies
will be voted FOR approval and adoption of the Merger Agreement and in the
discretion of the proxy holder as to any other matter that may properly come
before the Special Meeting.
REVOCABILITY OF PROXIES
An OEC stockholder who has given a proxy may revoke such proxy at any time
prior to its exercise at the Special Meeting by any manner permitted by law,
including (i) giving written notice of revocation by mail or facsimile to OEC
prior to the Special Meeting or (ii) properly submitting to OEC by mail or
facsimile a duly executed proxy bearing a later date. Submissions to OEC
should be made to Open Environment Corporation, Attn: Corporate Secretary, at
25 Travis Street, Boston, Massachusetts 02134, facsimile (617) 562-5942. Any
beneficial owner whose shares of OEC Common Stock are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to change such stockholder's vote should contact such registered holder
promptly and instruct such registered holder on such beneficial owner's
behalf. There is no guarantee that there will be sufficient time prior to the
Special Meeting for registered holders to deliver a revocation upon
instruction by beneficial owners.
SOLICITATION OF PROXIES
OEC will bear the cost of the solicitation of proxies from its stockholders,
except that Borland and OEC will share equally the cost of printing, filing
with the Commission, and certain other fees and expenses associated with this
Prospectus/Proxy Statement. In addition to the solicitation of proxies by
mail, directors, officers and employees of OEC may solicit proxies from
stockholders personally or by telephone, telegraph or facsimile transmissions.
Such directors, officers and employees will not be compensated additionally
for such solicitation but may be reimbursed for their out-of-pocket expenses
incurred in connection therewith. Arrangements may also be made with banks,
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of OEC Common
Stock held of record by such persons, and, upon request, OEC will reimburse
such custodians, nominees and fiduciaries for their reasonable out-of-pocket
20
<PAGE>
expenses in connection therewith. OEC also has employed Corporate Investor
Communications, Inc., a proxy solicitation firm, to solicit proxies at a cost
which is not expected to exceed $10,000.
RECORD DATE; SHARES ENTITLED TO VOTE
The OEC Board has fixed the close of business on October 7, 1996 as the
Record Date for determining holders of OEC Common Stock entitled to notice of
and to vote at the Special Meeting. As of the Record Date, 7,562,749 shares of
OEC Common Stock were issued and outstanding and held of record by 110
holders. The OEC Common Stock is the only class of capital stock of OEC issued
and outstanding. Each stockholder of record as of the close of business on the
Record Date is entitled at the Special Meeting to one vote for each share of
the OEC Common Stock held.
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of OEC Common Stock entitled to vote at the Special Meeting
is necessary to constitute a quorum for the transaction of business at the
Special Meeting. Pursuant to the Principal Stockholder Agreements, the
Principal Stockholder Shares, representing 33% of the outstanding shares of
OEC Common Stock, will be present and voted at the Special Meeting in favor of
the Merger Agreement. See "Principal Stockholder Agreements."
OEC STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between Borland and
OEC in which a wholly- owned subsidiary of Borland will be merged with and
into OEC and the holders of OEC Common Stock would receive shares of Borland
Common Stock. As a result of the Merger, OEC will become a wholly-owned
subsidiary of Borland. The discussion in this Prospectus/Proxy Statement of
the Merger and the description of the principal terms of the Merger are
subject to and qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached to this Prospectus/Proxy Statement as
Appendix A-1, A-2 and A-3 and which is incorporated herein by reference.
In recent years, the increasing performance and declining costs of desk-top
computers, together with improvements in network communications and graphical
user interface technologies, have contributed to a shift by organizations from
centralized computing systems to more distributed environments that support
the integration of a wide variety of "client" (or end-user) and "server"
(host-based or back-end) databases and systems applications. Client/server
architecture offers end-users a more flexible, easily accessible computing
environment that provides greater functionality with lower hardware and
software cost. With the adoption of client/server computing environments,
developers have introduced a range of software applications for distributed
computing, allowing organizations to select the hardware and software
solutions best suited to their requirements.
This industry evolution has an impact on the business of both Borland and
OEC. As significant purchasers have moved to a client/server model of
computing, Borland anticipates that its revenues from desk-top products will
continue to decline and that its business will increasingly focus on software
developers and the growth of the client/server market and the Internet. At the
same time, OEC's business strategy has been to develop a multi-tiered software
architecture that allows customers to rapidly develop, deploy and manage
software applications in a client/server environment and on an enterprise-wide
basis. As a result of these trends, both companies believe that the Merger
will permit the combined entity to more effectively and comprehensively
address the important evolution in the marketplace toward client/server
systems.
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BACKGROUND OF THE MERGER
In November 1995, and pursuant to Borland's strategic plan, Borland engaged
Broadview Associates ("Broadview") to assist it in investigating companies
which would be potential candidates for acquisition or partnering with Borland
and which could supply additional infrastructure relating to marketing, sales
and support in the client/server market. Broadview is a nationally recognized
investment banking firm that specializes in advising in connection with
mergers and acquisitions involving information technology companies. In
addition to the identification of potential candidates for acquisition or
partnering with Borland, Broadview assisted Borland in connection with the
review and negotiation of the transaction with OEC. Broadview was not
requested to and did not provide any formal opinion to the Board of Directors
of Borland in connection with the Merger.
From December 3, 1995, through December 6, 1995, members of senior
management of Borland and OEC attended the Software Marketing Executive Forum
in Aspen, Colorado. While in attendance at the Forum, Mr. Nathan Morton, then
Chief Executive Officer of OEC, and Mr. Omar Hussain, Vice President,
Strategic Alliances and Business Development of OEC, met with Mr. Gary Wetsel,
then Chief Executive Officer of Borland, and discussed Borland's and OEC's
strategies for the future and the possibility of exploring a joint product
packaging and marketing arrangement between the two companies. During this and
most subsequent discussions between representatives of Borland and OEC, the
discussions principally related to the technical and business synergies
between the companies. The technical discussions focused upon, among other
matters, reviews of the OEC technology and the interworking of such technology
with existing and planned Borland products and technology. The business
synergy discussions focused upon, among other matters, the OEC sales,
marketing, support and other related resources and the ability of the
companies to combine such resources with Borland's stronger brand recognition,
and broader management and distribution infrastructure.
During the week of December 11, 1995, Messrs. Morton, Hussain and Wetsel had
a number of telephone conversations where they discussed the potential
synergies of the two companies' products and the possibility of a closer
relationship between the two companies and arranged for a meeting of the
product marketing groups of Borland and OEC. No discussions were held
regarding a possible acquisition.
On December 18, 1995, Messrs. Hussain and Roy G. Hodgman, Vice President,
Product Marketing of OEC, met at Borland's headquarters with members of
Borland's management, including Mr. Wetsel and Messrs. Lawrence Brand, Vice
President, Sales, Paul Gross, Senior Vice President, Research and Development
and Zack Urlocker, Director of Delphi Product Management to discuss the
possibility of joint marketing activities.
Messrs. Wetsel and Hussain had a number of telephone conversations during
the period from December 21, 1995 through December 23, 1995, in which they
discussed business alliance strategies.
At an OEC management meeting held in Dallas, Texas on December 29 and
December 30, 1995, Messrs. Morton, Hussain, Hodgman, Andrew L. Berman, Vice
President Worldwide Sales, James J. Driscoll, Vice President Finance and
Administration and Chief Financial Officer, Adam C. Honig, then Vice
President, Internet Division, and Robert A. Fisher, Vice President, Customer
Services and Support discussed the possibility of a transaction with Borland.
On January 10 and 11, 1996, Messrs. Morton, Driscoll, Hodgman, Hussain and
Mr. Ram Sudama, Vice President, Technology and Chief Scientist of OEC met with
Messrs. Wetsel and Gross and Messrs. David Mullin, Vice President Finance and
Administration and Chief Financial Officer, William Jordan, Vice President,
Business Development, and other personnel from Borland to discuss
technological, marketing, financial, management and other business matters
relating to their respective companies with respect to a potential
transaction.
On January 15, 1996, Messrs. Hussain and Jordan were designated to
coordinate strategic alliance efforts on behalf of, respectively, OEC and
Borland with respect to a potential transaction between the companies.
On January 19, 1996, an initial detailed report was provided to the Board of
Directors of Borland (the "Borland Board").
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On January 24, 1996, Mr. David Chen, an independent consultant, and Messrs.
Mullin and Jordan of Borland met with Messrs. Hussain, Hodgman, Driscoll and
Honig of OEC in Boston to conduct due diligence inquiries regarding the
business of OEC.
On February 1, 1996, Messrs. Hodgman and Sudama conducted a day-long
technical presentation at Borland and on February 13 and 14, 1996 members of
each company's engineering staff met at Borland to learn more about the
technical features of each company's products.
On February 14 and 15, 1996, Messrs. Hodgman and Sudama and several members
of OEC's engineering staff traveled to Borland for an additional in-depth
technical meeting.
In late February, Mr. James E. Cowie, an OEC Board member, asked Alec
Ellison from Broadview to confirm whether Borland's interest in OEC was
serious. Mr. Ellison did so.
On February 21, 1996, at a regularly scheduled meeting of the OEC Board, Mr.
Morton advised the OEC Board that talks were continuing, primarily on product
and technology related issues, but that the parties had not discussed or
agreed on any definitive terms.
On February 28, 1996, at OEC's Dallas office, Messrs. Chen, Brand, Jordan
and Mr. David Griffin, former controller, of Borland met with Messrs. Honig,
Hussain and Driscoll of OEC to discuss sales operations and conduct financial
due diligence as to the business of each of the companies.
On March 7, 1996, OEC retained DLJ to provide financial advisory services.
On March 8, 1996, at a telephonic meeting the OEC Board discussed recent
developments and was advised that while negotiations were continuing, the
parties had still not discussed or agreed upon definitive terms. On the basis
of these discussions, the OEC Board became aware that OEC was facing a number
of business and financial challenges that the OEC Board believed would require
management's undivided attention, and further that OEC's then current quarter
revenues were uncertain. Accordingly, the OEC Board members informed Mr.
Morton that they believed management should inform Borland of the above-
mentioned information, halt or suspend further discussions with Borland, and
focus its full attention on OEC internal matters.
After the meeting, Mr. Morton spoke with various members of the OEC
management team and then contacted the OEC Board members to inform them that
the management team had, prior to the OEC Board meeting, scheduled meetings
with people at Borland for the following week. He indicated that it was his
belief that management should proceed with the meetings but inform Borland of
OEC's internal concerns. The OEC Board consented to the management's decision
to travel to Borland for further discussions.
On March 11 and March 12, 1996, Messrs. Morton, Honig, Hussain, Driscoll,
Sudama and Hodgman of OEC and Messrs. Wetsel, Jordan, Mullin and Gross of
Borland met at Borland to discuss technical, product and financial issues
relevant to a potential transaction. At such meetings, OEC management informed
Borland management regarding the recent business and financial challenges
being experienced by OEC.
Based on these factors, Borland executives recommended to the Borland Board
that discussions with OEC should be postponed until OEC management could
address these challenges.
On March 28, 1996, OEC announced its definitive results for the quarter
ended December 31, 1995.
On April 5, 1996, Mr. Morton resigned as Chief Executive Officer of OEC. Mr.
Philip Copeland was appointed as acting Chief Executive Officer and Mr. Honig
was appointed as acting President. OEC also announced that its revenues for
the fiscal quarter ended March 31, 1996 would be lower than expected.
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During the week of April 8, 1996, contact between Messrs. Wetsel and Jordan
of Borland and Messrs. Hussain and Honig of OEC was re-established. In
addition, discussions between financial advisors, DLJ on behalf of OEC and
Broadview on behalf of Borland, commenced. OEC's revenue decline did not have
a material impact on the rationale or strategic importance of the Merger to
Borland. During Borland's partner/acquisition screening process, Borland
concluded that OEC was an appropriate acquisition candidate given the resource
infrastructure and technology requirements identified in its strategic plan.
Borland agreed to the re-establishment of discussions based upon its belief
that these factors continued to apply.
On April 17, 1996, Mr. Wetsel indicated to Mr. Cowie that Borland was very
interested in a strategic combination and wanted to address certain due
diligence issues before its Board met on April 26, 1996. In response, Mr.
Cowie suggested that Mr. Wetsel send him a list of due diligence items and
told Mr. Wetsel that Borland had one week in which to make an offer. Mr.
Wetsel sent a fax to Mr. Cowie with due diligence requests.
From April 18 through April 20, 1996, OEC employees made a number of
technical presentations regarding OEC's products to employees of Borland.
During the week of April 22, 1996, a series of conference calls was held
regarding financial due diligence and proposed financial parameters of a
transaction between the parties, including a discussion of potential ranges of
exchange ratios and collar provisions. Representatives of DLJ, Broadview, Mr.
Wetsel of Borland and Mr. Cowie, the designated OEC Board representative with
respect to the Merger, participated in such discussions. During these
discussions, Borland proposed an exchange ratio of .42, and OEC management
indicated its view that negotiation of a ratio was premature and that the
ratio proposed was inadequate. There had been no discussions about specific
terms of a transaction prior to this date, and detailed pricing discussions
began in early May.
On April 26, 1996, a further detailed report regarding the transaction was
provided to the Borland Board by members of Borland's executive management
including Messrs. Wetsel, Mullin, Jordan and Gross. Management was authorized
to proceed with the negotiations of the transaction with approval of the final
terms of the transaction subject to approval by a subcommittee of the Borland
Board (the "Special Committee").
On April 29, 1996, Messrs. Wetsel and Cowie conferred about the transaction
and agreed to try and conclude an agreement in principle for a definitive
transaction by May 3, 1996.
On April 30, 1996, OEC announced its earnings for the quarter ended March
31, 1996 and issued a press release announcing that DLJ was investigating
strategic alliances on its behalf.
On May 1 and 2, 1996, Borland and OEC held legal, financial and technology
related due diligence meetings.
On May 2, 1996, Mr. Wetsel of Borland and Mr. Cowie of OEC began discussing
proposed terms for the Merger, and Mr. Wetsel proposed an exchange ratio of
.50, subject to a collar of between $20.00 and $14.00 limiting the maximum and
minimum numbers of shares issuable in the transaction.
On May 3, 1996, at a telephonic meeting of the OEC Board, Mr. Cowie and
representatives of DLJ reported on the status of discussions with Borland
including a summary of the proposed terms. It was the consensus of the OEC
Board to continue discussions, but to seek to improve the proposed exchange
ratio and/or collar arrangement.
On May 4, 1996, Mr. Cowie informed Mr. Wetsel that Borland's proposal was
unacceptable to OEC absent an adjustment in the proposed exchange ratio and/or
collar arrangements and discussed further refinements to Borland's proposal.
Mr. Cowie proposed an exchange ratio of .55 and further discussion regarding
the scope of the collar.
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On May 6, 1996, at a telephonic meeting of the OEC Board, Mr. Cowie reported
on the status of negotiations and the proposed exchange ratio and related
collar provisions, and an extensive discussion ensued regarding the proposed
transaction. It remained the consensus of the OEC Board to seek to improve the
proposed purchase ratio and/or collar arrangement, and to maximize the
certainty of a transaction while preserving the ability of the OEC Board to
exercise its fiduciary duties. The OEC Board authorized Mr. Cowie and OEC's
professional advisors to pursue discussions with Borland, with a view to the
determination of definitive collar arrangements and form of Merger Agreement.
On May 6, 1996, a first draft of the proposed Merger Agreement was delivered
to Hale and Dorr, counsel to OEC.
From May 6 through May 10, 1996, Mr. Wetsel and Mr. Cowie and their
respective financial advisors conducted direct negotiations regarding the
amount and nature of the consideration to be paid in the merger. At the same
time, negotiations concerning the definitive agreements continued. During the
course of these negotiations, Mr. Wetsel confirmed Borland's willingness to
increase the exchange ratio to .51. In addition, a number of proposed
conditions to closing relating to employee matters and the condition of OEC's
business were deleted or modified, and the right by Borland to terminate the
contract if its share price fell was also eliminated.
On May 10, 1996, negotiations between Mr. Wetsel and Mr. Cowie continued
throughout the day and evening regarding the final details of the Merger
Agreement and the Principal Stockholders Agreements. After the stock market
had closed, Mr. Wetsel called Mr. Cowie and they agreed on the final
outstanding terms of the proposed transaction, including an exchange ratio of
.51 and a collar which did not limit the number of shares issuable to OEC in
the transaction in the fashion of the collar proposed by Borland on May 2.
On May 11, 1996, the OEC Board held a telephonic meeting for the purpose of
discussing the proposed Merger and the terms of the Merger Agreement. After
reviewing the terms of the Merger Agreement with its legal counsel and DLJ,
and after hearing the presentation and receiving the opinion of DLJ, the OEC
Board determined that the Merger was fair to, and in the best interests of the
OEC stockholders and unanimously approved the Merger and recommended that the
stockholders of OEC approve the Merger Agreement and related transactions. On
the same day, the terms of the Merger Agreement were approved by the Borland
Special Committee and the Merger Agreement was signed by OEC and Borland.
On May 29, 1996, Borland announced that it expected to report a substantial
operating loss for the quarter ended June 30, 1996.
During May and June, Borland's common stock experienced a significant
decline in value, which, under the original provisions of the Merger
Agreement, could have resulted in the issuance to OEC stockholders of 8
million shares of Borland common stock or more. During the same period, OEC
experienced continuing difficulties in achieving budgeted levels of revenue.
On June 20, 1996, Mr. Robert H. Kohn, Senior Vice President, Corporate
Affairs and Secretary of Borland called Mr. Cowie, to advise him that, under
the circumstances, Borland felt that the original exchange ratio of .51 should
be applied without any further adjustment and that the "collar" provision
should therefore be eliminated, indicating that in Borland's view such
approach was appropriate because the financial performance of OEC might
constitute a material adverse change within the meaning of the Merger
Agreement, giving Borland a right to terminate the Merger Agreement.
In response, OEC indicated that it did not believe there was any breach of
the material adverse change provision of the Merger Agreement, and indicated
its willingness to limit consideration received to under 20% of Borland's
outstanding common stock. This was confirmed in writing in a letter to Borland
from John A. Burgess, OEC's counsel, dated July 25, 1996.
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As a result of these discussions, a dialog ensued between Mr. Cowie and
Harry Saal, the Vice Chairman of the Borland Board, concerning terms and
provisions of the Merger Agreement. Borland offered to issue 5.5 million
shares as fixed consideration for the transaction issuable for both
outstanding shares of OEC Common Stock and all shares subject to OEC options,
whether or not vested, resulting in an effective exchange ratio of .63. OEC
rejected this proposal, advising Borland that it imposed a disproportionate
impact as a result of options which were not vested.
On July 19, 1996, the Borland Board held a meeting at which it was updated
regarding the status of negotiations. At such meeting, the Executive Committee
of the Borland Board was authorized to approve the final terms of an amendment
to the Merger Agreement.
On July 24, 1996, Borland announced its results for the quarter ended June
30, 1996, including a net loss of in excess of $14 million.
On July 29, 1996, Messrs. Cowie and Saal agreed, subject to appropriate
approval by the respective Boards of Borland and OEC and satisfactory
resolution of the form of the amendment, upon an exchange ratio of 0.66,
coupled with the modification or elimination of certain conditions in the
Merger Agreement as originally drafted. During the course of the day, legal
counsel for Borland and OEC negotiated the form of the amendment to the Merger
Agreement.
In the evening of July 29, 1996, the Executive Committee of the Borland
Board held a meeting at which the committee considered the proposed amendment
to the Merger Agreement. After reviewing the proposed changes with its legal
counsel, the Executive Committee approved the amendment and the related
transactions.
On July 30, 1996, the OEC Board held a meeting for the purpose of discussing
the proposed amendment to the Merger Agreement. After reviewing the terms of
the amendment with its legal counsel and DLJ, and after hearing the
presentation and receiving the opinion of DLJ, the OEC Board unanimously
approved the amendment and related transactions and recommended that the
stockholders of OEC approve the Merger Agreement, as amended, and related
transactions.
On October 8, 1996, Borland and OEC agreed to extend the termination date
for the Merger Agreement to November 25, 1996.
POTENTIAL ADVANTAGES AND DISADVANTAGES OF THE MERGER TO BORLAND AND OEC
Borland management believes that the combination of both companies'
technology, resources and experience, market access and other elements would
result in a joint entity which is stronger than what could be realized by the
companies remaining independent. Borland believes that areas where a
combination could be advantageous to Borland are (i) combining technologies
resulting in new client/server products with distributed computing capability,
(ii) combining technology with experienced research and development personnel
from both companies to accelerate the development and delivery of these
products, (iii) gaining client/server technical and business infrastructure
necessary to succeed with new client/server products, (iv) established
relationships with Fortune 100 customers to be used by Borland in leveraging
products from both companies and introducing new products that integrate the
strengths of both companies' product lines and (v) providing Borland with
experience and understanding of customer requirements and methods for
achieving enterprise level business relationships with customers stemming from
OEC's consulting services, field engineering, bug tracking and maintenance and
technical support.
The possible disadvantages of the Merger to Borland are similar to those
associated with any acquisition transaction including (i) the expenditure of
significant management time on integration issues, (ii) the overall cost of
the transaction including the dilutive effect on Borland Common Stock and
(iii) the instability caused by a business undergoing a significant
transaction and its effects on customer, employee and stockholder confidence
in the new venture and its strategic direction. Notwithstanding the foregoing,
Borland believes that the Merger is in the best interests of its customers,
employees and stockholders.
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Possible advantages of the Merger to OEC and its stockholders include that
(i) the Merger provides OEC with access to a broader management base and
stronger infrastructure for the continued development and distribution of its
products, (ii) the Merger provides OEC with potential synergies which could
result from combining Borland's high-performance, rapid application
development tools with OEC's scalable, multi-tier solutions, (iii) the Merger
provides OEC with the benefit of economies of scale in its research and
development efforts and (iv) the Merger provides OEC stockholders with the
option to continue to hold an equity interest in the combined entity following
the Merger.
The possible disadvantages of the Merger to OEC and its stockholders include
(i) the lack of assurance that the expected benefits of the combination of OEC
and Borland will be realized or that the business focus of Borland, which is
significantly different to that of OEC, will not expose OEC to greater
financial risks if Borland continues to encounter difficulties, (ii) OEC
stockholders will hold less than 20% of the outstanding shares of Borland
Common Stock following the Merger, significantly reducing their ability to
collectively influence the outcome of corporate actions requiring stockholder
approval and (iii) the Borland Board is divided into three classes, with each
class serving a staggered three-year term. This provision, and other
provisions of Borland's charter and by-laws, may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management
of Borland, including transactions in which stockholders might otherwise
receive a premium for their shares over the then current market price.
OEC'S REASONS FOR THE MERGER; RECOMMENDATION OF OEC'S BOARD OF DIRECTORS
The OEC Board has unanimously determined that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to and in the
best interests of OEC and its stockholders. In making its recommendation with
respect to the Merger Agreement, the OEC Board considered, among other things,
the oral opinion of its financial advisor delivered to the OEC Board on July
30, 1996, that the Exchange Ratio is fair, from a financial point of view, to
the holders of shares of OEC Common Stock as of such date. Accordingly, the
OEC Board has unanimously approved the Merger Agreement and related
transactions and recommends approval thereof by the stockholders of OEC.
In considering the Merger, the OEC Board consulted with its legal advisors
regarding the legal terms of the transaction and its obligations in
considering the proposed transaction, and with its financial advisors
regarding the financial aspects of the proposed transaction, as well as with
management of OEC, and, without assigning any relative or specific weights,
considered a number of general factors, both from a short-term and a long-term
perspective, including the following:
(i) OEC's business, financial condition, results of operations and
prospects, including, but not limited to, its potential growth,
development, productivity and profitability and the business risks
associated therewith;
(ii) the current and prospective environment in which OEC operates,
including international and local economic conditions and competitive
factors in the distributed computing software market;
(iii) risks associated with remaining independent given recent
transitions in OEC's management, particularly at a time when it appeared
that adjustments in OEC's sales and distribution model would be required in
order to achieve anticipated results;
(iv) certain convergent business goals and requirements of the two
companies, including product migration to the Internet and Borland's
product migration to the client/server environment from the desktop
environment;
(v) certain technological synergies which could result from combining in
one product suite Borland's high-performance, rapid application desktop
development tools with OEC's highly scalable, multi-tier client/server
solutions for use within an enterprise or on the Internet;
(vi) the research and development benefits to OEC of the economies of a
larger-scale combined enterprise;
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(vii) the fact that the combined entity would have extensive product
offerings, distribution and support services, making it a more effective
competitor in the market place; and
(viii) information concerning the business, financial condition, results
of operations and prospects of Borland, including the long-term growth
potential of Borland and the business risks associated therewith.
In making its determination, the OEC Board also consulted with management of
OEC, as well as its financial advisors and legal counsel, and considered a
number of specific factors relating to the Merger, including, without
limitation, the following:
(i) the fact that the Merger would provide holders of OEC Common Stock
with the option to retain an equity interest in the combined entity, having
a much larger market float and greater liquidity;
(ii) the likelihood of consummation of the Merger, including the limited
conditions to its consummation and limited circumstances under which the
Merger Agreement can be terminated;
(iii) the fact that the Merger Agreement permits the OEC Board
(conditioned upon the execution of a confidentiality agreement and receipt
of advice from its financial and legal advisors as set forth in the Merger
Agreement) to furnish confidential information to, and enter into
discussions and negotiations with, any party making an unsolicited offer to
merge with or acquire OEC;
(iv) the provisions of the Merger Agreement that require OEC to pay a
termination fee of $2.5 million, a review of the reasonableness of such fee
in light of the circumstances and a determination that the negative
features of the termination fee were outweighed by the benefits derived
from the Merger Agreement;
(v) the opportunity for OEC stockholders to vote on whether or not to
approve the Merger; and
(vi) the premium of between $.535 and $1.035 per share, with respect to
the high and low prices per share of OEC Common Stock, $4.25 and $3.75,
respectively, for a share of OEC Common Stock on the last full trading day
prior to the execution of the first amendment to the Merger Agreement,
assuming an average per share price of Borland Common Stock of $7.25, the
closing price per share of Borland Common Stock on such day.
The OEC Board also considered negative factors relating to the Merger,
including (i) the risks that the benefits sought in the Merger would not be
fully achieved; (ii) the risk that the Merger would not be consummated; (iii)
the effect of the announcement of the Merger and OEC's ability to attract and
retain key management, marketing and technical personnel; (iv) the possible
loss of revenue from other customers; and (v) the risks associated with the
business of Borland, including quarterly fluctuations and change in business
strategy, described under "Risk Factors" above.
After considering the opinion of DLJ to the effect that, from a financial
point of view, the Exchange Ratio is fair to such stockholders, and the
foregoing matters and such other matters as were deemed relevant, the OEC
Board unanimously approved the Merger and related transactions as being fair
to and in the best interests of OEC and its stockholders.
The foregoing discussion of the information and factors considered by the
OEC Board is not intended to be exhaustive, but is believed to include the
material factors the OEC Board considered. In addition, in reaching its
determination to approve and recommend the Merger, given the wide variety of
factors considered in connection with its evaluation of the proposed Merger,
the OEC Board did not find it practical to, and did not, quantify or otherwise
attempt to assign any relative or specific weights to the foregoing factors
and individual directors may not concur on which factors should have been
given greater weight.
OPINION OF FINANCIAL ADVISOR
The OEC Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience
in transactions similar to the Merger and is familiar with OEC, its businesses
and the networking software industry in general. In addition, as part of its
investment banking services, DLJ is regularly involved in the valuation of
businesses and securities in connection with mergers,
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acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
In its role as financial advisor to OEC, DLJ was asked to render its opinion
to the OEC Board as to the fairness, from a financial point of view, of the
Exchange Ratio to holders of OEC Common Stock. On July 30, 1996, DLJ delivered
its oral opinion to the OEC Board, which was confirmed by its written opinion
to the Board of Directors dated as of July 30, 1996 (the "DLJ Opinion"), that
the Exchange Ratio was fair, from a financial point of view, to the holders of
OEC Common Stock.
OEC recently elected to restate its financial statements for certain prior
periods with respect to certain matters (see "The Companies--Open Environment
Corporation--Management's Discussion and Analysis of Financial Condition and
Results of Operations") and DLJ has advised OEC that such restatements have
not caused it to withdraw the DLJ Opinion.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX B. OEC STOCKHOLDERS
ARE URGED TO READ CAREFULLY THE DLJ OPINION IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW
BY DLJ. THE SUMMARY OF THE OPINION OF DLJ SET FORTH IN THIS PROSPECTUS/PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
The DLJ opinion was prepared for the OEC Board and is directed only to the
fairness of the Exchange Ratio, from a financial point of view, to the holders
of OEC Common Stock and does not constitute a recommendation to any
stockholder of OEC as to how to vote with regard to the Merger.
The DLJ Opinion does not constitute an opinion as to the prices at which
Borland Common Stock will actually trade at any time. The Exchange Ratio was
determined by negotiations between OEC and Borland, not DLJ. No restrictions
or limitations were imposed by the OEC Board upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering its
opinion. DLJ was not requested to, nor did DLJ, solicit the interest of any
other party in acquiring OEC.
In arriving at its opinion, DLJ reviewed the Merger Agreement, and certain
financial and other information that was publicly available or furnished to it
by OEC and Borland, including information provided during discussions with
their respective managements. In addition, DLJ reviewed the historical stock
prices and trading volumes of the common stock of OEC and Borland, reviewed
the capitalization, cash position and financial condition of OEC and Borland,
reviewed the relative contributions of OEC and Borland to selected pro forma
financial data of the combined company, reviewed prices paid in other business
combinations, and conducted such other financial studies, analyses and
investigations as it deemed appropriate for purposes of its opinion.
In rendering its opinion, DLJ assumed and relied upon the accuracy,
completeness and fairness of all of the financial and other information that
was available to DLJ from public sources, or provided to DLJ by OEC and
Borland or their respective representatives. With respect to financial
projections supplied to DLJ, DLJ assumed that they had been prepared on a
basis reflecting the best currently available estimates and judgments of the
respective managements of OEC and Borland as to the future operating and
financial performance of OEC and Borland. DLJ did not assume any
responsibility for independent evaluation or appraisal of OEC's assets or
liabilities. DLJ relied on advice of counsel to OEC as to all legal matters
relating to the Merger Agreement. DLJ also assumed that the Merger would
qualify as a reorganization within the meaning of Section 368(a) of the Code
and that, for accounting purposes, the Merger would be treated as a pooling of
interests under GAAP.
The DLJ Opinion was necessarily based on economic, market, financial and
other conditions as they existed on the date of the DLJ Opinion, and on the
information made available to DLJ as of such date. It should be understood
that, although subsequent developments may affect its opinion, DLJ does not
have any obligation to update, revise or reaffirm the DLJ Opinion except as
may be requested by OEC pursuant to its engagement letter with DLJ.
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The following is a summary of the supporting analyses conducted by DLJ in
connection with its presentation to the OEC Board on July 30, 1996:
Transaction Analyses. DLJ reviewed publicly available information for
selected transactions involving the combination or acquisition of companies in
the networking software industry. The selected transactions DLJ focused on in
the networking software industry were the acquisitions of Tivoli Systems, Inc.
by IBM Corporation, Lotus Development Corporation by IBM Corporation, Saber
Software Corporation by McAfee Associates, Inc., Legent Corporation by
Computer Associates, Trinzic Corporation by PLATINUM technology, inc., Easel
Corporation by VMARK Software, Inc., Powersoft Corporation by Sybase, Inc.,
KnowledgeWare Inc. by Sterling Software Inc., Central Point Software Inc. by
Symantec Corp., Uniface Holding B.V. by Compuware Corporation, Systems Center,
Inc. by Sterling Software, Inc. and Digitalk, Inc. by ParcPlace Systems, Inc.,
each of which involved companies which conduct operations similar to OEC (the
"Selected Transactions"). These acquisitions were viewed as most relevant to
the business of OEC and do not necessarily represent a complete list of
transactions. In conducting its review, DLJ also separately applied its
analysis to three of the twelve selected transactions that DLJ believed
represented acquisitions of distressed companies (the "Distressed
Transactions"). These Distressed Transactions were the acquisition of Easel
Corporation by VMARK Software, Inc., KnowledgeWare Inc. by Sterling Software
Inc. and Digitalk, Inc. by ParcPlace Systems, Inc.
DLJ reviewed the consideration paid in such transactions in terms of the
price paid for the common stock ("Equity Purchase Price"), plus total debt
less cash and equivalents ("Total Transaction Value"), of such transactions as
a multiple of revenues, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and earnings before interest and taxes ("EBIT") for
the latest reported twelve months ("LTM") prior to the announcement of such
transactions. Additionally, DLJ reviewed the consideration paid in such
transactions in terms of the Equity Purchase Price of such transactions as a
multiple of net income for the LTM prior to the announcement of such
transactions.
The Total Transaction Value as a multiple of each of LTM revenues, EBITDA
and EBIT resulted in mean multiples for the Selected Transactions of 3.9x,
26.1x and 33.0x, respectively. The Equity Purchase Price as a multiple of LTM
earnings resulted in a mean multiple of 39.4x. DLJ also separately analyzed
the Total Transaction Value as a multiple of LTM revenues for the Distressed
Transactions. The mean LTM revenue multiple for such transactions was 1.5x.
DLJ derived the LTM revenue multiple for OEC by multiplying the per share
price of Borland Common Stock at July 29, 1996 by the product of the Exchange
Ratio and the fully diluted OEC shares outstanding (the "Implied Equity
Purchase Price") plus total debt less cash and equivalents (the "Implied Total
Transaction Value"). The Implied Total Transaction Value as a multiple of LTM
revenues resulted in a multiple of 1.3x and utilizing annualized OEC revenues
based on the first six months of fiscal 1996, a multiple of 2.1x. In light of
recent significant declines in OEC's financial performance and liquidity, DLJ
viewed the mean Distressed Transactions Multiple of 1.5x LTM revenues as most
relevant and such multiple was comparable to the multiple of LTM revenues for
the Merger described above.
No company or transaction used in the analysis described above was directly
comparable to OEC, Borland or the proposed transaction. Accordingly, an
analysis of the results of the foregoing is not simply mathematical nor
necessarily precise; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of companies
and other factors that could affect public trading values.
Stock Trading History. DLJ examined the history of the trading prices for
both OEC Common Stock and Borland Common Stock for the twelve months preceding
July 29, 1996. During this time period, the closing price range for OEC Common
Stock was $3.75 to $20.75 per share and the closing price range for Borland
Common Stock was $6.375 to $20.875 per share.
Contribution Analysis. DLJ analyzed OEC's and Borland's relative
contribution to the combined company with respect to historical and projected
revenues, EBITDA, gross profit and net income. Such analysis was considered in
both absolute dollar terms and on a percentage basis and was made for the
adjusted fiscal years ended March 31, 1994, 1995, 1996 and 1997 (estimated).
OEC shareholders would own, as a result of the
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Merger, 13.7% of the combined company determined on a fully diluted basis.
Such ownership compares to OEC's contribution to Borland pro forma results for
the adjusted fiscal year ended March 31, 1994, 1995, 1996 and 1997 (estimated)
and LTM which are as follows: 4%, 8%, 11%, 13% and 10% of revenues,
respectively; 3%, 7%, 10%, 10% and 8% of gross profit, respectively; (3)%,
(2)%, (.49)%, 18% and 61% of EBIT, respectively; and (2)%, (2)%, (41)%, 18%
and 79% of net income, respectively (except for 1996, EBIT and net income
percentages represent contribution percentage of losses rather than earnings).
The results of these contribution analyses are not necessarily indicative of
the contributions that the respective businesses may have in the future.
Negative contribution percentages to losses reflected above represent positive
earnings of OEC that partially offset pro forma combined losses of OEC and
Borland. The estimated financial information provided to DLJ in connection
with its analysis set forth above is subject to inherent uncertainty and
volatility in light of the financial situation of each of OEC and Borland and
the markets in which they operate. Such estimates were used solely for
comparative purposes in analyzing the potential relative contribution of each
entity to the companies' combined performance.
Exchange Ratio Analysis. DLJ reviewed and analyzed the historical ratio of
the daily closing prices of OEC Common Stock to Borland Common Stock for the
period February 9, 1996 through May 9, 1996. The average exchange ratios of
the daily closing price of one share of OEC Common Stock to one share of
Borland Common Stock during such period was 0.394, as compared to the Exchange
Ratio of 0.66.
In addition, DLJ also reviewed other factors and conducted other comparative
analyses, including a review of (i) OEC's cash and financial position,
including the substantial losses incurred by OEC in the fourth quarter of 1995
and the first six months of 1996 as well as OEC's declining historical and
projected cash balances and liquidity; (ii) the pro forma ownership of the
combined company and (iii) the historical trading prices of the OEC Common
Stock and Borland Common Stock and the relationship between movements of such
common stock and movements in the S&P 500 Index and Nasdaq Corporate indices.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized above, DLJ believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, may create an incomplete or
misleading view of the evaluation process underlying its opinion. In
performing its analyses, DLJ made numerous assumptions with respect to
industry performance, business and economic conditions and other matters. The
analyses performed by DLJ are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses.
Pursuant to the terms of an engagement letter dated March 7, 1996, OEC
agreed to pay DLJ $500,000 at the time DLJ notified the OEC Board that DLJ was
prepared to deliver its opinion, $50,000 for each additional or updated
opinion delivered by DLJ and an additional fee equal to the greater of
$1,250,000 or one percent (1.00%) of the aggregate consideration received by
OEC and/or its stockholders in the Merger (less amounts previously paid). OEC
also agreed to reimburse DLJ for all out-of-pocket expenses (including the
reasonable fees and expenses of counsel) incurred by DLJ in connection with
its engagement, and indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities laws.
In the ordinary course of business, DLJ may actively trade the securities of
both OEC and Borland 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. DLJ has, in the past, also provided investment banking services to
OEC, including acting as lead underwriter of OEC's initial public offering in
April 1995, and has received usual and customary fees for the rendering of
such services.
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THE BOARD OF DIRECTORS OF OEC UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
OF OEC VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND, AS
CONTEMPLATED THEREBY, APPROVAL OF THE MERGER.
BORLAND'S REASONS FOR THE MERGER
The Borland Board has determined that the Merger is in the best interests of
the stockholders of Borland because it furthers the strategic goals of
Borland, enhancing Borland's ability to sell to and support departmental
client/server developers and extending Borland's product offerings to include
enterprise scale development tools. Accordingly, the Borland Board believes
that the Merger could allow Borland to compete more effectively in the
client/server market. In reaching its determination, the Borland Board
considered certain factors, including the following:
(i) the business and financial prospects of a Borland/OEC combination,
including the size of the combined client/server business, the potential
operational benefits and the outlook for the respective businesses;
(ii) the expanded worldwide direct sales force and access to high-level
value added resellers and system integrators which results from a
Borland/OEC combination;
(iii) the strengthening of Borland's ability to offer world wide
client/server support and consulting;
(iv) the technological synergy between the products offered by the two
companies;
(v) the outlook of the client/server software industry generally;
(vi) the structure of the Merger, the terms of the Merger Agreement and
the Exchange Ratio, which were the result of arms-length negotiations
between Borland and OEC; and
(vii) the recent and historical market prices of Borland Common Stock and
OEC Common Stock.
In considering the proposed transaction, the Borland Board also realized
that there were certain risks associated with the Merger, including that the
potential benefits set forth above may not be realized or that there may be
high costs associated with realizing such benefits, including the factors set
forth under "Risk Factors" and the potential dilutive effects of the issuance
of additional shares of Borland Common Stock in connection with the Merger.
The Borland Board re-evaluated the desirability of the Merger in light of
the resignation of Mr. Wetsel, Borland's results for the quarter ended June
30, 1996 and the declining market price for the Borland Common Stock. However,
the Borland Board believed that the primary reason for the Merger is the
perceived long term strategic value as opposed to near term financial results
and that such reason remained valid. Further, the Borland Board believed that
the amendment to the terms of the Merger Agreement to fix the Exchange Ratio
at .66 shares of Borland Common Stock for each share of OEC Common Stock
represented an appropriate adjustment in the terms of the Merger based upon
the developments regarding both companies subsequent to the original execution
of the Merger Agreement. Factors considered by the Borland Board in analyzing
the proposed exchange ratio included, among others, the number of shares and
relative percentage of Borland Common Stock which would be issued to the OEC
stockholders under the original Merger Agreement if not modified (in excess of
8 million shares and 26% of the outstanding Borland Common Stock based upon
the then Borland stock price), the number of shares and relative percentage of
Borland Common Stock which would be issued to the OEC stockholders based upon
the amended Merger Agreement, uncertainties as to whether Borland could
exercise a right to terminate the Merger Agreement and the substantial
complications which would likely result from any attempt to do so and a
premium which the revised exchange ratio represented over trading prices for
OEC Common Stock on the last full trading day prior to the execution of the
amended Merger Agreement.
In determining that the Merger was fair to and in the best interest of
stockholders of Borland, the Borland Board considered the factors above as a
whole and did not assign specific or relative weights to such factors.
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EFFECTIVE TIME
If the Merger Agreement is approved and adopted by the requisite vote of the
stockholders of OEC and the other conditions to the Merger are satisfied or
waived (if legally permissible), the Merger will be consummated and effected
at the time a Certificate of Merger is filed with the Secretary of State of
the State of Delaware or at such later time as the parties to the Merger
Agreement agree to in writing and specify in such Certificate of Merger. The
Merger Agreement provides that Borland and OEC will cause the Effective Time
to occur as promptly as practicable, but in no event later than the third
business day (unless such other date is agreed to in writing by the parties to
the Merger Agreement) following the satisfaction or, if legally permissible,
waiver of all the conditions set forth in the Merger Agreement. The Merger
Agreement may be terminated prior to the Effective Time by either Borland or
OEC in certain circumstances, whether before or after approval and adoption of
the Merger Agreement by the stockholders of OEC. See "Certain Provisions of
the Merger Agreement--Termination."
TERMS OF THE MERGER
If the required stockholder approval is obtained and all other conditions to
the Merger are satisfied or waived, if legally permissible, then at the
Effective Time, Merger Subsidiary will be merged with and into OEC, with OEC
being the Surviving Corporation and the Certificate of Incorporation and
Bylaws of OEC will be amended automatically to conform with those of Merger
Subsidiary. In the Merger, each share of OEC Common Stock outstanding
immediately prior to the Effective Time (other than Cancelable Shares) will be
converted into the right to receive 0.66 of a share of Borland Common Stock.
No fractional shares of Borland Common Stock will be issued. OEC stockholders
will receive cash in lieu of any fractional shares they would have been
entitled to. See "Certain Provisions of the Merger Agreement--Exchange
Procedures." The Merger is structured as a tax-free reorganization to the
extent OEC stockholders receive shares of Borland Common Stock. See "The
Merger--Certain United States Federal Income Tax Consequences."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences of the Merger that are applicable to holders of OEC
Common Stock and is not intended to be a complete discussion of all potential
tax effects that might be relevant to a particular OEC stockholder in light of
its particular circumstances. Such discussion relates only to a citizen or
resident of the United States or a domestic corporation (a "U.S. Holder").
This summary assumes that the OEC Common Stock has been held as a capital
asset. It may not be applicable to certain classes of taxpayers, including,
without limitation, insurance companies, tax-exempt organizations, financial
institutions, securities dealers, broker-dealers, foreign persons, option
holders, persons who hold OEC Common Stock as part of a conversion transaction
and persons who acquired OEC Common Stock pursuant to the exercise of employee
stock options or rights or otherwise as compensation. Moreover, the state,
local and foreign income and any estate tax consequences to OEC stockholders
of the Merger are not discussed.
The following discussion is based upon Baker & McKenzie's and Hale and
Dorr's, counsel to Borland and OEC, respectively, interpretation of the Code,
applicable Treasury Regulations, judicial authority and administrative rulings
and practice, all as of the date hereof. The Internal Revenue Service (the
"IRS") is not precluded from adopting a contrary position. In addition, there
can be no assurance that future legislative, judicial or administrative
changes or interpretations will not adversely affect the accuracy of the
statements and conclusions set forth herein. Any changes or interpretations
could be applied retroactively and could affect the tax consequences of the
Merger to Borland, OEC and/or their respective stockholders.
EACH STOCKHOLDER IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S OWN TAX ADVISER
AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE TRANSACTIONS
DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL,
OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
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Subject to the limitations and qualifications referred to herein, the
companies' respective counsels have provided opinions to Borland and OEC that:
(a) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code (a "Reorganization") and each of Borland, Merger
Subsidiary, and OEC will be a party to the reorganization within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the holders of OEC Common Stock
upon the receipt of Borland Common Stock solely in exchange for such OEC
Common Stock in the Merger (except to the extent of cash received in lieu
of fractional shares);
(c) The aggregate tax basis of the Borland Common Stock received by OEC
stockholders in the Merger (including the basis of any fractional share of
Borland Common Stock for which cash is received) will be the same as the
aggregate tax basis of the OEC Common Stock surrendered in exchange
therefor;
(d) The holding period of the Borland Common Stock received by each OEC
stockholder in the Merger (including the holding period of any fractional
share of Borland Common Stock for which cash is received) will include the
period during which the OEC Common Stock surrendered in exchange therefor
was held, provided such OEC Common Stock is held as a capital asset at the
Effective Time;
(e) Cash received by holders of OEC Common Stock in lieu of fractional
shares of Borland Common Stock will be treated as received as a
distribution in redemption of such fractional shares, as if such fractional
shares of Borland Common Stock had been issued in the Merger and then
redeemed by Borland in a taxable transaction; and
(f) No gain or loss will be recognized by Borland, Merger Subsidiary or
OEC as a result of the Merger.
Neither Borland nor OEC has requested a ruling from the IRS in connection
with the Merger. However, it is a condition of the respective obligations of
Borland and OEC to consummate the Merger that such parties receive confirming
tax opinions from their respective legal counsel to the effect that for
federal income tax purposes the Merger will constitute a Reorganization. The
opinions to be rendered upon consummation of the Merger, which are
collectively referred to herein as the "Tax Opinions," neither bind the IRS
nor preclude the IRS from adopting a contrary position. The Tax Opinions will
be subject to certain assumptions and qualifications, based upon the truth and
accuracy of representations of Borland, OEC and Merger Subsidiary, including
representations by the respective management of Borland, OEC and Merger
Subsidiary, and by certain OEC shareholders, dated on or prior to the date of
this Prospectus/Proxy Statement.
A successful IRS challenge to the Reorganization status of the Merger would
result in an OEC stockholder recognizing gain or loss with respect to each
share of OEC Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value as of the
Effective Time of the Borland Common Stock received in the exchange therefor.
In such event, an OEC stockholder's aggregate basis in the Borland Common
Stock so received would equal its fair market value and the stockholders'
holding period for such stock would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Borland Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Common Stock of OEC). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that an
OEC stockholder was treated as receiving (directly or indirectly)
consideration other than Borland Common Stock in exchange for the OEC Common
Stock.
REGULATORY APPROVALS
Borland and OEC are aware of no government regulatory approvals required for
consummation of the Merger, other than compliance with federal and state
securities laws and the pre-merger notification provisions of the HSR Act.
Filings were made under the HSR Act by Borland and OEC with the Federal Trade
Commission and the Department of Justice Antitrust Division. On June 24, 1996,
early termination of the waiting period under the HSR Act was granted, thus
permitting the Merger to proceed pursuant to the HSR Act, subject to
stockholder approval and the other conditions described herein.
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Under the Merger Agreement, OEC, Borland and Merger Subsidiary have agreed
to use their best efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable law or required to be taken by any governmental authority or
otherwise to consummate and make effective the transactions contemplated by
the Merger Agreement as promptly as practicable, (ii) obtain from any
governmental authorities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Borland or OEC or
any of their subsidiaries in connection with the authorization, execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereunder, including, without limitation, the Merger, and (iii)
make, as promptly as practicable, all necessary filings, and thereafter make
any other required submissions, with respect to the Merger Agreement and the
Merger required under (a) the Securities Act and the Exchange Act, and any
other applicable federal or state securities laws, (b) the rules and
regulations of Nasdaq, (c) Delaware law, (d) the HSR Act and any related
governmental request thereunder, and (e) any other applicable law; provided
that Borland and OEC shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such documents
to the non-filing party and its advisors prior to filing and, if requested,
accepting all reasonable additions, deletions or changes suggested in
connection therewith. OEC and Borland have agreed to use reasonable best
efforts to furnish to each other all information required for any application
or other filing to be made pursuant to the rules and regulations of any
applicable law (including all information required to be included in this
Prospectus/Proxy Statement and the Registration Statement) in connection with
the transactions contemplated by the Merger Agreement.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned
upon receipt by Borland of an opinion letter from Price Waterhouse LLP, and
receipt by OEC of an opinion letter from Ernst & Young LLP, dated as of the
date on which the Registration Statement becomes effective and the Effective
Time, to the effect that the Merger qualifies for pooling-of-interests
accounting treatment if consummated in accordance with the Merger Agreement.
Under the pooling-of-interests method of accounting, OEC's historical
financial statements will be retroactively combined with those of Borland. See
"Pro Forma Unaudited Combined Condensed Financial Information."
The respective affiliates of Borland and OEC have each executed a written
agreement to the effect that such person will not transfer shares of OEC
Common Stock or Borland Common Stock during the period beginning on the date
of such agreement and ending on the date that Borland publishes financial
statements which reflect 30 days of combined operations of Borland and OEC
(which agreements relate to the ability of Borland to account for the Merger
as a pooling of interests).
NASDAQ LISTING
The shares of Borland Common Stock to be issued in connection with the
Merger will be listed on Nasdaq. Evidence from Nasdaq that the shares of
Borland Common Stock to be issued in connection with the Merger will be listed
on Nasdaq immediately following the Effective Time is a condition to the
consummation of the Merger. See "Certain Provisions of the Merger Agreement--
Conditions to the Consummation of the Merger."
EXCHANGE PROCEDURES
If the Merger becomes effective, a letter of transmittal will be mailed with
instructions to all holders of record of OEC Common Stock immediately prior to
the Merger for use in surrendering their stock certificates in exchange for
certificates representing shares of Borland Common Stock and a cash payment in
lieu of fractional shares, if any. STOCK CERTIFICATES SHOULD NOT BE
SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. See "Certain
Provisions of The Merger Agreement--Exchange Procedures."
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INTERESTS OF CERTAIN PERSONS; POSSIBLE CONFLICTS OF INTEREST
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of OEC with respect to the Merger
Agreement and the transactions contemplated thereby, stockholders should be
aware that certain members of the management of OEC and the OEC Board have
certain interests in the Merger that are in addition to the interests of the
stockholders of OEC generally (including, without limitation, the potential
receipt of severance and/or other employment benefits and payment for stock
options).
As of September 30, 1996, directors and executive officers of OEC and their
affiliates may be deemed to be beneficial owners of approximately 18.4% of the
outstanding shares of OEC Common Stock. See "The Companies--Open Environment
Corporation--Security Ownership of Certain Beneficial Owners and Management."
As of June 28, 1996, directors and executive officers of Borland and their
affiliates may be deemed to be beneficial owners of approximately 3.5% of the
outstanding shares of Borland Common Stock.
Employment Agreements. At the time he was hired by OEC, Mr. James J.
Driscoll, Vice President, Finance & Administration and Chief Financial Officer
of OEC, entered into an employment agreement with OEC which provides that all
options granted to Mr. Driscoll shall become exercisable upon the acquisition
of OEC. Mr. Driscoll currently holds options to purchase 70,000 shares of OEC
Common Stock at an exercise price of $5.00 per share, 43,750 of which are
currently exercisable. The remaining 26,250 shares with respect to which Mr.
Driscoll's options are not exercisable, become exercisable in equal
installments on November 1, 1996 and November 1, 1997. However, as a result of
the Merger, Mr. Driscoll's options shall become immediately exercisable as of
the date of the Merger.
Stock Options. Certain officers, employees, consultants and directors of OEC
hold options to purchase shares of OEC Common Stock. Under the Merger
Agreement, these options will remain outstanding following the Effective Time
and will be assumed by Borland. Each OEC option assumed by Borland will be
exercisable upon the same terms and conditions as under the applicable OEC
stock option plan and the applicable option agreement issued thereunder,
except that (i) each such OEC option will be exercisable for that whole number
of shares of Borland Common Stock (rounded down to the nearest whole share)
equal to the number of shares of OEC Common Stock subject to such OEC option
multiplied by the Exchange Ratio; (ii) the option price per share of Borland
Common Stock shall be an amount equal to the option price per share of OEC
Common Stock subject to the OEC option in effect immediately before the Merger
divided by the Exchange Ratio (rounded up to the nearest whole cent); and
(iii) with respect to any OEC option that is performance-based, the
performance targets may be adjusted following the Effective Time in the good
faith judgment of the Borland Board to fairly reflect the impact, if any, of
the transactions contemplated by the Merger Agreement. No payment shall be
made for fractional shares.
Director Stock Options. The provisions of the OEC 1995 Director Stock Option
Plan, and its predecessor, the 1994 Director Stock Option Plan (collectively,
the "Director Plans") provide that all outstanding options granted under such
plans shall, as of the date of the Merger, automatically become exercisable in
full whether or not they were previously exercisable. Messrs. Albert
Carnesale, Paul W. MacAvoy and E. Dennis Ross have been granted options under
the Director Plans to purchase 7,000 shares of OEC Common Stock at an exercise
price of $4.00 per share (3,500 of which are currently exercisable) and 1,050
shares at an exercise price of $7.63 per share (none of which are currently
exercisable); Mr. James Nondorf has been granted options under the Director
Plans to purchase 7,000 shares of OEC Common Stock at an exercise price of
$8.75 per share and 1,050 shares at an exercise price of $7.63 (none of which
are currently exercisable); and each of Messrs. James E. Cowie and John J.
Donovan, Sr. has been granted an option under one of the Director Plans to
purchase 1,050 shares of OEC Common Stock at an exercise price of $7.63 per
share (none of which are currently exercisable). The aforementioned options
that are not currently exercisable, become exercisable at various times over
the next four years. However, as a result of the Merger, all such options
shall become immediately exercisable as of the date of the Merger.
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Employee Stock Purchase Plan. OEC's 1995 Employee Stock Purchase Plan was
terminated as of the end of the offering period ending June 30, 1996.
Indemnification of Officers and Directors. Borland has agreed to provide
indemnification to current and former officers and directors of OEC with
respect to certain issues. For a discussion of Borland's agreement to provide
such indemnification, see "Certain Provisions of the Merger Agreement--
Indemnification of Directors and Officers."
RESTRICTIONS ON RESALES BY AFFILIATES
Borland has registered the shares of Borland Common Stock that the holders
of OEC Common Stock will be entitled to receive upon consummation of the
Merger under the Securities Act. OEC stockholders who are not deemed to be
"affiliates" of OEC may freely sell the shares of Borland Common Stock they
receive in the Merger. Stockholders of OEC who are deemed to be "affiliates"
of OEC may resell the shares of Borland Common Stock received in the Merger
(i) in transactions in compliance with Rule 145 under the Securities Act
("Rule 145"), (ii) pursuant to an effective registration statement under the
Securities Act or (iii) pursuant to any other exemption from registration
which may be available to such stockholder. Such stockholders may not use this
Prospectus/Proxy Statement to effect resales of the shares of Borland Common
Stock they receive.
Rule 145, as currently in effect, imposes restrictions on the manner in
which such affiliates may make resales and also on the volume of resales that
such affiliates, and others with whom they may act in concert, may make in any
three-month period. The term "affiliates" is defined in the Securities Act to
include any person who, directly or indirectly, controls, is controlled by, or
is under common control with, OEC at the time the Merger is submitted to a
vote of the stockholders of OEC. Borland has been advised by OEC that Andrew
L. Berman, Philip R. Copeland, James J. Driscoll, Robert A. Fisher, Roy G.
Hodgman, Adam C. Honig, Omar Hussain and Ram Sudama (each an OEC executive
officer), Albert Carnesale, James E. Cowie, John J. Donovan, Sr., Paul W.
MacAvoy, James Nondorf and E. Dennis Ross (each a director of OEC), and the
Principal Stockholders may be deemed "affiliates" of OEC for purposes of the
Securities Act. Pursuant to the Merger Agreement, OEC has agreed to use all
commercially reasonable efforts to cause each such person to deliver an
affiliates' agreement to Borland on or prior to the Effective Time in
substantially the form attached as an exhibit to the Merger Agreement.
MANAGEMENT OF OEC AFTER THE MERGER
Pursuant to the Merger Agreement, upon the consummation of the Merger, the
officers and directors of Merger Subsidiary immediately prior to the Effective
Time will be the initial officers and directors of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed
and qualified, or as otherwise provided in the Certificate of Incorporation
and Bylaws of the Surviving Corporation.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement not summarized elsewhere in this Prospectus/Proxy Statement. The
Merger Agreement is attached as Appendix A-1, A-2 and A-3 to this
Prospectus/Proxy Statement and is incorporated herein by reference.
EXCHANGE PROCEDURES
The Merger Agreement provides that as of or before the Effective Time,
Borland will deposit or cause to be deposited, with a bank or trust company
organized under the laws of, and having an office in, the United States or any
state thereof and designated by Borland (the "Exchange Agent"), for the
benefit of the holders of OEC Common Stock, for exchange in accordance with
the Merger Agreement, through the Exchange Agent,(i) certificates evidencing
the number of whole shares of Borland Common Stock issuable in exchange for
outstanding OEC Common Stock and (ii) cash in an amount sufficient to permit
payment of cash payable in lieu of fractional shares (such certificates and
cash, the "Exchange Fund"). The Exchange Agent will, pursuant to irrevocable
instructions from Borland, deliver the shares of Borland Common Stock and cash
out of the Exchange Fund to the holders of OEC Common Stock.
As soon as reasonably practicable after the Effective Time, Borland will
instruct the Exchange Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time evidenced
outstanding shares of OEC Common Stock (other than Cancelable Shares) (the
"Certificates") (i) a letter of transmittal and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
evidencing shares of Borland Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant
to such instructions, the holder of such Certificate will be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Borland Common Stock which such holder has the right to receive in
respect of the shares of OEC Common Stock formerly represented by such
Certificate (after taking into account all shares of OEC Common Stock then
held by such holder), together with cash in lieu of fractional shares of
Borland Common Stock to which such holder is entitled and any dividends or
distributions to which such holder is entitled, and the Certificate so
surrendered shall be canceled. Under no circumstances will any holder of a
Certificate (except for certain lost, stolen, or destroyed Certificates) be
entitled to receive any part of the shares of Borland Common Stock into which
the shares of OEC Common Stock were converted in the Merger until such holder
shall have surrendered such Certificate. In the event of a transfer of
ownership of shares of OEC Common Stock which is not registered in the
transfer records of OEC, the shares of Borland Common Stock into which the OEC
Common Stock were converted in the Merger may be issued to the transferee if
the Certificate evidencing such shares of OEC Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until so surrendered, each Certificate will be deemed at any time
after the Effective Time to evidence only the right to receive upon such
surrender the certificate representing the number of whole shares of Borland
Common Stock which such holder has the right to receive in respect of the
shares of OEC Common Stock formerly represented by such Certificate (after
taking into account all shares of OEC Common Stock then held by such holder),
together with cash in lieu of fractional shares of Borland Common Stock to
which such holder is entitled and any dividends or distributions to which such
holder is entitled. HOLDERS OF OEC COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OR TRANSMITTAL FROM THE EXCHANGE
AGENT.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Borland 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 Borland Common Stock into which such shares of
OEC Common Stock were converted in the Merger, until the holder of such
Certificate shall surrender such Certificate for exchange as provided in the
Merger Agreement. Subject to the effect of applicable laws, following
surrender of any such Certificate, there will be paid to the holder of such
Certificate, in addition to the whole shares of Borland Common Stock to which
such holder is entitled, without interest, the amount of dividends or other
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<PAGE>
distributions with a record date after the Effective Time theretofore paid
with respect to the whole shares of Borland Common Stock evidenced by such
Certificate and any cash which may be payable in lieu of a fractional share of
Borland Common Stock.
All shares of Borland Common Stock issued upon conversion of the shares of
OEC Common Stock in accordance with the terms of the Merger Agreement
(including any cash paid or other distributions) will be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of OEC
Common Stock.
Neither Borland, the Exchange Agent nor the Surviving Corporation will be
liable to any holder of shares of OEC Common Stock for any shares of Borland
Common Stock or cash (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
If any Certificate has been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Borland Common
Stock, and unpaid dividends and distributions on shares of Borland Common
Stock deliverable in respect thereof pursuant to the Merger Agreement and any
cash which may be payable in lieu of a fractional share of Borland Common
Stock.
At the Effective Time, the stock transfer books of OEC will be closed and
there will be no further registration of transfers of shares of OEC Common
Stock thereafter on the records of OEC. At or after the Effective Time, any
Certificates presented to the Exchange Agent or Borland for any reason will be
converted into the shares of Borland Common Stock, cash in lieu of fractional
shares of Borland Common Stock and any dividends or other distributions to
which they are entitled.
No certificates or scrip evidencing fractional shares of Borland Common
Stock will be issued, but in lieu thereof each holder of shares of OEC Common
Stock who would otherwise be entitled to receive a fraction of a share of
Borland Common Stock, after aggregating all shares of Borland Common Stock
which such holder would be otherwise entitled to receive, will receive an
amount equal to the Average Trading Price (as defined below) multiplied by the
fraction of a share of Borland Common Stock to which such holder would
otherwise be entitled, without interest.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Borland, the Merger Subsidiary and OEC relating to, among other things, the
following matters (which representations and warranties are subject, in
certain cases, to specified exceptions and generally apply only to facts and
circumstances existing as of the date of the Merger Agreement): (i) the due
organization, valid existence, good standing, power, and authority of, and
necessary governmental approvals secured by, and similar corporate matters
with respect to, each of Borland, OEC, Merger Subsidiary, and their
subsidiaries; (ii) the delivery of, and absence of violation of, the
Certificate of Incorporation and Bylaws or equivalent organizational documents
(collectively, "Organizational Documents") of each of Borland, OEC, Merger
Subsidiary, and their subsidiaries; (iii) the capital structure of each of
Borland, OEC, Merger Subsidiary, and their subsidiaries; (iv) the power and
authority of each of the parties to the Merger Agreement to execute the Merger
Agreement and to perform its obligations thereunder, and its due
authorization, execution, delivery, and validity; (v) the absence of conflict
with the Organizational Documents, with domestic or foreign laws, rules,
regulations, orders, judgments, or decrees, and with notes, bonds, indentures,
mortgages, contracts, agreements, permits, leases, licenses, franchises, and
other instruments or obligations; (vi) the absence of certain governmental
consent, approval, authorization, permit, notification, and filing
requirements; (vii) the possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals, and orders of any governmental authority necessary to carry on the
business of OEC and its subsidiaries; (viii) reports and other documents filed
with the Commission
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<PAGE>
and the accuracy of the information contained therein; (ix) the absence of
certain changes or events prior to the date of the Merger Agreement having a
material adverse effect on OEC, Borland, Merger Subsidiary or their
subsidiaries; (x) the absence of certain pending or threatened litigation
against OEC or Borland or their subsidiaries; (xi) the existence and content
of employee benefit plans, employment contracts, and severance agreements of
OEC; (xii) the absence of any collective bargaining agreement or other labor
union contract applicable to OEC; (xiii) the intellectual property rights
used, employed, exploited, or licensed by OEC; (xiv) timeliness and
completeness of tax filings, payments, and accruals by Borland, its
subsidiaries and OEC; (xv) the absence of actions by Borland, its subsidiaries
and OEC which would prevent the Merger from qualifying as a reorganization
under Section 368(a) of the Code; (xvi) certain environmental matters relating
to OEC; (xvii) certain matters relating to OEC's products; (xviii) certain
agreements, contracts and commitments of Borland; (xix) the ownership of
Merger Subsidiary; (xx) the engagement and opinion of DLJ; (xxi) the vote
required by stockholders of OEC; (xxii) the existence or absence of brokers',
finders', or investment bankers' fees incurred by OEC, Borland, and the Merger
Subsidiary; (xxiii) the validity of OEC's and its subsidiaries' title and
interest in properties and assets; (xxiv) the validity and enforceability of
all material contracts to which OEC or any subsidiary is a party; (xxv) the
absence of "parachute payments" by OEC; (xxvi) the absence of certain unlawful
business practices by OEC, and its officers, directors, agents, and employees;
(xxvii) real property leased by OEC; (xxviii) insurance policies of OEC;
(xxix) certain accounting and tax matters; (xxx) the recommendation of the
Merger by the Board of Directors of OEC; (xxxi) contractual or other
provisions relating to "changes in control" or similar occurrences; (xxxii)
the interest of any OEC officer or director, or any of their affiliates or
associates, in any person or entity that does business with OEC or any of its
subsidiaries, or in any contract or agreement to which OEC or any of its
subsidiaries is a party, or in any real or personal property used in the
business of OEC or its subsidiaries, (xxxiii) the absence of any untrue
statement of a material fact, or omission to state a material fact in OEC's
representations and warranties in the Merger Agreement; (xxxiv) relating to
the shares of Borland Common Stock to be issued in exchange for shares of OEC
Common Stock.
CONDUCT OF BUSINESS PENDING THE MERGER
OEC has agreed that, between the date of the Merger Agreement and the
Effective Time, except for certain transactions previously disclosed to
Borland or as contemplated by the Merger Agreement, unless Borland otherwise
agrees in writing (which agreement may not be unreasonably withheld or
delayed), (i) the business of OEC will be conducted only in, and OEC will not
take any action except in, the ordinary course of business consistent with
past practice, (ii) it will use all reasonable efforts to preserve
substantially intact its business organization, to keep available the services
of the current officers, employees and consultants of OEC and to preserve the
current relationships of OEC with customers, suppliers and other persons with
which OEC has significant business relations, (iii) it will not, engage in any
practice, take any action, or enter into any of a number of enumerated
transactions relating to (a) the amendment of its Organizational Documents;
(b) issuance of securities; (c) declaration of dividends; (d) reclassification
of capital stock; (e) acquisitions of interests in business organizations; (f)
acquisitions of technology; (g) incurrence of indebtedness; (h) contracts not
in the ordinary course of business; (i) certain capital expenditures; (j)
related party transactions (k) compensation arrangements; (l) settlement of
litigation; and (m) the granting of intellectual property rights not in the
ordinary course of business; and (iv) OEC and each of its subsidiaries will
cause to be maintained in full force and effect, and without modification or
amendment, or any lapse of coverage under, all existing insurance policies.
Borland has agreed that, between the date of the Merger Agreement and the
Effective Time, except as previously disclosed to OEC or as contemplated by
the Merger Agreement, unless OEC otherwise agrees in writing (which agreement
may not be unreasonably withheld or delayed), (i) the business of Borland and
each of its subsidiaries will be conducted only in, and Borland will not, and
will cause its subsidiaries not to, take any action except, in the ordinary
course of business consistent with past practice and (ii) it will not amend
any of the terms or provisions of its Common Stock.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that OEC will not, directly or indirectly,
through any officer, director, agent or otherwise, solicit, initiate or
encourage the submission of any proposal or offer from any person relating
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to (i) any acquisition or purchase of all or any material portion of the
assets of, or any equity interest in, OEC or (ii) any merger, consolidation,
share exchange, business combination or other similar transaction with OEC, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing with any person other than Borland.
However, the Merger Agreement does not prohibit the OEC Board from furnishing
information to, or discussing or negotiating with, any person in connection
with an unsolicited proposal in writing by such person to acquire OEC, if and
only to the extent that (i) the OEC Board determines that such action is
required in order for the OEC Board not to breach its fiduciary duties to the
OEC stockholders, (ii) OEC gives Borland prior written notice of OEC's
intention to furnish such information or begin such discussions, and (iii) OEC
receives from such person an executed confidentiality agreement on terms no
less favorable to OEC than those contained in OEC's confidentiality agreement
with Borland.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Merger Agreement, Borland has agreed for a period of five years
after the Effective Time to preserve the assets of OEC or otherwise to provide
sufficient assets to OEC to enable OEC to adequately indemnify the present or
former officers and directors of OEC for acts prior to the Effective Time.
Borland further agreed that all rights to indemnification, including, without
limitation, provisions relating to the advances of expenses incurred in
defense of any action or suit, existing in favor of the present or former
directors and officers of OEC (collectively, the "Indemnified Parties"), as
provided in OEC's Organizational Documents or pursuant to any other agreements
or similar documents, as in effect on the date of the Merger Agreement, with
respect to matters occurring through the Effective Time, would survive the
Merger and the Merger Agreement and, would continue in force and effect for a
period of five years from the Effective Time and that all rights to
indemnification in respect of any and all claims ("Claim") asserted or made
within such period would continue until the disposition of such Claim. Borland
further agreed to maintain in effect for not less than three years after the
Effective Time the current policies of directors' liability insurance and
fiduciary liability insurance maintained by OEC with respect to matters
occurring prior to the Effective Time; provided, however, that (i) Borland may
substitute therefor policies of substantially the same or better coverage
containing terms and conditions which are not less advantageous in any
material respect to the Indemnified Parties; (ii) Borland may not be required
to pay any annual premium for such insurance in excess of 125% of the premium
in effect immediately prior to the Effective Time; and (iii) Borland will be
entitled to control all negotiations with applicable brokers and insurers.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The Merger Agreement provides that the obligations of OEC, Borland and
Merger Subsidiary to consummate the Merger are subject to the satisfaction of
the following conditions: (i) the Merger Agreement and the transactions
contemplated thereby must have been approved and adopted by the affirmative
vote of the stockholders of OEC in accordance with Delaware Law, OEC's
Organizational Documents and the rules of the National Association of
Securities Dealers; (ii) no governmental authority, regulatory authority, or
court may have enacted, issued, promulgated, enforced or entered any order,
executive order, stay, decree, judgment, injunction, statute, rule or
regulation which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger; (iii) the
Registration Statement must have been declared effective, and no stop order
suspending the effectiveness of the Registration Statement shall be in effect;
(iv) Borland and OEC must have received from Nasdaq evidence that the shares
of Borland Common Stock to be issued to the stockholders of OEC in the Merger
shall be quoted on Nasdaq immediately following the Effective Time; (v) any
applicable waiting period under the HSR Act relating to the Merger must have
expired or been terminated; and (vi) Borland and OEC must have received
certain opinions from Baker & McKenzie, Hale and Dorr, Price Waterhouse LLP
and Ernst & Young LLP.
Under the Merger Agreement, the obligations of Borland and Merger Subsidiary
to consummate the Merger are subject to the satisfaction of further
conditions, including the following: (i) OEC must have performed or
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<PAGE>
complied in all material respects with all agreements and covenants required
by the Merger Agreement and each of the representations and warranties of OEC
contained in the Merger Agreement must be true and correct in all material
respects; (ii) Borland must have received from each affiliate of OEC and any
other person who may be deemed to have become an affiliate of OEC (under Rule
145 under the Securities Act or otherwise under applicable accounting releases
from the Commission with respect to pooling-of-interests accounting treatment)
after the date of the Merger Agreement and at or prior to the Effective Time a
signed affiliate agreement; (iii) since the date of the Merger Agreement, no
material adverse change in the financial condition, results of operations or
business of OEC and its subsidiaries, taken as a whole, may have occurred,
unless such effect results from an item expressly disclosed to Borland or is
directly attributable to reactions of customers or employees to the
announcement of the Merger or a material economic downturn or is attributable
to a decline in the financial performance of OEC; (iv) Borland shall have
received from OEC "cold comfort" letters of Ernst & Young LLP in connection
with the procedures undertaken by Ernst & Young LLP with respect to OEC's
financial statements contained in the Registration Statement; (v) OEC shall
have used its best efforts to keep certain specifically identified individuals
as employees of OEC and to secure the commitment of such employees to remain
as employees of the Surviving Corporation after the Merger; (vi) OEC shall
have used all commercially reasonable efforts to preserve substantially intact
its business, organization, employees, and all relationships with customers
and suppliers with which OEC has or anticipates having significant business
relations; (vii) Borland and OEC shall have received all necessary or
appropriate permits, authorizations, consents or waivers; and (viii) Borland
shall have received an opinion letter from Hale and Dorr dated the closing
date, regarding OEC.
Under the Merger Agreement, the obligations of OEC to consummate the Merger
are subject to the satisfaction of further conditions, including the
following: (i) Borland and Merger Subsidiary must have performed or complied
in all material respects with all agreements and covenants required by the
Merger Agreement and each of the representations and warranties of Borland and
Merger Subsidiary contained in the Merger Agreement must be true and correct
in all material respects; (ii) DLJ shall not have withdrawn, or modified in
any material adverse respect, its fairness opinion dated as of July 30, 1996;
(iii) OEC shall have received from Borland "cold comfort" letters of Price
Waterhouse LLP in connection with the procedures undertaken by Price
Waterhouse LLP with respect to Borland's financial statements contained or
incorporated by reference in the Registration Statement and other financial
information contained in the Registration Statement; (iv) OEC must have
received from each affiliate of Borland and any other person who may be deemed
to have become an affiliate of Borland (under Rule 145 under the Securities
Act or otherwise under applicable accounting releases from the Commission with
respect to pooling-of-interests accounting treatment) after the date of the
Merger Agreement and at or prior to the Effective Time a signed affiliate
agreement; (v) Borland and OEC shall have received all necessary or
appropriate permits, authorizations, consents or waivers; and (vi) OEC shall
have received an opinion letter from Baker & McKenzie dated the closing date,
regarding Borland.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger and
the other transactions contemplated by the Merger Agreement may be abandoned
at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of the Merger Agreement and the transactions
contemplated thereby, as follows: (i) by mutual written consent duly
authorized by the OEC Board and the Borland Board and the Board of Directors
of Merger Subsidiary; (ii) by either Borland or OEC, if either the Effective
Time has not occurred on or before November 25, 1996 (provided, however, that
the right to terminate the Merger Agreement described in this clause (ii) will
not be available to any party whose failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date) or there is any order which is
final and nonappealable preventing the consummation of the Merger, except if
the party relying on such order has not complied with its obligations relating
to obtaining any consents, licenses, permits, waivers, approvals,
authorizations, or orders required to be obtained from governmental
authorities in connection with the Merger Agreement (see "The Merger--
Regulatory Approvals"); (iii) by Borland, if (a) an OEC Board withdraws its
recommendation for the Merger or has resolved to do so, (b) OEC Board has
recommended another Merger to its stockholders or has resolved to do so, or
(c) a tender offer or
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exchange offer for 50% or more of the outstanding shares of capital stock of
OEC is commenced, and the OEC Board has failed to recommend against the
stockholders of OEC tendering their shares into such tender offer or exchange
offer; (iv) by Borland, if the stockholders of OEC fail to approve and adopt
the Merger Agreement, the Merger and the transactions contemplated by the
Merger Agreement at a meeting duly convened therefor; (v) by Borland, upon a
breach of any representation, warranty, covenant or agreement on the part of
OEC set forth in the Merger Agreement, or if any representation or warranty of
OEC has become untrue, in either case such that the conditions to the
consummation of the Merger would not be satisfied (a "Terminating OEC Breach")
(provided, however, that, if such Terminating OEC Breach is curable by OEC
through the exercise of its best efforts and for so long as OEC continues to
exercise such best efforts, Borland may not terminate the Merger Agreement as
provided in this clause (v)); (vi) by OEC, upon breach of any representation,
warranty, covenant or agreement on the part of Borland set forth in the Merger
Agreement, or if any representation or warranty of Borland has become untrue,
in either case such that the conditions to the consummation of the Merger
would not be satisfied (a "Terminating Borland Breach") (provided, however,
that, if such Terminating Borland Breach is curable by Borland through the
exercise of its best efforts and for so long as Borland continues to exercise
such best efforts, OEC may not terminate the Merger Agreement as provided in
this clause (vi)); or (vii) by OEC, if in the exercise of its good faith
judgment as to its fiduciary duties to its stockholders under applicable law,
the OEC Board determines that such termination of the Merger Agreement is
required by such fiduciary duties (provided that any termination pursuant to
this clause (vii) will not become effective until OEC has paid the full fee as
described in the next paragraph).
ALTERNATIVE PROPOSAL FEE; EXPENSES; DAMAGES
The Merger Agreement provides that OEC will pay Borland the Alternative
Proposal Fee of $2.5 million, which amount is inclusive of all of Borland's
expenses related to the Merger Agreement, if the Merger Agreement is
terminated as described in clauses (iii) or (vii) in the immediately preceding
paragraph, or if the Merger Agreement is terminated as described in clause
(iv) in the immediately preceding paragraph as a result of the failure of the
stockholders of OEC to approve the Merger and a proposal concerning certain
business combination transactions has been made prior to such termination and
any such business combination is thereafter consummated within 18 months of
such termination.
Under the Merger Agreement, Borland will be entitled to receive its expenses
(but not the Alternative Proposal Fee) in the event that the Merger Agreement
is terminated by Borland as described in clause (ii) in the second preceding
paragraph (subject to the proviso thereof) or as described in clause (v) in
the second preceding paragraph. Similarly, OEC will be entitled to receive its
expenses if the Merger Agreement is terminated by OEC as described in clause
(ii) or clause (vi) in the second preceding paragraph.
The Merger Agreement provides that no termination of the Merger Agreement as
a result of the matters as described in clauses (v) or (vi) in the third
preceding paragraph, shall prejudice the ability of a non-breaching party from
seeking damages from any other party for any breach of the Merger Agreement,
including, without limitation, attorneys' fees and the right to pursue any
remedy at law or in equity.
The Merger Agreement provides that, except as set forth above and in the
sections of the Merger Agreement relating to the preparation of the
Registration Statement, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby will be paid by the
party incurring such expenses, whether or not any such transaction is
consummated, except that Borland will pay all filing fees required in
connection with any HSR filings.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to
the Effective Time. However, after the approval and adoption of the Merger
Agreement and the transactions contemplated thereby by the stockholders of
OEC, no amendment may be made which would reduce the amount or change the type
of consideration into which each share of OEC Common Stock is to be converted
upon consummation of the Merger.
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The Merger Agreement also provides that, at any time prior to the Effective
Time, any party thereto may (i) extend the time for the performance of any
obligation or other act of any other party thereto, (ii) waive any inaccuracy
in the representations and warranties contained therein or in any document
delivered pursuant thereto and (iii) waive compliance with any agreement or
condition contained therein.
EFFECT OF THE MERGER ON STOCK OPTIONS
Under the Merger Agreement, all OEC Options will remain outstanding
following the Effective Time and will be assumed by Borland. Each OEC option
assumed by Borland will be exercisable upon the same terms and conditions as
under the applicable OEC stock option plan and the applicable option agreement
issued thereunder, except that (i) each such OEC option will be exercisable
for the whole number of shares of Borland Common Stock (rounded down to the
nearest whole share) equal to the number of shares of OEC Common Stock subject
to such OEC option multiplied by the Exchange Ratio; (ii) the option price per
share of Borland Common Stock shall be an amount equal to the option price per
share of OEC Common Stock subject to the OEC option in effect immediately
before the Merger divided by the Exchange Ratio (rounded up to the nearest
whole cent); and (iii) with respect to any OEC option that is performance-
based, the performance targets may be adjusted following the Effective Time in
the good faith judgment of the Borland Board to fairly reflect the impact, if
any, of the transactions contemplated by the Merger Agreement. No payment
shall be made for fractional interests. See "The Merger--Interests of Certain
Persons; Possible Conflicts of Interest" for information relating to the
acceleration of the vesting provisions of options held by OEC directors upon
consummation of the Merger.
The following table sets forth, as of June 30, 1996, with respect to the
executive officers and directors of OEC, the number of shares of OEC Common
Stock subject to OEC Options that are held by such officer or director:
<TABLE>
<CAPTION>
NUMBER OF
SHARES SUBJECT
NAME TO OPTIONS
---- --------------
<S> <C>
Philip R. Copeland.......................................... 10,000
Andrew L. Berman............................................ 60,000
James J. Driscoll........................................... 70,000
Robert A. Fisher............................................ 35,000
Roy G. Hodgman.............................................. 48,500
Adam C. Honig............................................... 52,500
Omar Hussain................................................ 48,500
Ram Sudama.................................................. 52,500
Albert Carnesale............................................ 8,050
James E. Cowie.............................................. 1,050
John J. Donovan, Sr. ....................................... 1,050
Paul W. MacAvoy............................................. 8,050
James Nondorf............................................... 25,581
E. Dennis Ross.............................................. 8,050
</TABLE>
EFFECT OF THE MERGER ON CERTAIN BENEFIT PLANS
OEC's 1995 Employee Stock Purchase Plan was terminated in accordance with
its terms as of the end of the offering period ended June 30, 1996.
Pursuant to the Merger Agreement, before the consummation of the Merger, OEC
shall have used its best efforts to keep certain individuals as employees of
OEC and to secure the commitment of such employees to remain as employees of
the Surviving Corporation after the Merger.
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PRINCIPAL STOCKHOLDER AGREEMENTS
VOTING AND PROXY
Borland has entered into the Principal Stockholder Agreements with the
Principal Stockholders, which beneficially own approximately 33% of the
outstanding shares of OEC Common Stock, a copy of the form of which is
attached to this Prospectus/Proxy Statement as Appendix C. Pursuant to the
terms of the Principal Stockholder Agreements, each of the Principal
Stockholders has agreed to vote, and has granted a proxy to allow Borland to
vote, its Principal Stockholder Shares (i) in favor of the Merger and the
Merger Agreement, and (ii) against any proposal for any recapitalization,
merger (other than the Merger), sale of assets or other business combination
between OEC and any person or entity (other than Borland or Merger Subsidiary)
or any other action or agreement that Borland notifies the Principal
Stockholder in writing before any vote would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
OEC under the Merger Agreement or which could result in any of the conditions
to the Merger Agreement not being fulfilled. Borland and Merger Subsidiary
intend that the Principal Stockholder Shares be so voted. The Principal
Stockholders have agreed that they will not, and will not offer or agree to,
sell, transfer, tender, assign, hypothecate or otherwise dispose of, or create
or permit to exist any pledge, lien, security interest, mortgage, charge,
claim, option, proxy, voting restriction, right of first refusal, limitation
on disposition, or encumbrance of any kind on or with respect to their
Principal Stockholder Shares or other voting securities of OEC, whether issued
heretofore or hereafter, which are held of record or beneficially by the
Principal Stockholders.
ABSTENTION FROM VOTING
Pursuant to the Principal Stockholder Agreements, each of the Principal
Stockholders has agreed that until the earlier to occur of the termination of
the Principal Stockholder Agreements in accordance with their terms or the
Effective Time ("Principal Stockholder Agreement Expiration Date"), each such
Principal Stockholder will not vote any of its Principal Stockholder Shares at
any annual, special or adjourned meeting of the stockholders of OEC, including
the right to sign its name (as stockholder) to any consent, certificate or
other document relating to OEC that Delaware law may permit or require, in any
manner that is intended, or could reasonably be expected, to impede, interfere
with, delay, postpone, or materially adversely affect the transactions
contemplated by the Merger Agreement.
COVENANTS AND REPRESENTATIONS
Pursuant to the Principal Stockholder Agreements, each of the Principal
Stockholders has agreed that it has been advised that (i) the offer, sale and
delivery of the Borland Common Stock to such Principal Stockholder pursuant to
the Merger may not be registered under the Securities Act, despite Borland's
obligations to use commercially reasonable efforts to effect such
registration; (ii) if the offer, sale and delivery of the Borland Common Stock
to the Principal Stockholder pursuant to the Merger has not been registered
under the Securities Act, then such shares may not be offered, sold, pledged,
hypothecated or otherwise transferred unless subsequently registered under the
Securities Act or an exemption from such registration is available; and
(iii) even if such sale and delivery to the Principal Stockholder of shares of
Borland Common Stock is registered under the Securities Act, to the extent the
Principal Stockholder is considered an "affiliate" of OEC at the time the
Merger Agreement is submitted for a vote of the stockholders of OEC, any
public offering or sale by the Principal Stockholder of its shares of Borland
Common Stock will, under current law, require either (a) the further
registration under the Securities Act of such shares, which Borland is
obligated to use commercially reasonable efforts to effect, (b) compliance
with Rule 145 promulgated by the Commission under the Securities Act, or (c)
the availability of another exemption from such registration under the
Securities Act. Furthermore, each of the Principal Stockholders also has
agreed that it understands that stop transfer instructions will be given to
Borland's transfer agent with respect to the shares of Borland Common Stock
receivable by each of the Principal Stockholders and that a legend will be
placed on the certificates for such shares issued to each such Principal
Stockholder, to the extent the Principal Stockholder is considered an
"affiliate" of OEC at the time the Merger Agreement is submitted for a vote of
the stockholders of OEC.
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NO SOLICITATION
Pursuant to the Principal Stockholder Agreements, each of the Principal
Stockholders has agreed that until the Principal Stockholder Agreement
Expiration Date, it will not negotiate with any person other than Borland with
respect to the acquisition of OEC or the OEC Common Stock owned by the
Principal Stockholder and it will not, and will not permit any of its
officers, directors, employees, agents or representatives (including without
limitation, investment bankers, attorneys and accountants) to (i) initiate
contact with, (ii) make, solicit or encourage any inquiries or proposals,
(iii) enter into or participate in any discussions or negotiations with,
(iv) disclose, directly or indirectly, any information not customarily
disclosed concerning the business and properties of OEC or such Principal
Stockholder's interest in OEC under the control of the Principal Stockholder
or (v) afford any access to OEC's properties, books and records in its
possession or under its control to any person in connection with any possible
proposal relating to (a) the disposition of OEC's or the Principal
Stockholder's businesses or substantially all of their respective assets, (b)
the acquisition of equity or debt securities of OEC or the Principal
Stockholder, including equity or debt securities in OEC owned by the Principal
Stockholder or (c) the merger, share exchange business combination or similar
acquisition transaction of or involving OEC or the Principal Stockholder with
any person other than Borland. In addition, until the Principal Stockholder
Agreement Expiration Date, each Principal Stockholder has agreed to
immediately notify Borland orally, and subsequently confirm in writing, of all
the relevant details relating to all inquiries and proposals which it may
receive relating to any such matters. Furthermore, until the Principal
Stockholder Agreement Expiration Date, each Principal Stockholder has agreed
that it will not, and will not permit any of its representatives, at any time,
to enter into or participate in any discussions or negotiations regarding, or
accept, any proposal for such a transaction received by them from a third
party or that a third party expresses a desire to communicate to it.
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THE COMPANIES
BORLAND INTERNATIONAL, INC.
Borland develops software development tools, including programming language
software and database management systems, for the business and independent
software developer community. The Company has several product lines and a
series of additional complementary products and services which are targeted to
meeting the needs of software developers for the desktop, local area network
and client/server and Internet environments.
Borland was incorporated in Delaware in July 1989 and in October 1989
succeeded to the business of a predecessor corporation incorporated in
California in May 1983. Borland's principal executive office is located at 100
Borland Way, Scotts Valley, California 95066-3249, and its telephone number is
(408) 431-1000.
RECENT DEVELOPMENTS
For the quarter ended June 30, 1996, Borland reported substantially lower
revenues and a substantial operating loss. The lower revenues were principally
attributable to lower sales of desktop products, particularly in the United
States.
In recent months, Borland has experienced significant changes in management
and other key personnel. In particular, Borland has announced the resignation
of Gary Wetsel, its President and Chief Executive Officer, Paul Gross, its
Senior Vice President for Research and Development and David Mullin, its Chief
Financial Officer. Borland has announced that it is searching for a new
President and Chief Executive Officer and that it has appointed Whitney Lynn
as Acting President and Chief Executive Officer. Borland has also announced
that it has appointed Paul W. Emery, II as Chief Financial Officer. In certain
cases, management and other key personnel have been lured away by competitors
who have offered very substantial signing bonuses and compensation packages
which would be very difficult for Borland to match. There can be no assurance
that Borland will not be subject to further losses of management and other key
personnel. In addition, Borland may be required to substantially increase the
compensation, stock options or other benefits offered to employees in order to
attract or retain management and other key personnel. The loss of management
and other key personnel, and the delays which may be experienced in recruiting
new management and other personnel as well as the additional costs which may
be incurred in retaining or attracting new personnel, may have a material
adverse affect on the Borland, its product launches and its operating results.
In particular, the disruptions inherent in such a situation are particularly
problematic for a company which has experienced the types of problems which
Borland has recently faced.
Borland expects to continue to experience operating losses at least through
the quarter ending December 31, 1996. Among other matters, Borland's ability
to regain profitability will be substantially dependent upon its ability to
successfully complete and introduce new products and to successfully integrate
OEC. There can be no assurance that Borland will be able to successfully
accomplish the foregoing or to regain profitability in future periods.
OPEN ENVIRONMENT CORPORATION
RECENT DEVELOPMENTS
For the quarter ended June 30, 1996, OEC reported substantially lower
revenues and a substantial operating loss. The lower revenues were principally
attributable to a lack of major transactions, a lengthening of OEC's sales
cycle, a reduction in reseller sales by OEC's Australian subsidiary and
management distractions related to the Merger.
OEC expects to continue to experience operating losses at least through the
quarter ending December 31, 1996. Among other things, OEC's ability to regain
profitability will be substantially dependent upon its ability to successfully
complete and introduce new products. There can be no assurance that OEC will
be able to successfully accomplish the foregoing or to regain profitability in
future periods.
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BUSINESS
Overview
OEC develops, markets and supports software that enables companies to create
applications for distributed, client/server computing systems. OEC pioneered a
multi-tiered software architecture that allows customers to rapidly develop,
deploy and manage software applications to access critical information quickly
on an enterprise-wide basis. The multi-tiered architecture is a flexible,
highly scalable, open architecture which supports popular third-party
development tools and database management systems for standards-based
applications in heterogeneous computing environments. OEC targets large,
multinational organizations through a combination of direct sales, product
seminars and marketing partnerships. As of June 30, 1996, OEC had sold its
product line to approximately 120 customers worldwide, including Associated
Grocers, Inc., Bristol-Myers Squibb Company, Caterpillar Inc., Columbia
Natural Resources, Cummins Engine Company, Inc., Federal Express, Federal Home
Loan Mortgage Corporation, John Deere Company, Martin Marietta Corporation,
Merrill Lynch & Co., Inc., MCI, Mobil Oil Corporation, Motorola, Northern
Telecom, Ltd., Phillips Petroleum Company, Shell Oil Company, Southern New
England Telephone, T. Rowe Price, Telecom Australia, The Royal Netherlands
Navy, United Healthcare Corporation and Woolworth Corporation.
On April 13, 1995, OEC completed its initial public offering of OEC Common
Stock whereby 3,162,500 shares were sold to the public at a public offering
price of $15.00 per share. Of the total shares sold to the public, OEC sold
1,700,000 shares, resulting in proceeds to OEC of approximately $22,879,000,
net of expenses associated with such offering.
On August 31, 1995, OEC issued 408,000 shares of OEC Common Stock in
exchange for all outstanding shares of the capital stock of Jarrah
Technologies, an Australian corporation. Jarrah Technologies was subsequently
renamed Open Environment Australia Pty. Limited. The acquisition was accounted
for as a pooling-of-interests and, accordingly, the consolidated financial
statements of OEC have been restated to include the accounts and operations of
Jarrah Technologies for all periods prior to the acquisition. OEC recorded
special acquisition and integration costs of approximately $679,000 in the
period ended September 30, 1995 for expenses related to the acquisition.
In September 1995, OEC sold a portion of its interest in its Japanese joint
venture to its joint venture partner. The interest was sold for an amount
which approximated OEC's original cost basis. As a result of the transaction,
OEC now owns 19.5% of the joint venture.
Industry Background
In recent years, the increasing performance and declining cost of desktop
computers ("PCs"), together with improvements in network communication and
graphical user interface technologies, have contributed to a shift by
organizations from centralized computing systems to more distributed
environments that support the integration of a wide variety of "client" (or
end-user) and "server" (host-based or back-end databases and systems)
applications. Client/server architecture offers end-users a more flexible,
easily accessible computing environment that provides greater functionality
with lower hardware and software costs. With the adoption of client/server
computing environments, developers have introduced a range of software
applications for distributed computing, allowing organizations to select the
hardware and software solutions best suited to their requirements.
While the client/server environment has improved ease of use and access to
information, most organizations have not been able to deploy large-scale
distributed systems that are flexible enough to allow them to continuously
respond to evolving processing requirements while at the same time meeting the
need for computing systems which are secure, scalable and easily managed. OEC
believes that the principal limiting factor in creating flexible client/server
systems that can be effectively scaled across an enterprise while retaining
the reliability, security and manageability of mainframe applications is the
lack of a vendor-neutral, multi-tiered software architecture for distributed
applications. In the absence of such an environment, applications developers
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must either place business logic (the logic which processes data) at the
database level, locking customers into a specific database vendor and limiting
their ability to access objects outside of the database, or place business
logic at the client (presentation) level, limiting the customer's ability to
scale those applications across an organization because PCs lack adequate
performance to run applications efficiently across the processing environment.
A variety of point-to-point software development tools have been introduced
to permit development of applications in the client/server environment. These
tools have accelerated the development of specific applications and
facilitated their support in distributed computing environments, but are
neither open nor scalable across systems. Consequently, virtually all
client/server architectures in the markets today still rely on point-to-point
connections between business logic and information sources, which as
applications and data proliferate, leads to unmanageable complexity in
implementing applications even with the use of available point tools.
The result is increasing complexity at the desktop level, requiring separate
configuration of a large number of PCs, complicating the implementation of
software enhancements and updates, limiting the ability to scale applications
across growing systems and creating an information environment which is
progressively more difficult to manage.
The Intelligent Middleware Solution
To address the challenge of efficiently accessing and managing information
in a distributed, client/server environment, OEC introduced its Entera(TM)
"Intelligent Middleware," which offers a multi-tiered software architecture
for developing and deploying scalable and flexible client/server applications
in a vendor-neutral, standards-based distributed computing environment. Its
multi-tiered architecture separates applications into three logical
components: the presentation layer, the business logic layer and the data
layer. In effect, this architecture insulates both the user and the developer
from having to know the details of where the information source or analytical
service is, or how it is implemented. A multi-tiered architecture shifts
management complexity back to the hardware servers, rather than the relatively
low-performance client hardware, facilitating complex information management
across enterprise-wide operations.
OEC's Entera product line constitutes an open, standards-based suite of
software development tools supporting programming language integration,
database integration, distributed computing services and management
facilities. OEC believes that the Entera product line significantly reduces
the time and costs of developing large-scale client/server applications due to
its integration with a number of popular development tools and its automation
of the connections to many widely adopted relational database systems and an
organization's own legacy applications. The features required to address the
requirements of large organizations are available in a single, integrated
development and management environment. These features include:
Scalable architecture--The multi-tiered architecture makes it possible
for customers to scale a given application from a few users to a very large
number of users;
Rapid development--Code generation and automation reduce development time
and the amount of code that needs to be written by the development team;
Performance optimization--Applications can be programmed to automatically
handle load increases by balancing access to existing servers by starting
new servers;
Common directory--Applications and their location are registered in a
common directory to provide enhanced management and flexibility;
Common security model--The necessary level of security is applied to all
users of any such application across the enterprise; and
Access to legacy systems--Legacy applications can be linked with new
applications to preserve existing investments.
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The OEC Strategy
OEC's business strategy draws on the following key elements to exploit the
opportunities presented by its Intelligent Middleware products:
. Focus On Large-Scale Enterprises. OEC is focused on solving the
difficult problems encountered by large organizations in transitioning to a
distributed client/server environment. OEC's product strategy is to
provide, either directly or through business partners, the products and
services which are necessary for these organizations to successfully
transition to, and to take full advantage of, multi-tiered client/server
computing.
. Technology Leadership. OEC believes that its multi-tiered architecture
is an important technological advance, and that the maintenance of this
technological leadership is essential in order to compete effectively. OEC
therefore plans to build upon its technology base by adding new features
and functionality to its Entera product line.
. Commitment To Open Standards. OEC believes that the open nature of its
Entera product line is an important competitive advantage and intends to
maintain this advantage by adopting future standards as they evolve.
Incorporation of the TCP/IP (Transmission Control Protocol/Internet
Protocol, a communications protocol widely used in UNIX environments
because of its interoperability features), OSF/DCE standards (the
standards-based distributed computing environment developed by the Open
Software Foundation) and OLE (Object Linking and Embedding, Microsoft's
object-based services environment) in the Entera product line enables OEC's
customers to choose among competing hardware, operating systems and
databases, as well as point development tools, which best meet their needs
without compromising functionality or performance.
. Collaboration With Other Product Suppliers. The Entera product line
provides a distributed computing environment that supports and extends many
software languages, tools and databases from third-party vendors. OEC
intends to continue to work to include market-leading products and
technologies within the framework of the Entera product line to assure that
its Intelligent Middleware continues to meet the evolving needs of a broad
range of organizations.
. Expansion of Distribution Channels and Geographic Presence. OEC
believes that growth requires expansion of its distribution channels
through reseller and similar arrangements. To support these efforts, OEC
regularly forms joint marketing and strategic relationships with value
added resellers ("VARs"), original equipment manufacturers ("OEMs"),
independent software vendors ("ISVs") and software distributors to increase
the visibility of its products, broaden its distribution channels and
further increase its geographic presence.
. Emphasis on Customer Service and Support. Because effective and timely
development, deployment and management of applications is essential to
OEC's customers, a high level of customer service and technical support is
critical to customer satisfaction. OEC therefore maintains a high level of
commitment to product quality, service and support to assure customer
satisfaction and continued support of OEC's offerings.
OEC believes that a customer's decision to invest in the Entera product line
for software development and deployment is a strategic business decision, and
OEC therefore facilitates that transition through educational seminars,
focused validation trials of its products and comprehensive post-sales
training and support. OEC implements its sales and marketing strategy through
a direct sales force located in key regional offices, and partnerships with
leading hardware systems manufacturers, including Hewlett-Packard, IBM,
Digital and Unisys, VARs such as Greenbrier & Russell and Logica, Inc. and
OEMs and ISVs including Powersoft, Dynasty, ParcPlace, Information Builders,
Transarc, Corporate Systems and Greenbrier & Russel.
OEC Products
The Entera product line includes products for basic client and server
interface development, transaction-supported server development, mainframe
access and multi-vendor database access. Products are available for use on
Macintosh, OS/2, OS/2 Warp, Windows, Windows NT, Windows 95, Open VMS, AIX,
HP-UX, Solaris, Unisys and ATT GIS.
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Entera Developer Package. The Entera Developer Package is a unique set of
Intelligent Middleware development tools for creating multi-tiered distributed
applications. It frees programmers from the burden of writing code which
comprises the underlying open infrastructure of the Entera product line.
Included in the package are tools which automate the development of
client/server connections and the required interfaces to the distributed
naming and security services. The Entera Developer Package also includes tools
for creating multi-vendor database access as well as the user interface to
Entera's management tool, AppMinder.
OLEnterprise. OLEnterprise is the industry's first open, distributed object
environment based on Microsoft's OLE (Object Linking and Embedding). Using the
Microsoft RPC (Remote Procedure Call), OLEnterprise is presently able to
deliver the benefits of Microsoft's planned Network OLE. OLEnterprise enables
organizations to build and deploy sophisticated, multi-tiered object-based
applications for use throughout the enterprise. OLEnterprise is OEC's first
product offering in its Global Enterprise Object(TM) (GEO) Initiative to
deliver universal, globally accessible computing.
OLEnterprise lets developers use any OLE-compliant development environment
such as Visual Basic, PowerBuilder, Delphi, Centura and Visual C++ to
construct OLE clients and remote OLE automation servers. These application
components are distributed across the network via OLEnterprise's OLE client
agent and remote OLE Automation class factory. These OLE objects can be
accessed by all OLE-compliant end-user tools such as Lotus Notes and Microsoft
Excel.
AppDesigner(TM). AppDesigner is an application generator that supports the
development of COBOL-based multi-tiered applications through the use of a
Windows-based graphical interface and a COBOL--like 4GL. AppDesigner generates
a standard COBOL application, (which can run on UNIX or mainframes) based on
the business logic specified in the 4GL and generates a PowerBuilder or Visual
Basic model based on existing client interfaces. Applications built with
AppDesigner use Entera's multi-tiered client/server architecture and
Intelligent Middleware to provide excellent performance, scalability and
application component reuse.
Entera Internet Launcher. The Entera Internet Launcher expands the scope of
multi-tiered client/server corporate applications to include the Internet. The
Launcher provides a way for developers to easily create Internet-enabled
applications that overcome limitations of integration with existing technology
investments.
Entera/Fx(TM). Entera/Fx is a set of features which allows the development
of Entera server application components with advanced features or "special
effects." These advanced features required for building large, business-
critical applications include two-phase commit for homogeneous database
transactions, extended security options, application load balancing, tuning
and audit trails.
DCE Adapter. DCE Adapter provides DCE capabilities without requiring DCE on
the client platform, thus removing one of the key obstacles blocking large
scale deployment of DCE applications on PCs and Macintosh PCs. This product
acts as a surrogate agent to "DCE-enable" Windows, OS/2 and Macintosh PCs,
eliminating the need to install DCE on these PCs.
Entera/QuickRPC. QuickRPC integrates Entera and Gupta Corporation's SQL
Windows application development environment. QuickRPC automatically generates
an Entera client interface and provides it in Gupta's Centura QuickObject
form. This provides SQLWindows developers with a natural extension with which
to build enterprise three-tiered client/server applications using Entera.
Third Party Entera Products
RPCpainter Developed by Greenbrier & Russel. RPCpainter integrates Entera
and Powersoft Corporation's PowerBuilder application development environment.
RPCpainter automatically generates an Entera client interface and translates
the PowerBuilder Data Window information into an Entera RPC interface. This
provides PowerBuilder developers with a natural extension with which to build
enterprise multi-tiered client/server applications using Entera.
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EDA/Start Developed by Information Builders, Inc. EDA/Start integrates
Entera with Information Builders' Enterprise Data Access (EDA)/SQL middleware
technology. It provides a gateway for Entera multi-tiered applications to
access those data sources accessible through EDA/SQL.
Marketing and Sales
As a result of its experience in educating customers concerning open systems
and its development and introduction of software products pioneering multi-
tier architecture, OEC believes that it holds a leadership position in
transitioning customers to an open, multi-tier distributed computing
environment. OEC believes that large organizations pass through three stages
in adopting a multi-tier architecture and OEC's marketing strategy focuses on
supporting and facilitating this transition.
Information--At this stage OEC introduces the customer to the concepts and
benefits of multi-tiered client/server computing through educational seminars.
OEC develops a customer skills assessment and architectural assessment which
together provide the basis of a plan for the customer to move forward.
Planning--During the planning stage, OEC provides the customer with the
proof of concept applicable to their specific business distributed computing
requirements. This proof of concept is offered through a variety of OEC's
service offerings, which result in the first step of development of a
customer-defined prototype.
Implementation--In the implementation stage, OEC installs Entera, which
gives the customer the required software products to successfully design,
develop, deploy and manage client/server applications across its organization.
OEC has established a series of regional offices to house direct sales,
instructors, field engineers and strategic alliance marketing personnel as
part of its marketing and sales efforts. Sales offices are located in Boston,
Chicago, Dallas, New York, San Francisco, Pittsburgh, Washington, D.C.,
London, Sydney, the Netherlands, Seoul and Tokyo. As of September 30, 1996,
OEC's sales and marketing organization consisted of 71 persons.
The growing maturity of the client/server market and acceptance of OEC's
multi-tiered development approach has led OEC to supplement its direct sales
strategy with a broad channels marketing strategy. As of June 30, 1996, OEC
had approximately 120 leading organizations deploying the Entera product line.
This approach provides OEC with additional, cost-effective technical and sales
resources to realize growing market opportunities quickly and help enhance
OEC's position in the marketplace. As part of this program, OEC is actively
developing each of the following channels:
Business Partners (Systems Integrators and VARs)--Leading OEC partners
include Greenbrier & Russel, James Martin & Co., Logica, Inc., International
Systems Services Corp., Science Applications International Corp., KPMG Peat
Marwick, Systemhouse and Price Waterhouse LLP. OEC intends to recruit, train
and develop as many qualified VARs as possible, to broaden the range of
skilled technical resources that can service and support its software products
as well as expand its geographical coverage and broaden its representation and
expertise in various vertical industries such as healthcare, petroleum and
manufacturing. OEC has a certification program to assure the quality of
service provided by its business partners.
Strategic Alliances (OEMs and ISVs)--OEC's current OEM and ISV partners
include Powersoft, ParcPlace, Information Builders, Transarc and Corporate
Systems. As customers demand "open" or "DCE compliant" applications, OEMs and
ISVs have begun to seek solutions that permit them to more efficiently address
these needs. OEC's products provide OEMs and ISVs with the tools to address
these end-user requirements. OEC's strategy is to encourage third-party
software companies to build their applications using Entera within their
products, making their applications open and creating the foundation for
future licensing and run-time revenues.
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CUSTOMERS
As of September 30, 1996, OEC had sold its Entera product line to
approximately 120 customers worldwide. The following is a selected list of
OEC's customers which, in each case, the Company believes is representative of
its overall customer base: Associated Grocers, Inc., MCI, Bristol-Myers,
Squibb Company, Mobil Oil Corporation, Caterpillar Inc., Phillips Petroleum
Company, Columbia Natural Resources, Price Waterhouse LLP, Cummins Engine
Company, Inc., Shell Oil Company, Federal Express, Southern New England
Telephone, Federal Home Loan Mortgage Corporation, T. Rowe Price, The Royal
Netherlands Navy, John Deere Company, United Healthcare Corporation, Martin
Marietta Corporation, Woolworth Corporation, Merrill Lynch & Co., Inc.,
Motorola, Northern Telecom, Telecom Australia and United Healthcare
Corporation.
Approximately 11% and 15% of OEC's revenue in the years ended December 31,
1995 and 1993, respectively, were from OneWave, Inc. (formerly Object Power)
and IBM, respectively. For the year ended December 31, 1994, no individual
customer accounted for greater than 10% of OEC's total revenue.
Customer Support and Service
OEC sells software products that its customers use to develop, deploy and
manage applications which are large-scale, complex and mission critical.
Because a comprehensive multi-tier architecture is often being introduced to
customers for the first time, OEC believes it is imperative that their
expectations are met or exceeded. As of September 30, 1996, OEC had three
groups totaling 49 employees focused on customer satisfaction and productivity
with the use of its products: Education, Field Engineering and Remote Support.
The Education group provides comprehensive education and training to
customers and potential customers as they adopt OEC's products. The courses
are delivered by the Education group at OEC's in-house training centers in
Boston and Dallas, as well as customized courses at customer sites when
requested. OEC is also building a channel of authorized third-party training
partners to expand OEC's training facilities and resources.
The Field Engineering group is actively involved with most customers during
the implementation and deployment of applications, especially in the very
early stages of adoption. The Field Engineering group has developed several
service offerings that help customers maximize their productivity, ranging
from how to select the first application to deploying developed applications
across an enterprise. Field engineering services are generally delivered at
the customer site.
The Remote Support group provides support to customers over the telephone or
through electronic mail or fax. The majority of calls coming to the Support
Center go directly to a software support specialist who provides an immediate
diagnosis of customer problems. Customers also have access to "patches" and
technical notes via the World Wide Web on the Internet.
Research and Development
OEC delivers products that are used by large organizations for developing,
deploying and managing large scale, complex mission-critical applications. For
this reason, the quality of the software in terms of reliability, security and
other features must be very high. At the same time, the market is growing very
rapidly, and in order to maintain its competitive advantage OEC must introduce
new products and features into the market on a regular basis. To meet these
goals, OEC has invested heavily in developing engineering talent, an
experienced research and development management team and highly automated and
comprehensive product testing capabilities to meet rigorous requirements for
product quality.
For the past three years, OEC has been releasing major versions of Entera
every nine to twelve months, with maintenance updates released every six
months (between major releases). For 1996, one maintenance update has been
planned.
While OEC has historically met the scheduled dates for product releases and
enhancements, the software development process is characterized by
unanticipated delays, and there can be no assurance that OEC will be able to
maintain future scheduled release dates. Furthermore, there can be no
assurance that OEC's new product
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releases and product enhancements will adequately address the needs of the
marketplace or will not contain "bugs" which would cause delays in product
introduction or shipments or, if discovered in the future, require
modification to OEC's products.
As of September 30, 1996, OEC's research and development staff consisted of
44 employees. OEC's total expenses for research and development for the years
ended December 31, 1995, 1994 and 1993 were $4,256,232, $2,075,554 and
$1,679,179, respectively.
Manufacturing and Distribution
OEC uses a third-party vendor to provide media and documentation replication
and distribution services, including product manufacturing, order and
inventory management, order fulfillment and distribution of OEC's products.
Competition
The distributed computing software market is extremely competitive. While
OEC believes that no competitor currently offers a product which competes with
all of the features of the Entera product line (including support of open
system standards, scalability of architecture, a common security model and
data directory), over time the major competitors for its products will come
primarily from three groups of vendors.
The first group includes relational database vendors, particularly Sybase
and Oracle, which have developed and introduced products which integrate
software applications into their databases. These companies have significantly
greater financial, technological and marketing resources than OEC and Borland.
However, OEC believes that these competitors' products have a number of
limitations which will make it difficult for users to build true enterprise-
wide applications. These products are characteristically proprietary and not
interoperable or portable across other vendors' databases, locking the user
into a particular vendor's database products.
OEC also competes with client/server development companies such as Forte,
Dynasty and Seer Technologies. OEC believes that the products of these
competitors have not provided a true open environment, but rather have
consisted of a suite of specific tools for language, run-time infrastructure
and/or management software. OEC believes it can compete with such companies on
the basis of the open nature of the Entera product line, which permits
customers to select from a variety of software tools rather than a specific
vendor's offerings.
Finally, OEC competes with transaction monitor/manager companies, such as
Novell, Inc., IBM and AT&T. Most of the companies in this competitive sector
have significantly greater financial, technological and marketing resources
than OEC and Borland. OEC competes with these companies on the basis of the
high availability, scalability, security and uniform base services of the
Entera product line.
OEC believes that it competes across all of its markets primarily on the
interoperability, open nature and unique architecture of its Entera product
line, as well as overall product functionality, reliability, price,
performance, ease of adoption and use, end-user support and corporate
reputation. In addition, OEC believes that in many instances it can
effectively partner with competitors to offer solutions to meet a specific
customer's requirements. However, there can be no assurance that OEC will be
able to continue to compete effectively or that its profitability or financial
performance will not be adversely effected by increased competition. Further,
there can be no assurance that OEC's current competitors or other entities
will not introduce development software products or other technologies
offering significant advantages over OEC's technology, which could have a
material adverse effect on OEC's business and financial results.
Proprietary Rights
OEC operated as a division of Cambridge Technology Group, Inc. ("CTG") until
January 1993, when it began operating as an independent entity. CTG is
principally owned by John J. Donovan, Sr., the Company's Chairman of the Board
and a stockholder. On January 1, 1993, the Company purchased from CTG all of
CTG's right, title and interest in the properties, assets and business (other
than the Intellectual Property as defined below)
54
<PAGE>
of the CTG Tools Division and the CTG Technical Education Division
(collectively, the "Division") pursuant to the terms of an asset purchase
agreement (the "Asset Purchase Agreement"). The Asset Purchase Agreement
required OEC to pay $100,000 for the assets of the Division (which consisted
primarily of furniture and equipment) and to assume the outstanding business
obligations of CTG which related to the Division as of January 1, 1993. CTG
also agreed at that time to disperse to OEC receivables as remitted to CTG by
customers of the Division in an amount not to exceed $750,000 in the aggregate
(the "Line of Credit"). OEC executed a promissory note (the "Promissory Note")
on January 1, 1993 payable to CTG in the amount of $850,000, which amount
reflected the $100,000 purchase price of the assets of the Division and any
amounts outstanding under the Line of Credit. OEC received approximately
$175,000 from CTG under the Line of Credit, which amount, together with the
purchase price, was paid in full in June 1993, and the Promissory Note was
canceled. Under the Asset Purchase Agreement, CTG granted a non-exclusive,
world-wide license to OEC to use the intellectual property used by the
Division. The intellectual property licensed (the "Intellectual Property")
included designs, software, processes and other proprietary rights relating to
software tools used for the development and implementation of software
programs designed to be operated by end-users to perform specific business and
personal functions. On November 23, 1994, CTG assigned all rights in such
Intellectual Property to OEC without any further royalty or payment
obligations and entered into a Reseller Agreement with OEC.
In October 1995, OEC purchased for $500,000 the source code to a certain
technology from Object Power, a company principally owned by John J. Donovan,
Sr. In December 1995, OEC purchased for a minimum guaranteed amount of
approximately $872,000 the source code to a certain technology from GEC
Alsthom Pty. Ltd., an Australian company. At the dates of these purchases,
these technologies had not yet reached the point of technological feasibility,
and OEC is continuing the development of the technologies.
OEC primarily relies on a combination of copyright, trademark and trade
secret laws and license agreements to establish and protect proprietary rights
of its products. The source code for OEC's products is protected both as a
trade secret and as an unpublished copyrighted work. In addition, OEC
generally enters into confidentiality and/or license agreements with its
employees, distributors, customers and potential customers and limits access
to, and distribution of, its software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third-party
to copy or otherwise obtain and use OEC's products or technology without
authorization or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be unavailable or limited
in certain foreign countries.
Because the software development industry is characterized by rapid
technological change, OEC believes that factors such as the technological and
creative skills of its employees, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are more
important to establishing and maintaining a technology leadership position
than legal protections of its technology.
Employees
As of September 30, 1996, OEC had 188 full-time employees, consisting of 44
employees in research and development, 71 employees in sales and marketing, 24
employees in finance and administration, 44 employees in management
information systems and 49 employees in training, consulting and customer
support. None of these employees are represented by a labor union, nor are
they covered by any collective bargaining agreements. OEC believes that its
relationship with its employees is good. The future success of OEC will depend
on its ability to attract and retain qualified employees. Competition for such
employees is often intense and there can be no assurance that OEC will be able
to attract and retain adequate numbers of qualified employees in the future.
Properties
OEC's principal office is located in Boston, Massachusetts, where it leases
approximately 30,000 square feet under a lease that expires in March 1999. OEC
also leases approximately 6,000 square feet of office space in Dallas and
10,000 square feet of office space in Sydney, Australia. In support of its
field, direct sales and support operations, OEC also leases facilities and
offices in seven locations in the United States and three locations overseas.
OEC believes that if necessary, additional space for its property requirements
can be obtained on commercially reasonable terms.
55
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of OEC and its subsidiaries for the years
ended December 31, 1995, 1994 and 1993, and for the year ended December 31,
1992 from the tools division of CTG, and have been audited by Ernst & Young
LLP, independent accountants, except for the financial statements of Jarrah
Technologies, a consolidated subsidiary, for the four years ended December 31,
1994, which were audited by other auditors. OEC recently elected to restate
its results for certain prior periods, as a result of which it has filed
amendments to its reports previously filed pursuant to the Exchange Act with
the Commission for the fiscal periods beginning October 1994 to June 1996. See
"The Companies--Open Environment Corporation--Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data as of June 30, 1996 and for the six months ended
June 30, 1996 and 1995 have been derived from the unaudited consolidated
financial statements of OEC. The unaudited consolidated financial statements
have been prepared on the same basis as the audited financial statements and,
in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The results of operations for the six months
ended June 30, 1996 and 1995 are not necessarily indicative of future
operating results. The consolidated selected financial data set forth below is
qualified in its entirety by and should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, TWELVE MONTHS ENDED DECEMBER 31,
------------------------ ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991(A)
----------- ----------- ----------- ----------- ----------- ----------- --------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA
Revenues................ $ 6,827,970 $14,282,842 $29,881,172 $18,120,904 $13,163,307 $ 4,149,243 $778,341
Purchased research and
development............ -- -- 1,372,116 -- -- -- --
Acquisition and
integration costs...... -- -- 678,655 -- -- -- --
Provision for
restructuring charges.. 1,083,114 -- -- -- -- -- --
Income (loss) from
operations............. (12,138,136) 1,742,637 159,610 502,205 1,143,670 (1,158,932) 45,196
Net income (loss)....... (12,645,610) 1,198,032 434,082 350,049 823,028 (1,041,760) 43,463
Net income (loss) per
common share........... $(1.69) $.16 $.05 $.05 $.13 (b) (b)
CONSOLIDATED BALANCE
SHEET DATA
Cash, cash equivalents
and marketable
securities............. $12,431,615 $22,081,136 $17,690,458 $ 1,787,707 $ 918,614 $ 2,011 $ 22,071
Working capital......... 11,850,577 24,256,905 22,864,500 1,499,416 161,268 88,536 35,129
Total assets............ 24,433,253 35,488,725 36,646,673 9,475,658 4,244,261 1,158,443 139,583
Long-term obligations,
net.................... -- 116,197 27,185 206,089
Series A Convertible
Preferred Stock........ -- -- -- 5,854,332 -- -- --
Total stockholders'
equity (deficiency).... 16,262,006 28,477,171 28,717,151 (1,521,430) 976,010 149,807 77,592
</TABLE>
- --------
(a) The financial data for fiscal 1991 represents the financial data of Jarrah
Technologies, which was acquired by OEC in August 1995.
(b) As OEC began operations in 1992 as a division of CTG, there were no shares
of capital stock outstanding in 1992 or 1991.
56
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
OEC derives revenues from product license fees and charges for services,
including education and training, on-site technical support and phone-in
customer support (maintenance). For all periods presented, OEC has recognized
revenue in accordance with Statement of Position 91-1 entitled "Software
Revenue Recognition," ("SOP 91") issued by the American Institute of Certified
Public Accountants. SOP 91 requires that software license revenues be
recognized upon shipment, provided no significant obligations to the customer
then exist, and that maintenance revenues be recognized ratably over the term
of the maintenance agreement. Revenues for other services and training are
recognized upon delivery of the service. OEC's license agreements generally do
not provide a right of return. Reserves are maintained for potential credit
losses.
In December 1995, OEC entered into an agreement (the "Reseller Agreement")
with a reseller (the "Reseller") whereby the Reseller agreed to purchase
products from OEC. In the first quarter of 1996, OEC sold and shipped to the
Reseller an aggregate of $2,500,000 worth of products. The Reseller Agreement
provided the Reseller with certain product return and exchange rights, and
therefore, OEC established a reserve in the first quarter of 1996 of
$1,440,000 to provide for potential returns from the Reseller. Based on the
actual product return and exchange rate experienced under the Reseller
Agreement, OEC increased the reserve by $400,000 in the second quarter of
1996. This product return and exchange rate was higher than originally
anticipated by OEC. After a review by the staff of the Securities and Exchange
Commission (the "Staff") of the Company's reports filed pursuant to the
Securities Exchange Act of 1934 (the "Reports"), OEC determined that due to
the high return and exchange rate, that OEC did not have a sufficient basis
under generally accepted accounting principles to estimate the amount of
returns and exchanges and therefore should have recognized revenue as the
Reseller actually sold product to its customers. OEC restated its historical
financial statements contained in certain of its Reports, and this
Prospectus/Proxy Statement reflects the restatement of OEC's financial
statements, to recognize revenues under the Reseller Agreement as the Reseller
sells product to its customers.
Prior to the second quarter of 1995, OEC and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby OEC's customers agreed to purchase certain software and services from
OEC and which specified a future date at or on which a mutually acceptable
software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time
of revenue recognition all products were delivered, OEC believed that
persuasive evidence existed to document an agreement to license OEC's software
by the customer and there were no significant contingencies existing at the
date of revenue recognition. After a review by the Staff, OEC has agreed that
the recognition of revenues under such Non-cancellable LOUs should be delayed
until the earlier of the date such software license and services agreements
were executed by the parties (the "L&S Execution Date") or the expiration of
the Specified Period. The length of the Specified Periods ranged from two days
to 45 days. OEC has restated its historical financial statements contained in
certain of its Reports and this Prospectus/Proxy Statement reflects the
restatement of such financial statements with respect to the five Non-
cancellable LOUs where the earlier of the L&S Execution Date or the end of the
Specified Period occurred in the quarter following the date of execution of
the Non-cancellable LOU. The changes decrease revenue and net income reported
in the fourth quarter of 1994 and increase revenue and net income reported in
each of the first and second quarters of 1995. There was no change in the
aggregate revenue and net income reported over such three quarter period.
On August 31, 1995, OEC issued 408,000 shares of Common Stock in exchange
for all outstanding shares of the capital stock of Jarrah Technologies. The
acquisition was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements and selected consolidated
financial data have been restated to include the accounts and operations of
Jarrah Technologies for all periods prior to the acquisition.
Prior to 1994, OEC's focus was largely educational in nature. During 1994,
OEC began to shift its focus from educational services to software development
and licensing in order to capitalize on the growing demand for its products
and services which had been generated by OEC's education seminars. In the
early stages of this transition, OEC's educational services provided OEC with
name recognition and introductory marketing opportunities. However, as OEC has
transitioned to the business of developing and licensing software, its
continued growth is increasingly based on a growing installed base, the
continued acceptance by that installed
57
<PAGE>
base of OEC's products, increased distribution and marketing channels, and
technological competitiveness, rather than a continued emphasis on educational
services. This evolution has caused OEC to shift the focus of its education
offerings from marketing to post-sales training and customer support. As OEC
shifted its focus to software development and licensing, it also expanded its
efforts in international markets, including the establishment of joint
ventures in Japan in 1994 and Korea in 1995 and the acquisition of Jarrah
Technologies in 1995. As a result, international sales increased to
$11,952,000 in 1995 from $7,391,000 in 1994.
RESULTS OF OPERATIONS
Fiscal Years Ended December 31, 1995, 1994 and 1993
The following table sets forth, for the periods indicated, certain
operational data as a percentage of total revenue.
<TABLE>
<CAPTION>
YEAR ENDED PERCENTAGE INCREASE
DECEMBER 31, (DECREASE) YEAR TO YEAR
-------------------------- -------------------------
1995 1994 1993 1994 TO 1995 1993 TO 1994
---------- ---------- ---- ------------ ------------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees............ 73% 60% 39% 102% 113%
Service................. 21% 17% 8% 104% 170%
Education............... 6% 23% 53% (56%) (38%)
--- --- --- ------ ----
Total revenues............ 100% 100% 100% 65% 38%
Cost of revenues:
Cost of software,
maintenance and
services............... 18% 24% 22% 26% 47%
Cost of education and
training............... 5% 11% 20% (24%) (23%)
--- --- --- ------ ----
Total cost of revenues.... 23% 35% 42% 10% 13%
--- --- --- ------ ----
Gross profit.............. 77% 65% 58% 95% 56%
Operating expenses:
Selling and marketing... 43% 38% 23% 86% 126%
General and
administrative......... 12% 13% 13% 57% 35%
Research and
development............ 14% 11% 13% 105% 24%
Purchased research and
development............ 5% 0% 0% * *
Acquisition and
integration costs...... 2% 0% 0% * *
--- --- --- ------ ----
Total operating expenses.. 76% 62% 49% 102% 76%
--- --- --- ------ ----
Operating income (loss)... 1% 3% 9% (68%) (56%)
Equity in loss of joint
venture................ (1%) (1%) 0% 140% *
Other income............ 2% 1% 0% 740% (25%)
--- --- --- ------ ----
Total other income...... 1% 0% 0% (1,652%) (125%)
--- --- --- ------ ----
Pre-tax income............ 2% 3% 9% 25% (62%)
Provision for income
taxes.................... 1% 1% 3% 29% (71%)
--- --- --- ------ ----
Net income................ 1% 2% 6% 24% (57%)
=== === === ====== ====
</TABLE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues increased 65% to $29,881,000 in 1995 from $18,121,000 in
1994. The increase in total revenues was largely attributable to software
license fees, which increased 102% to $21,834,000 in 1995 from $10,812,000 in
1994. Software revenues accounted for 73% of total revenues in 1995 as
compared to 60% of
58
<PAGE>
total revenues in 1994. Also contributing to the increase in total revenues
were increases in maintenance and service fees, which increased 104% to
$6,155,000 in 1995 from $3,017,000 in 1994. These increases reflect growing
market awareness and acceptance of OEC's products as well as a broadening of
OEC's installed base.
These increases were partially offset by a 56% decrease in education
revenues to $1,893,000 in 1995 from $4,292,000 in 1994. This decrease is
consistent with OEC's shift away from the use of education to further market
awareness to the use of education as technical training for software
licensing.
Revenues of Jarrah Technologies and from other international customers
accounted for $11,952,000, or 40%, of total revenues in 1995, as compared to
$7,391,000, or 41%, in 1994. This increase is attributable to a combination of
direct and channel sales to international customers as OEC continues to enter
additional markets to expand its operations outside of the United States.
Total cost of revenues increased 10% to $6,929,000 in 1995 from $6,321,000
in 1994 and gross margins improved to 77% for 1995 from 65% for 1994. Cost of
software, maintenance and services consists of the product packaging,
duplication, amortization of capitalized software costs, royalties and
salaries and related personnel costs for customer support and on-site
technical support employees. The improvements in gross margin reflected the
shift from the lower-margin educational services business (17% gross margin in
1995) to the higher-margin software and services business (81% gross margin in
1995).
Selling and marketing expenses, consisting primarily of salaries,
commissions, promotional costs and partner referral and marketing fees,
increased to $12,884,000 in 1995 from $6,922,000 in 1994. Selling and
marketing expenses represented 43% of total revenues for 1995 as compared to
38% in 1994. This increase was the result of the hiring of additional
personnel and increased marketing programs as OEC continued to develop its
direct sales force, build its marketing channels and increase its promotional
activities to broaden market awareness.
General and administrative expenses, consisting primarily of corporate,
finance, management information systems ("MIS"), legal and auditing expenses,
increased 57% to $3,602,000 in 1995 from $2,300,000 in 1994. The increase was
largely attributable to the addition of infrastructure to support
international expansion, as well as to increases in general corporate expenses
related to OEC being a publicly-traded company. However, general and
administrative expenses remained flat as a percentage of revenues at 12% in
1995 and 1994.
Research and development expenses, consisting primarily of salaries and
other employee-related costs, increased 105% to $4,256,000 in 1995 from
$2,076,000 in 1994. This increase reflected a significant increase in the
number of employees in the research and development department. Software
development costs capitalized in accordance with Statement of Financial
Accounting Standards No. 86 ("FAS 86") for 1995 amounted to $726,000, while
amortization of previously capitalized software amounted to $353,000, as
compared to capitalizations of $445,000 and amortization expense of $202,000
for 1994. The increase in software development costs capitalized under FAS 86
for 1995 was due to the development of OEC's Entera Version 3.0 product, which
was released in 1995.
Total operating expenses increased to 76% of revenues in 1995 because OEC's
increase in revenues in that year was lower than anticipated and because OEC
continued to invest in selling and marketing, as well as research and
development activities, in view of the fact it considers such investments
critical to its continued growth and profitability.
In connection with the acquisition of Jarrah Technologies, OEC recorded
acquisition and integration costs of $679,000 ($441,000 net of tax) in the
third quarter of 1995. Charges included professional fees and charges for
regulatory and filing matters ($265,000), travel costs ($222,000), marketing
and collaterals ($139,000), lease termination costs and miscellaneous other
costs ($53,000). Substantially all of these charges were incurred prior to
September 30, 1995, and as of December 31, 1995, $60,000 of these charges,
related to certain legal fees, were unpaid and were classified as accrued
expenses. Additionally, OEC acquired two technologies which were
59
<PAGE>
not at the point of technological feasibility at the time of acquisition and
had no alternative future uses and, accordingly, the costs of these
acquisitions, $1,372,000 ($892,000 net of tax), were charged to operations as
purchased research and development in the fourth quarter of 1995. The Company
has determined that a considerable amount of work needs to be done in the
areas of completing functionality, porting, testing and packaging these
technologies into commercially viable products. The Company estimates that the
internal development costs necessary to complete the development of the
technologies will amount to approximately $250,000 over the next twelve to
eighteen months.
During the third quarter, OEC sold a portion of its interest in its Japanese
joint venture to its joint venture partner. The interest was sold for an
amount which approximated OEC's original cost basis. The transaction resulted
in OEC now owning 19.5% of the joint venture and, accordingly, accounting for
the joint venture under the equity method has been discontinued. OEC will
continue to recognize royalty revenue from the joint venture, but will no
longer recognize any share of the joint venture's operating income or loss.
OEC made net investments in and advances to the joint venture of $242,000 in
1995.
Other income, consisting primarily of investment income and other
miscellaneous income, offset by interest expense, increased to $701,000 in
1995 from $83,000 in 1994. These increases reflect the investment of the net
proceeds from the initial public offering of Common Stock in April 1995.
OEC's effective tax rate of 27% in 1995 and 26% in 1994 is lower than the
statutory rate of 34% due to the impact of available research and development
credits.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues increased 38% to $18,121,000 in 1994 from $13,163,000 in
1993. Software license fees increased 113% to $10,812,000 in 1994 from
$5,073,000 in 1993. The principal reasons for the increase in software license
fees were increased market acceptance of OEC's products, demand for software
upgrades resulting from the release of OEC's Entera Version 2.0 software
product in July 1994 and increased license fees to OEC's existing customers.
Maintenance and services fees increased 170% to $3,017,000 in 1994 from
$1,118,000 in 1993. The increase was principally attributable to increased
volume of on-site technical support services and increased maintenance fees
due to the broadening of OEC's installed base.
Education and training revenues decreased 38% to $4,292,000 in 1994 from
$6,972,000 in 1993. The decrease was largely attributable to OEC's shift away
from educational programs emphasizing broad-based market awareness to
technical training and programs in support of software licensing. This change
of focus resulted in a decreased number of instructor-led education offerings.
Total cost of revenues increased 13% to $6,321,000 in 1994 from $5,585,000
in 1993 but decreased as a percentage of total revenues to 35% in 1994 from
42% in 1993. Costs of software, maintenance and services increased 47% to
$4,265,000 in 1994 from $2,909,000 in 1993. The increase was attributable
primarily to an increase in the number of personnel in the on-site technical
support area, an increase in the amount of software, related amortization
charges and royalties.
Cost of education and training revenues decreased 23% to $2,056,000 in 1994
from $2,675,000 in 1993 and decreased as a percentage of total revenues to 11%
in 1994 from 20% in 1993. The decrease was due to the decreased level of
education activity.
Selling and marketing expenses increased 126% to $6,922,000 in 1994 from
$3,057,000 in 1993. The increase was due principally to an increase in the
number of sales and marketing personnel, an increase in promotional and
advertising activities and an increase in sales commissions as a result of
increasing sales levels. Marketing fees paid to a major hardware vendor
partner decreased due to the renegotiation of the agreement, which resulted in
the elimination of the fees as of August 1, 1994.
60
<PAGE>
General and administrative expense increased 35% to $2,300,000 in 1994 from
$1,699,000 in 1993, but decreased as a percentage of total revenue to 12% in
1994 from 13% in 1993. The increase was primarily due to the increase in
personnel in the corporate, finance and MIS areas.
Research and development expenses increased 24% to $2,076,000 in 1994 from
$1,679,000 in 1993. The increase represented costs associated with an increase
in personnel offset by the capitalization of $445,000 in software costs in
1994 in accordance with FAS 86. OEC capitalized $190,000 in software costs in
1993. The amortization of software costs ($202,000 in 1994 and $5,000 in 1993)
is included in cost of software, maintenance and services.
The equity in loss of joint venture represented OEC's 50% share of the net
loss of its Japanese joint venture. The Company made investments in and
advances to the joint venture of $499,000 in 1994, representing aggregate
investments of $197,000 plus approximately $302,000 of advances held in escrow
for the purpose of meeting OEC's 50% share of future capital commitments to
the joint venture.
Other income decreased 25% to $83,000 in 1994 from $111,000 in 1993 due
principally to increased interest on borrowings and a decrease in commissions
from hotels due to the decrease in education programs run at OEC's facility in
Boston.
OEC's effective tax rate decreased to 26% in 1994 from 34% in 1993 due to an
increase in available research and development credits.
61
<PAGE>
Three and Six Months Ended June 30, 1996 Compared to Three and Six Months
Ended June 30, 1995
The following table sets forth, for the periods indicated, certain
operational data as a percentage of total revenue.
<TABLE>
<CAPTION>
THREE MONTHS PERCENTAGE SIX MONTHS PERCENTAGE
ENDED INCREASE (DECREASE) ENDED INCREASE (DECREASE)
JUNE 30, THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED
--------------------- JUNE 30, 1995 TO --------------------- JUNE 30, 1995 TO
1996 1995 JUNE 30, 1996 1996 1995 JUNE 30, 1996
---------- ---------- ------------------- ---------- ---------- -------------------
(RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED)
---------- ---------- ------------------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... 52% 73% (67%) 50% 73% (67%)
Service............... 40% 20% (7%) 42% 20% (1%)
Education............. 8% 7% (47%) 8% 7% (45%)
----- ---- ----- ----- ---- ----
Total revenues.......... 100% 100% (54%) 100% 100% (52%)
Cost of revenues:
Cost of software,
maintenance and
services............. 59% 18% 55% 56% 16% 64%
Cost of education and
training............. 8% 5% (32%) 10% 6% (15%)
----- ---- ----- ----- ---- ----
Total cost of revenues.. 67% 23% 36% 66% 22% 44%
----- ---- ----- ----- ---- ----
Gross profit............ 33% 77% (80%) 34% 78% (79%)
Operating Expenses:
Selling and
marketing............ 127% 39% 49% 126% 40% 50%
General and
administrative....... 28% 12% 7% 28% 12% 13%
Research and
development.......... 42% 14% 43% 42% 14% 43%
Provision for
restructuring
changes.............. 30% 0% * 16% 0% *
----- ---- ----- ----- ---- ----
Total operating
expenses............... 226% 65% 62% 212% 66% 54%
----- ---- ----- ----- ---- ----
Operating income
(loss)................. (193%) 12% * (178%) 12% *
Equity in loss of
joint venture........ 0% 1% (100%) 0% (2%) *
Other income.......... 4% 2% (27%) 5% 1% 71%
----- ---- ----- ----- ---- ----
Total other income.... 4% 3% (38%) 5% (1%) *
----- ---- ----- ----- ---- ----
Pre-tax income (loss)... (189%) 15% * (173%) 11% *
Provision for income
taxes.................. 24% 4% 141% 12% 3% 81%
----- ---- ----- ----- ---- ----
Net income (loss)....... (213%) 11% * (185%) 8% *
===== ==== ===== ===== ==== ====
</TABLE>
- --------
* Not applicable
Total revenues decreased 67% to $3,609,000 in the three months ended June
30, 1996 from $7,811,000 in the three months ended June 30, 1995, and to
$6,828,000 in the six months ended June 30, 1996 from $14,283,000 in the six
months ended June 30, 1995. The revenue decreases were largely attributable to
software license fees, which decreased to $1,881,000 in the three months ended
June 30, 1996 from $5,714,000 in the three months ended June 30, 1995, and to
$3,404,000 in the six months ended June 30, 1996 from $10,351,000 in the six
months ended June 30, 1995. Software revenues accounted for 52% of total
revenues for the three months ended June 30, 1996 as compared to 73% for the
three months ended June 30, 1995.
62
<PAGE>
These revenue decreases are attributable to a number of factors. OEC
continues to rely on major transactions each quarter to reach revenue targets.
Such reliance carries the associated risk of revenue shortfall if such
transactions are delayed or fail to close. OEC closed no transactions over
$250,000 in the three months ended June 30, 1996 as compared to five
transactions over $250,000 in the three months ended June 30, 1995. The
pending merger with Borland has caused certain customers to delay purchases
until the completion of the Merger, as these customers have expressed their
desire to see the impact of the Merger on OEC's products prior to making
significant financial commitments to OEC's products.
OEC has recently experienced an extended sales cycle of approximately 9 to
12 months for its products. An inconsistent marketing message has lengthened
this sales cycle beyond the 6 to 9 months experienced in the past, which has
made it even more difficult for OEC to forecast revenues for any given period
until that period has ended. Based on its analysis of operations for the
period ending March 31, 1996, it is now OEC's business judgment that the
manner in which it marketed products has been too broad and, in particular,
that OEC has marketed its products into too many market segments and to
companies at too many stages of distributed client/server application
development and deployment. This included expansion of OEC's marketing efforts
to include desktop and first generation users in addition to users more
experienced with management of computer operations in a client/server
environment. OEC believes that this has contributed to the lengthening in
OEC's sales cycle in the following manners: a changing product positioning
detracted from the clear understanding of OEC's existing customer base and
some qualified leads, thus extending the decision process; such a strategy
resulted in certain leads entering the sales pipeline when, based on the
development of additional data, such leads later did not appear likely to meet
the criteria for qualified lead and, therefore, generate appropriate sales;
these factors also caused certain operational challenges within OEC's sales
and marketing organization, including the re-education of sales personnel,
development of new sales and seminar presentations and marketing collateral
and changes in OEC's product development plans.
Additionally, revenues from reselling Gupta software products by OEC's
Australian subsidiary decreased to $802,000 in the three months ended June 30,
1996 from $1,397,000 in the three months ended June 30, 1995, and to
$1,421,000 in the six months ended June 30, 1996 from $2,397,000 in the six
months ended June 30, 1995. This decrease is the result of the Australian
subsidiary's continued transition from such resale activities to the sale of
OEC's Entera product line, as well as the underlying impact of the Merger with
Borland, with whom Gupta competes directly.
There has also been some level of distraction at the employee and management
level regarding the planning and integration process for completion of the
Merger and post-Merger operations. OEC believes that this has also contributed
to the decline in revenues in the three months ended June 30, 1996.
Also contributing to the decrease in total revenues was a decrease in
education revenues to $287,000 in the three months ended June 30, 1996 from
$540,000 in the three months ended June 30, 1995, and to $584,000 in the six
months ended June 30, 1996 from $1,054,000 in the six months ended June 30,
1995. These decreases are consistent with OEC's shift away from the use of
education to further market awareness to the use of education as technical
training for software licensing.
Maintenance and service fees decreased to $1,441,000 in the three months
ended June 30, 1996 from $1,557,000 in the three months ended June 30, 1995,
and to $2,840,000 in the six months ended June 30, 1996 from $2,877,000 in the
six months ended June 30, 1995. Although OEC has experienced continued demand
for project related services, this demand has been offset by a decrease in
maintenance revenues due to the decreased level of software license revenues
in the six months ended June 30, 1996.
Revenues from Open Environment Australia and other international customers
accounted for $1,272,000 (35%) of total net revenues for the three months
ended June 30, 1996, as compared to $3,393,000 (43%) for the three months
ended June 30, 1995, and $2,609,000 (38%) for the six months ended June 30,
1996, as compared to $6,362,000 (45%) for the six months ended June 30, 1995.
This decrease is attributable to the decrease in revenues from Open
Environment Australia as noted above as well as the lack of major
international transactions
63
<PAGE>
in the first quarter of 1996 and the timing of orders from international
resellers. OEC believes that international sales will continue to represent a
significant portion of OEC's net revenue. However, the percentage of revenue
derived from international sales will continue to fluctuate based on the
timing of orders from international customers and resellers and the addition
of new international customers and resellers.
Cost of revenues increased to $2,415,000 for the three months ended June 30,
1996 from $1,781,000 for the three months ended June 30, 1995, and to
$4,530,000 in the six months ended June 30, 1996 from $3,149,000 in the six
months ended June 30, 1995. Gross profits decreased to 33% for the three
months ended June 30, 1996 from 77% for the three months ended June 30, 1995,
and to 34% for the six months ended June 30, 1996 from 78% for the six months
ended June 30, 1995. The increase in cost of revenues is due primarily to
increased staffing in the services department, as OEC has hired additional
personnel to serve the continued demand for project related services. The
decrease in gross profit is the result of decreases in revenues without
corresponding cost reductions. OEC's cost structure is predominantly fixed in
the short term because it largely represents personnel and the infrastructure
necessary to support them. A shortfall in revenues has a direct and immediate
impact on OEC's gross profits and operating profitability due to OEC's
inability to react to a revenue shortfall from a cost perspective in the near
term. Fixed costs that are classified as cost of revenues include personnel
costs in the education, services and maintenance departments as well as
amortization of capitalized software.
Selling and marketing expenses increased to $4,586,000 in the three months
ended June 30, 1996 from $3,073,000 in the three months ended June 30, 1995,
and to $8,574,000 in the six months ended June 30, 1996 from $5,698,000 in the
six months ended June 30, 1995. These increases are the result of the hiring
of additional personnel and increased marketing programs as OEC continues to
develop its direct sales force, build its marketing channels and increase its
promotional activities to broaden market awareness. OEC expects to continue to
invest a significant amount of its resources in its selling and marketing
efforts. In addition, OEC recorded specific additional reserves for potential
bad debts of $475,000 in the three months ended June 30, 1996 as a direct
result of the deteriorated aging of two international accounts, one of which
is a reseller in Saudi Arabia and the other is an end-user in India. OEC has
been actively pursuing collection of these balances, but has been unsuccessful
in obtaining cooperation from the customers, and although OEC is still
actively pursuing collection of the balances, management provided for these
amounts given their age and uncertainty.
General and administrative expenses increased to $999,000 in the three
months ended June 30, 1996 from $934,000 in the three months ended June 30,
1995 and to $1,902,000 in the six months ended June 30, 1996 from $1,685,000
in the six months ended June 30, 1995. The increase for the three months ended
June 30, 1996 is a result of increased professional fees related to a number
of corporate matters surrounding the pending transaction with Borland. The
year-to-date increase as compared to the six months ended June 30, 1995 is
largely the result of the addition of infrastructure to support OEC's domestic
and international expansion. However, OEC has made a concerted effort to
control general and administrative expenses in recent months, as the Company
has focused on slowing growth in areas that are not revenue-related. As a
result, the quarter-to-quarter level of general and administrative expenses
has remained relatively flat with the exception of the professional fees noted
above, as general and administrative expenses amounted to $902,000 in the
three months ended March 31, 1996 and $940,000 in the three months ended
December 31, 1995.
Research and development expenses increased to $1,500,000 in the three
months ended June 30, 1996 from $1,052,000 in the three months ended June 30,
1995, and to $2,877,000 in the six months ended June 30, 1996 from $2,008,000
in the six months ended June 30, 1995. These increases reflect personnel
increases in the research and development department, increases in contracted
work for certain porting activities to various platforms, and international
localization efforts for certain of OEC's products. Also contributing to the
increases in research and development expenses was the fact that only $22,000
of software development costs were capitalized under FAS 86 for the six months
ended June 30, 1996, as compared to $87,000 and $167,000 in the three and six
month periods ended June 30, 1995, respectively. Amortization of previously
capitalized software, which is included in cost of software, amounted to
$158,000 and $322,000 in the three and six month periods ended June 30, 1996,
respectively, as compared to $66,000 and $136,000 in the three and six month
periods ended June 30, 1995, respectively. The decrease in software
development costs capitalized in 1996 was due to
64
<PAGE>
the fact that minimal activities were devoted to projects at the point of
technological feasibility as defined by FAS 86. OEC expects to continue to
increase its research and development expenses to keep pace with the
technological needs of the marketplace.
OEC recorded a provision for restructuring charges of $1,083,000 in the
three month period ended June 30, 1996. Charges included the write-off of
inventory and prepaid royalties related to the Learning Center division, as
OEC has discontinued all activities related to the Learning Center ($381,000),
the write-off of certain assets related to worldwide education facilities, as
OEC is no longer operating such facilities ($302,000); severance costs
($254,000), the write-off of OEC's investment in a failed joint venture
($81,000), and other miscellaneous related costs ($65,000). Substantially all
of these charges were incurred prior to June 30, 1996.
During the third quarter of 1995, the Company sold a portion of its interest
in its Japanese joint venture to its joint venture partner. The transaction
results in OEC now owning 19.5% of the joint venture and accordingly,
accounting for the joint venture under the equity method has been
discontinued. OEC will continue to recognize royalty revenue from the joint
venture, but no longer recognizes any share of the venture's operating income
or loss.
Other income decreased to $143,000 in the three months ended June 30, 1996
from $190,000 in the three months ended June 30, 1995, but increased to
$340,000 in the six months ended June 30, 1996 from $197,000 in the six months
ended June 30, 1995. This decrease reflects the reduction of income generated
from the remaining investment of the net proceeds of the initial public
offering of OEC's common stock in April 1995. Those invested balances have
decreased with OEC's recent operating losses.
OEC also recorded a provision for income taxes in the three months ended
June 30, 1996 of $847,000. This provision represents the write off of deferred
tax assets under Statement of Financial Accounting Standards 109, Accounting
for Income Taxes, due to OEC's operating losses in the second quarter 1996, as
those losses have put the ultimate realization of OEC's deferred tax assets in
doubt.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, OEC's cash and cash equivalents decreased to $5,357,000
from $7,012,000 at December 31, 1995, and OEC also held marketable securities
amounting to $7,075,000 at March 31, 1996, a decrease from $10,678,000 at
December 31, 1995. The net decrease in cash and cash equivalents and
marketable securities was primarily the result of cash used to fund OEC's
operating losses in the first six months of 1996. OEC has the positive intent
and ability to hold its investment securities to maturity.
OEC has a credit facility consisting of a demand line of credit of
$2,000,000 and a revolving equipment line of $1,000,000. Availability under
the demand line of credit is based on a percentage of qualified accounts
receivable. Borrowings outstanding on January 1, 1996 under the revolving
equipment line converted to a two-year term note. Interest on the demand line
of credit accrues at the prime rate, and interest on the revolving equipment
line accrues at prime plus one-quarter percent. As of June 30, 1996, aggregate
borrowings under the line of credit amounted to $1,372,000, of which $750,000
represents the remaining balance on the revolving equipment line that
converted to a two-year term note. This balance is classified as currently
payable due to the fact that OEC is in violation of financial covenants
related to quarterly cash flows and operating losses.
In the event that the Company continues to experience significant losses and
is unable to consummate a strategic transaction or sale of its business,
management of the Company anticipates that it would require additional sources
of working capital by the beginning of 1997. In the absence of a strategic
transaction or sale of its business, the Company would therefore be required
to make significant reductions in its rate of expenditures during 1996 in
order to defer the requirement to obtain additional working capital, and
would, in the absence of being able to reduce expenditures appropriately on a
timely basis, face the need to obtain additional working capital either
through private financing or alternatively sell the Company. There is no
assurance that if the Company seeks additional financing in the future, such
financing will be available upon acceptable terms, if at all.
65
<PAGE>
Dividends paid in June 1995 were paid out of Jarrah Technologies prior to
its acquisition by OEC. OEC does not expect to declare or pay dividends to
stockholders in the foreseeable future.
Certain Factors That May Affect Future Results of OEC
A number of uncertainties exist that could affect OEC's future operating
results, including, without limitation, general economic conditions, the
effect of recent transitions in OEC's management, the distractions created by
management's focus on the completion of the Merger and the integration of its
operations into Borland, ability to attract and retain key personnel,
continued ability to develop and introduce innovative products, the
introduction of new products by competitors, pricing practices of competitors
and OEC's ability to control costs.
OEC's software is designed principally for use by large organizations
developing software applications in a client/server or other distributed
computing environment. OEC's future financial performance will depend in large
part on continued growth in the number of organizations adopting client/server
software environments and the number of applications developed for use in
those environments. There can be no assurance that this market will grow or
that OEC will be able to respond effectively to the evolving requirements of
this market.
A substantial percentage of OEC's sales of products and services were
initially attributable to activities or referrals by CTG or other entities
affiliated with John J. Donovan, Sr., OEC's Chairman of the Board. OEC
established its own independent marketing organization in 1993 because it
believed that in order to achieve its business objectives it had to expand its
sales and marketing efforts. OEC's products have a long sales cycle and OEC
believes that they are best marketed and sold through a series of regional
sales offices, as well as hardware vendors, business partners and strategic
alliances. If OEC is unable to successfully implement its expanded sales and
marketing efforts, its results of operations could be materially and adversely
affected.
The software application development market is extremely competitive.
Certain current and potential competitors of OEC are more established, benefit
from greater market recognition and have substantially greater financial,
technological and marketing resources than OEC. There can be no assurance that
either existing or future competitors will not develop products that are
superior to OEC's products or that achieve greater market acceptance. OEC's
future success will depend in large part upon its ability to attract new
customers, license additional products and deliver product enhancements and
services to existing customers. There can be no assurance that future
competition will not have a material adverse effect on OEC's results of
operations.
OEC does not typically carry a material backlog of unfilled orders as
software products are generally shipped within a short period after receipt of
the order. Quarterly revenues and operating results therefore depend primarily
on the volume and timing of orders received during the quarter, which are
difficult to forecast. OEC has often recognized a substantial portion of its
revenues in the last month of the quarter. A significant portion of OEC's
operating expenses are committed in advance, since personnel levels and other
expenses are based on anticipated revenues. As a substantial portion of OEC's
revenues may not be generated until the end of each quarter, OEC may not be
able to reduce spending in response to sales shortfalls or delays and this may
result in an immediate material adverse impact on OEC's business, operating
results and financial condition. There can be no assurance that OEC will be
successful in improving its profitability or avoiding losses in any future
period.
International revenues represented approximately 40% of OEC's revenues for
fiscal 1995. OEC believes that its continued growth and profitability will
require expansion of its international operations. There can be no assurance
that OEC will be able to maintain or increase international sales of its
products or that the OEC's international distribution channels will be able to
adequately service and support OEC's products. International sales are subject
to certain risks, including unexpected changes in regulatory requirements and
tariffs, difficulties in staffing and managing foreign operations, longer
payment cycles, greater difficulty in accounts receivable collection and
potentially adverse tax consequences. Gains and losses on the conversion to
U.S. dollars of receivables and payables arising from international operations
could in the future contribute to fluctuations in OEC's results of operations
and fluctuations in exchange rates could affect demand for the OEC's products.
Sales
66
<PAGE>
by OEC's Japanese joint venture are denominated in yen, and are therefore
subject to exchange rate variations which could impact OEC's financial results
in the future and affect the level of royalties received by the Company on
such reserves. See Note 13 to Notes To Open Environment Corporation
Consolidated Financial Statements and Schedule of December 31, 1995 included
elsewhere herein.
Security Ownership of Certain Beneficial Owners and Management
Except as otherwise indicated, the following table sets forth information,
as of June 30, 1996, regarding the ownership of OEC Common Stock by (i) the
stockholders known by OEC to own more than five percent of the outstanding
shares of OEC Common Stock; (ii) each OEC director; (iii) the Chief Executive
Officer of OEC for the year ended December 31, 1995 and the four most highly
compensated executive officers of OEC for the year ended December 31, 1995
whose salary and incentive compensation for the year ended December 31, 1995
exceeded $100,000; and (iv) all directors and executive officers of OEC as a
group:
<TABLE>
<CAPTION>
SHARES OF COMMON
NAME AND ADDRESS OF STOCK BENEFICIALLY PERCENTAGE OF COMMON
BENEFICIAL OWNER OWNED(1) STOCK OUTSTANDING(2)
------------------- ------------------ --------------------
<S> <C> <C>
NAME AND ADDRESS OF 5% STOCKHOLDERS
Harrington Limited ....................... 636,650 8.4%
as the Trustee of The Appleby Trust
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda
John J. Donovan, Sr.(3)................... 597,360 7.9
219 Vassar Street
Cambridge, MA 02139
John J. Donovan, Jr.(4)................... 700,000 9.3
James H. Donovan
219 Vassar Street
Cambridge, MA 02139
Frontenac Company......................... 583,333 7.7
135 S. LaSalle Street
Chicago, IL 60603
Venture Capital Partnerships.............. 416,665 5.5
managed by Hancock Venture Partners, Inc.
One Financial Center
Boston, MA 02111
</TABLE>
- --------
(1) The inclusion herein of any shares of OEC Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares by the respective stockholders. Unless otherwise indicated, to the
knowledge of OEC, each stockholder referred to above has sole voting and
investment power with respect to the shares listed.
(2) For purposes of this table, the number of shares of OEC Common Stock owned
by each holder is determined under the rules of the Commission and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
of OEC Common Stock as to which each holder has sole or shared voting or
investment power and also any shares of OEC Common Stock with respect to
which any rights are owned by such holder and are convertible into or
exercisable for shares of OEC Common Stock within 60 days after June 30,
1996.
(3) Includes 597,360 shares of OEC Common Stock owned by J&S Limited
Partnership, of which Mr. Donovan is the sole stockholder of the general
partner.
(4) Includes 700,000 shares of Common Stock owned by Legacy Investment
Partnership, of which John J. Donovan, Jr. and James H. Donovan are the
two managing general partners.
67
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON
DIRECTORS AND STOCK BENEFICIALLY PERCENTAGE OF COMMON
EXECUTIVE OFFICERS OWNED(1) STOCK OUTSTANDING(2)
------------------ ------------------ --------------------
<S> <C> <C>
Albert Carnesale(3)................... 26,250 *
James E. Cowie(4)..................... 583,333 7.7%
John J. Donovan Sr.(5)................ 597,360 7.9%
Paul W. MacAvoy(6).................... 28,000 *
Nathan P. Morton(7)................... 36,671 *
James G. Nondorf(8)................... 14,556 *
E. Dennis Ross(9)..................... 28,000 *
Andrew L. Berman(10).................. 9,625 *
James J. Driscoll(11)................. 43,950 *
Robert A. Fisher(12).................. 8,750 *
Adam C. Honig(13)..................... 36,750 *
All directors and executive officers
as a group of (11 persons)(14)....... 1,413,245 18.4%
</TABLE>
- --------
* Less than 1%
(1) The inclusion herein of any shares of OEC Common Stock deemed
beneficially owned does not constitute an admission of beneficial
ownership for those shares by the respective stockholders. Unless
otherwise indicated, to the knowledge of OEC each stockholder referred to
above has sole voting and investment power with respect to the shares
listed.
(2) For purposes of this table, the number of shares of OEC Common Stock
owned by each director or executive officer is determined under the rules
of the Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares of OEC Common Stock as to which each
director or executive officer has sole or shared voting or investment
power and also any shares of OEC Common Stock with respect to which any
options held by such director or executive officer are exercisable within
60 days after June 30, 1996.
(3) Includes 1,750 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Carnesale within 60 days after June
30, 1996.
(4) Includes 583,333 shares of OEC Common Stock owned by Frontenac VI L.P.,
of which Mr. Cowie is a general partner of the general partner.
(5) Includes 597,360 shares of OEC Common Stock owned by J&S Limited
Partnership, of which John J. Donovan, Sr. is the sole stockholder of the
general partner.
(6) Includes 3,500 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. MacAvoy within 60 days after June
30, 1996.
(7) Mr. Morton resigned as President, Chief Executive Officer and director of
the Company on April 5, 1996.
(8) Includes 14,556 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Nondorf within 60 days after June
30, 1996.
(9) Includes 3,500 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Ross within 60 days after June 30,
1996.
(10) Includes 9,625 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Berman within 60 days after June 30,
1996.
(11) Includes 43,750 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Driscoll within 60 days after June
30, 1996.
(12) Includes 8,750 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Fisher within 60 days after June 30,
1996.
(13) Includes 36,750 shares of OEC Common Stock issuable pursuant to stock
options which are exercisable by Mr. Honig within 60 days after June 30,
1996.
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<PAGE>
(14) Includes an aggregate of 122,181 shares of OEC Common Stock which all
executive officers and directors have the right to acquire under
outstanding stock options within 60 days after June 30, 1996. Also
includes (i) 583,333 shares of OEC Common Stock owned by Frontenac VI
L.P. of which Mr. Cowie is a general partner of the general partner and
(ii) 597,360 shares of OEC Common Stock owned by J&S Limited Partnership
of which John J. Donovan, Sr. is the sole stockholder of the general
partner.
MERGER SUBSIDIARY
Merger Subsidiary was formed on May 3, 1996 by Borland solely for the
purpose of effecting the Merger. It has no material assets and has not engaged
in any activities except in connection with the Merger. Its principal
executive office is located at 100 Borland Way, Scotts Valley, California
95066-3249, and its telephone number is (408) 431-1000.
69
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED FINANCIAL INFORMATION
The following pro forma unaudited combined condensed financial statements
give effect to the merger of Borland and OEC to be accounted for as a pooling
of interests. The pro forma unaudited combined condensed balance sheet
presents the combined financial position of Borland and OEC as of June 30,
1996 assuming that the proposed merger had occurred as of June 30, 1996. Upon
the consummation of the proposed merger, OEC's December 31 year end will be
conformed to Borland's March 31 year end for fiscal 1997. Accordingly, the pro
forma unaudited combined condensed retained earnings at June 30, 1996 has been
adjusted as of the first day of fiscal 1997 to include the results of
operations of OEC for the three months ended March 31, 1996. Revenues and net
loss of OEC for the three months ended March 31, 1996 were $3,218,742 and
$4,966,585, respectively. Such pro forma information is based upon the
historical balance sheet data of Borland and OEC as of that date. The pro
forma unaudited combined condensed statements of operations give effect to the
proposed merger of Borland and OEC by combining the results of operations of
Borland for the three years ended March 31, 1996 and three months ended June
30, 1996 and 1995, with the results of operations of OEC for the three years
ended December 31, 1995, the three months ended June 30, 1996 and March 31,
1995, respectively, on a pooling of interests basis. These unaudited pro forma
combined condensed financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto of Borland and
OEC included elsewhere or incorporated by reference in this Prospectus/Proxy
Statement.
BORLAND AND OEC
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
BORLAND OEC
JUNE 30, JUNE 30, PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
(RESTATED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 78,724 $ 5,357 $ -- $ 84,081
Short-term investments........... 7,956 7,075 -- 15,031
Accounts receivable, net......... 18,649 4,131 -- 22,780
Deferred income taxes and other
current assets.................. 9,708 3,459 (500)(3) 12,667
-------- ------- -------- --------
Total current assets............. 115,037 20,022 (500) 134,559
Property, plant and equipment, net
of accumulated depreciation and
amortization...................... 112,046 2,757 (500)(3) 114,303
Other non-current assets........... 7,724 1,654 -- 9,378
-------- ------- -------- --------
Total assets..................... $234,807 $24,433 $ (1,000) $258,240
======== ======= ======== ========
Current liabilities:
Accounts payable and accrued
expenses........................ $ 34,551 $ 4,979 $ -- $ 39,530
Short term restructuring......... 2,264 -- 11,500 (3) 13,764
Income taxes payable and other... 24,233 3,192 -- 27,425
-------- ------- -------- --------
Total current liabilities........ 61,048 8,171 11,500 80,719
Long-term debt and other........... 14,315 -- -- 14,315
-------- ------- -------- --------
Total liabilities................ 75,363 8,171 11,500 95,034
-------- ------- -------- --------
Stockholders' equity............... 159,444 16,262 (12,500)(3) 163,206
-------- ------- -------- --------
Total liabilities and
stockholders' equity............ $234,807 $24,433 $ (1,000) $258,240
======== ======= ======== ========
</TABLE>
See Accompanying Notes to Pro Forma Unaudited Combined Condensed Financial
Statements.
70
<PAGE>
BORLAND AND OEC
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
----------------- ----------------------------
1996 1995 1996 1995 1994
-------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 38,146 $60,238 $245,087 $ 272,185 $406,682
Cost of revenues.............. 8,898 9,437 38,157 59,739 113,269
-------- ------- -------- --------- --------
Gross profit.................. 29,248 50,801 206,930 212,446 293,413
Operating expenses:
Selling, general and
administrative............... 39,235 36,149 141,744 207,942 267,722
Research and development...... 13,180 11,186 50,714 63,836 67,332
Restructuring and other non-
recurring charges............ 1,083 -- 679 63,070 22,276
-------- ------- -------- --------- --------
Total operating expenses.... 53,498 47,335 193,137 334,848 357,330
-------- ------- -------- --------- --------
Operating income (loss)....... (24,250) 3,466 13,793 (122,402) (63,917)
Interest income, net.......... 1,890 507 4,221 3,562 1,910
Gain on sale of Quattro Pro... -- -- -- 109,927 --
-------- ------- -------- --------- --------
Income (loss) before income
taxes........................ (22,360) 3,973 18,014 (8,913) (62,007)
Provision for income taxes.... (554) 819 3,295 2,914 7,061
-------- ------- -------- --------- --------
Net income (loss)............. $(21,806) $ 3,154 $ 14,719 $ (11,827) $(69,068)
======== ======= ======== ========= ========
Net income (loss) per share... $ (0.60) $ 0.09 $ 0.40 $ (0.37) $ (2.23)
======== ======= ======== ========= ========
Weighted average shares and
equivalent shares............ 36,268 33,572 37,167 32,228 30,998
======== ======= ======== ========= ========
</TABLE>
See Accompanying Notes to Pro Forma Unaudited Combined Condensed Financial
Statements.
71
<PAGE>
NOTES TO PRO FORMA UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS
1. The pro forma unaudited combined condensed financial statements reflect
the issuance of up to approximately 4.9 million Borland Shares for an
aggregate of up to approximately 7.5 million OEC shares (based on shares of
OEC Common Stock outstanding as of September 30, 1996) in connection with the
Merger based on an Exchange Ratio of 0.66 shares of Borland Common Stock for
each share of OEC Common Stock. The actual number of shares of Borland Common
Stock to be issued will be determined at the Effective Time of the Merger
based on the number of shares of OEC Common Stock then outstanding.
The pro forma unaudited combined condensed balance sheet presents the
combined financial position of Borland and OEC as of June 30, 1996 assuming
that the proposed merger had occurred as of June 30, 1996. Such pro forma
information is based upon the historical consolidated balance sheet data of
Borland and OEC as of that date. The pro forma unaudited combined condensed
statements of operations give effect to the proposed merger of Borland and OEC
by combining the results of operations of Borland for the three years ended
March 31, 1996 and the three months ended June 30, 1996 and 1995, with the
results of operations of OEC for the three years ended December 31, 1995, and
the three months ended June 30, 1996 and the three months ended March 31,
1995, respectively, on a pooling of interests basis.
2. There were no material transactions between Borland and OEC during any
period presented.
3. The combined company expects to incur charges to operations currently
estimated to be in the range of $7 million to $12 million, primarily in the
quarter in which the Merger is consummated, to reflect the combination of the
two companies. This estimate includes charges related to the elimination of
duplicate facilities, property and equipment write-offs, severance costs
relating to the termination of certain employees, cancellation of certain
contract obligations, and the write-off of certain other assets. In addition,
Borland and OEC will incur aggregate transaction costs of approximately $3
million associated with the Merger, bringing the total charge associated with
the transaction to a range of $10 million to $15 million.
The pro forma combined balance sheet as of June 30, 1996 has been adjusted
by $12.5 million, the midpoint of the above range, to reflect the
aforementioned costs. The estimated charge is not reflected in the pro forma
unaudited combined condensed statements of operations data. The amount of this
charge is a preliminary estimate and therefore is subject to change.
72
<PAGE>
4. There were no pro forma adjustments required to prepare the pro forma
unaudited combined condensed statements of operations. The table below sets
forth the composition of the unaudited pro forma combined net revenues and net
income for each of the periods shown had the Merger taken place at the
beginning of the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
----------------- ---------------------------
1996 1995 1996 1995 1994
-------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET REVENUES
Borland.......................... $ 34,537 $53,766 $215,206 $254,064 $393,519
OEC.............................. 3,609 6,472 29,881 18,121 13,163
-------- ------- -------- -------- --------
Combined......................... $ 38,146 $60,238 $245,087 $272,185 $406,682
======== ======= ======== ======== ========
NET INCOME (LOSS)
Borland.......................... $(14,128) $ 2,805 $ 14,285 $(12,177) $(69,891)
OEC.............................. (7,678) 349 434 350 823
-------- ------- -------- -------- --------
Combined......................... $(21,806) $ 3,154 $ 14,719 $(11,827) $(69,068)
======== ======= ======== ======== ========
</TABLE>
Certain reclassifications have been made to the OEC financial statements in
the pro forma unaudited combined condensed financial statements to conform to
Borland classifications.
5. The pro forma unaudited combined net income (loss) per share is based on
the weighted average number of shares of common stock and common equivalent
shares outstanding of Borland and OEC for each period using an exchange ratio
of 0.66 shares of Borland for each share of OEC.
73
<PAGE>
COMPARISONS OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, stockholders of OEC will become
stockholders of Borland. The rights of former OEC stockholders will continue
to be governed by applicable Delaware General Corporation Law ("Delaware
Law"), and will be governed by the Certificate of Incorporation, as amended,
and Bylaws of Borland (the "Borland Certificate" and the "Borland Bylaws,"
respectively). The following is a summary of the material differences between
the Borland Certificate and Borland Bylaws, on the one hand, and the
Certificate of Incorporation and Bylaws of OEC (the "OEC Certificate" and the
"OEC Bylaws," respectively), on the other hand, that may affect the rights of
OEC's stockholders who become holders of Borland Common Stock.
CAPITAL STOCK
The authorized capital stock of Borland consists of 100,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock, $0.01 par value. As of
July 31, 1996, approximately 31 million shares of Borland Common Stock and no
shares of Borland Preferred Stock were outstanding. All shares of Borland
Common Stock are identical and have one vote per share.
The authorized capital stock of OEC consists of 30,000,000 shares of Common
Stock and 1,000,000 shares of Preferred Stock, $0.01 par value. As of June 30,
1996, 7,538,249 shares of OEC Common Stock and no shares of OEC Preferred
Stock were outstanding. All shares of OEC Common Stock are identical and have
one vote per share.
INTRODUCTION OF BUSINESS BY STOCKHOLDERS AT MEETINGS OF STOCKHOLDERS
The OEC Bylaws provide that if a stockholder wishes to bring business to a
stockholders' meeting, it must have been (a) specified in OEC's written notice
of the meeting that OEC sends to its stockholders, (b) brought before the
meeting at the direction of the OEC Board or the chairman of the meeting, or
(c) specified in a written notice given by or on behalf of a stockholder of
record. Such notice must be delivered to OEC's Secretary not more than 10 days
after OEC's notice to its stockholders but not less than 30 days prior to the
first anniversary of the date of OEC's notice to its stockholders regarding
the previous year's meeting, provided, however, that such notice shall not be
required to be given more than 60 days prior to the stockholders' meeting.
The Borland Bylaws provides that the stockholder's notice regarding
additional business at the stockholders' meeting must be delivered to
Borland's Secretary not less than 30 days prior to the meeting, provided
however that if Borland has given less than 40 days' notice to its
stockholders notice of Borland's stockholder meeting, Borland's Secretary must
receive a stockholder's notice not later than the close of business on the
10th day following the day Borland gives its notice of the date of the
stockholders' meeting.
NUMBER AND CLASSIFICATION OF DIRECTORS
The OEC Bylaws provide that the OEC stockholders or the OEC Board may
determine the size of the OEC Board from time to time, but the OEC Board may
not have less than three directors. The Borland Bylaws fix the number of
directors at seven, subject to change as set from time to time by the board.
The Borland Board is divided into three classes, with each class serving a
staggered three year term. OEC does not have a staggered Board.
QUORUM AND INTERESTED TRANSACTIONS
The Borland Bylaws provide that when the Borland Board votes on a
transaction in which a director or officer has an interest, common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Borland Board or a committee which authorizes the contract or
transaction. The OEC Bylaws provide that when one or more of the directors are
disqualified to vote at a meeting, the quorum shall be reduced by one for each
such director so disqualified, provided that the quorum shall never be less
than 1/3 of the total
74
<PAGE>
number of the whole board of directors. The Borland Bylaws provide that
Borland may lend money to, or guarantee obligations of, or otherwise extend
credit to any of its officers or employees.
AMENDMENT OF BYLAWS PROVISIONS REGARDING DIRECTORS
The OEC Bylaws provide that notwithstanding any law, the OEC Certificate or
other provisions of the OEC Bylaws, the affirmative vote of at least 2/3 of
the votes which all stockholders are entitled to cast at an annual meeting is
required to amend, repeal or adopt any provision inconsistent with Article 2
of the OEC Bylaws regarding OEC's directors. Generally, however, both the
Borland Bylaws and the OEC Bylaws provide that the Bylaws may be amended by
the affirmative vote of a majority of the directors present at any board
meeting at which a quorum is present, or by a majority vote of the shares
represented and entitled to vote at a meeting of stockholders.
PAYMENT OF DIVIDENDS
Borland has not paid dividends to the holders of its Common Stock during the
past five years. OEC has not paid dividends to holders of OEC Common Stock
since its initial public offering in April 1995. Borland intends to retain all
of its earnings for use in its business and, therefore, does not anticipate
paying cash dividends on Borland Common Stock in the foreseeable future.
NO APPRAISAL RIGHTS
No stockholder of Borland or OEC will have any appraisal rights in
connection with or as a result of the matters to be acted upon at the Special
Meeting.
LEGAL MATTERS
The legality of the shares of Borland Common Stock being offered hereby will
be passed upon for Borland by Baker & McKenzie, Palo Alto, California. The
federal income tax consequences in connection with the Merger will be passed
upon by Baker & McKenzie and Hale and Dorr, Boston, Massachusetts.
EXPERTS
The consolidated financial statements incorporated in this Prospectus/Proxy
Statement by reference to the Annual Report on Form 10-K of Borland
International, Inc. for the year ended March 31, 1996, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements and schedule of OEC at December 31,
1995 and 1994, and for each of the three years in the period ended December
31, 1995 included herein for the year ended December 31, 1995 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included herein which, as to the years ended December 31, 1994
and 1993, are based in part on the reports of William Buck, independent
auditors. The consolidated financial statements and schedule referred to above
are included herein in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Proposals of OEC stockholders to be presented at the 1997 Annual Meeting of
Stockholders of OEC should be received by OEC at its principal office in
Boston, Massachusetts not later than November 15, 1996 for inclusion in the
proxy statement for that meeting. If the Merger is consummated, no such
meeting will be held.
75
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OPEN ENVIRONMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULE AND SUPPLEMENTARY DATA AT DECEMBER
31, 1995
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................. F-2
Reports of William Buck, Chartered Accountants.................... F-3-4
Consolidated Balance Sheets at December 31, 1995 and 1994,
(restated)....................................................... F-5
Consolidated Statements of Income for the years ended December 31,
1995, 1994 and 1993, (restated).................................. F-6
Consolidated Statements of Stockholders' Equity (Deficiency) for
the years ended December 31, 1995, 1994 and 1993, (restated)..... F-7
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993, (restated).............................. F-8
Notes to Consolidated Financial Statements (restated)............. F-9-21
Schedule II-Valuation and Qualifying Accounts..................... F-22
Statement Regarding Computation of Net Income per Share
(restated)....................................................... F-23
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA JUNE 30,
1996
Condensed Consolidated Balance Sheets (unaudited) as of June 30,
1996 and December 31, 1995, (restated)........................... F-24
Condensed Consolidated Statements of Operations (unaudited) for
the six months ended June 30, 1996 and 1995, (restated).......... F-25
Condensed Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 1996 and 1995, (restated).......... F-26
Notes to Condensed Consolidated Financial Statements (unaudited)
(restated)....................................................... F-27-28
Computation of Net Income (Loss) Per Share (restated)............. F-29
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Open Environment Corporation and subsidiaries
We have audited the accompanying consolidated balance sheets of Open
Environment Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement schedule
listed in the Index on page F-1. The financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and schedule based on our audits.
We did not audit the 1994 and 1993 financial statements of Jarrah
Technologies Pty. Limited, a wholly-owned subsidiary, which statements reflect
total assets constituting 16% in 1994 and total revenues constituting 25% in
1994 and 25% in 1993 of the related consolidated totals. These statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for Jarrah Technologies Pty.
Limited for 1994 and 1993, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts (including the conversion of the financial statements of
Jarrah Technologies Pty. Limited to U.S. generally accepted accounting
principles) 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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Open Environment Corporation and subsidiaries at December 31, 1995 and 1994,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 27, 1996, except as to
the fourth
paragraph of
Note 1, as to which
the date is October
4, 1996
F-2
<PAGE>
WILLIAM BUCK
CHARTERED ACCOUNTANTS
REPORT OF INDEPENDENT AUDITORS
REPORT TO THE BOARD OF DIRECTORS OF OPEN ENVIRONMENT CORPORATION
AUDIT SCOPE
We have audited the financial statements of Jarrah Technologies Pty. Limited
for the year ending December 31, 1994. These financial statements were the
responsibility of the management of Jarrah Technologies Pty. Limited. Our
responsibility was to express an opinion on these financial statements, which
were prepared in accordance with Australian Accounting Standards, based on our
audit.
We conducted our audit in accordance with Auditing Standards in Australia
which do not differ in any significant respect from the General Standards and
Standards of Field Work contained in the Generally Accepted Auditing Standards
in the United States of America. We have not, and do not offer an opinion on
compliance with United States reporting standards as they apply to adherence
with generally accepted accounting principles in the United States.
Those auditing standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements, prepared
in accordance with Australian Accounting Standards, were free from 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.
Our audit scope included ensuring that the financial statements complied
with Australian Accounting Standards. The Australian financial statements,
which formed the basis of our audit opinion, were subsequently adjusted by
Open Environment Corporation to comply with generally accepted accounting
principles in the United States of America and included in the consolidated
financial statements of Open Environment Corporation and subsidiaries which
was reported on by Ernst & Young LLP.
UNQUALIFIED AUDIT OPINION
In our opinion the financial statements referred to above present fairly,
and in all material respects, the state of affairs of Jarrah Technologies Pty.
Limited at December 31, 1994 and the results of operations and cash flows for
the year then ended.
William Buck & Co.
Chartered Accountants
/s/ NT Hatzistergos
NT Hatzistergos
Partner
Sydney, Australia
September 3, 1996
F-3
<PAGE>
WILLIAM BUCK
CHARTERED ACCOUNTANTS
REPORT OF INDEPENDENT AUDITORS
REPORT TO THE BOARD OF DIRECTORS OF OPEN ENVIRONMENT CORPORATION
AUDIT SCOPE
We have audited the financial statements of Jarrah Technologies Pty. Limited
for the year ending December 31, 1993. These financial statements were the
responsibility of the management of Jarrah Technologies Pty. Limited. Our
responsibility was to express an opinion on these financial statements, which
were prepared in accordance with Australian Accounting Standards, based on our
audit.
We conducted our audit in accordance with Auditing Standards in Australia
which do not differ in any significant respect from the General Standards and
Standards of Field Work contained in the Generally Accepted Auditing Standards
in the United States of America. We have not, and do not offer an opinion on
compliance with United States reporting standards, as they apply to adherence
with generally accepted accounting principles in the United States.
Those auditing standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements, prepared
in accordance with Australian Accounting Standards, were free from 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.
Our audit scope included ensuring that the financial statements complied
with Australian Accounting Standards. The Australian financial statements,
which formed the basis of our audit opinion, were subsequently adjusted by
Open Environment Corporation to comply with generally accepted accounting
principles in the United States of America and included in the consolidated
financial statements of Open Environment Corporation and subsidiaries which
was reported on by Ernst & Young LLP.
UNQUALIFIED AUDIT OPINION
In our opinion the financial statements referred to above present fairly,
and in all material respects, the state of affairs of Jarrah Technologies Pty.
Limited at December 31, 1993 and the results of operations and cash flows for
the year then ended.
William Buck & Co.
Chartered Accountants
/s/ NT Hatzistergos
NT Hatzistergos
Partner
Sydney, Australia
September 3, 1996
F-4
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 7,012,333 $ 1,693,118
Marketable securities............................. 10,678,125 94,589
Accounts receivable, net of allowance of $573,856
and $100,871 in 1995 and 1994, respectively...... 7,609,007 3,869,596
Due from related parties.......................... 2,362,752
Prepaid expenses and other current assets......... 1,411,340 328,978
Due from joint ventures........................... 1,428,090 221,043
Deferred income taxes............................. 265,190 56,490
----------- -----------
Total current assets............................ 30,766,837 6,263,814
Property and equipment, net......................... 3,214,341 2,049,392
Capitalized software costs, net of accumulated
amortization of $559,204 and $206,860 in 1995 and
1994, respectively................................. 800,206 427,879
Investment in and advances to joint ventures........ 858,123 387,862
Deferred income taxes............................... 547,184 137,362
Other assets........................................ 459,982 209,349
----------- -----------
$36,646,673 $ 9,475,658
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Notes payable..................................... $ 1,545,684
Accounts payable.................................. 1,162,088 $ 1,427,715
Accrued expenses.................................. 2,981,792 1,400,755
Advance billings and customer deposits............ 629,734 640,833
Deferred maintenance revenue...................... 1,054,135 780,345
Income taxes payable.............................. 350,000 269,260
Current portion of obligations under capital
leases........................................... 178,904 245,489
----------- -----------
Total current liabilities....................... 7,902,337 4,764,397
Deferred income taxes............................... 172,270
Obligations under capital leases, less current
portion............................................ 27,185 206,089
Series A Convertible Preferred Stock, $1.00 par
value; 1,428,571 shares authorized, issued and
outstanding in 1994, liquidation value of
$6,000,000; none issued and outstanding in 1995.... 5,854,332
Stockholders' equity (deficiency):
Preferred Stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding
Common Stock, $.01 par value; authorized
30,000,000 shares; issued 8,050,473 and 5,175,433
shares; outstanding 7,467,141 and 4,592,100
shares in 1995 and 1994, respectively............ 80,505 51,754
Additional paid-in capital........................ 30,694,500 777,126
Retained earnings................................. 1,442,146 1,149,690
Less Treasury Stock, 583,333 of common shares at
cost............................................. (3,500,000) (3,500,000)
----------- -----------
Total stockholders' equity (deficiency)........... 28,717,151 (1,521,430)
----------- -----------
$36,646,673 $ 9,475,658
=========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues:
License fees......................... $21,833,688 $10,812,321 $ 5,073,229
Maintenance and service fees......... 6,154,658 3,016,979 1,117,631
Education and training............... 1,892,826 4,291,604 6,972,447
----------- ----------- -----------
Total revenues..................... 29,881,172 18,120,904 13,163,307
Operating expenses:
Cost of software, maintenance and
services............................ 5,360,206 4,265,265 2,909,482
Cost of education and training....... 1,568,609 2,056,214 2,675,252
Selling and marketing................ 12,883,884 6,921,788 3,056,515
General and administrative........... 3,601,860 2,299,878 1,699,209
Research and development............. 4,256,232 2,075,554 1,679,179
Purchased research and development... 1,372,116
Acquisition and integration costs.... 678,655
----------- ----------- -----------
Total operating expenses........... 29,721,562 17,618,699 12,019,637
----------- ----------- -----------
Operating income (loss)................ 159,610 502,205 1,143,670
Equity in loss of joint venture...... (267,037) (111,434)
Interest income...................... 756,895
Interest expense..................... (158,931) (50,136) (8,853)
Other income......................... 103,376 133,580 119,994
----------- ----------- -----------
Income before income taxes............. 593,913 474,215 1,254,811
Provision for income taxes............. 159,831 124,166 431,783
----------- ----------- -----------
Net income............................. $ 434,082 $ 350,049 $ 823,028
=========== =========== ===========
Net income per share................... $ .05 $ .05 $ .13
=========== =========== ===========
Weighted average number of common
shares outstanding.................... 8,038,592 6,414,506 6,557,778
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK NOTES TREASURY STOCK
----------------- ADDITIONAL RECEIVABLE -------------------
PAR PAID IN FROM RETAINED
SHARES VALUE CAPITAL STOCKHOLDER EARNINGS SHARES COST TOTAL
--------- ------- ----------- ----------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... 5,028,000 $50,280 $ 203,570 $(72,000) $ 44,639 $ 226,489
Interest on notes
receivable............. (5,482) (5,482)
Net income.............. 823,028 823,028
Cash dividends paid by
Jarrah Technologies.... (68,026) (68,026)
--------- ------- ----------- -------- ---------- ------- ----------- -----------
Balance at December 31,
1993................... 5,028,000 50,280 203,570 (77,482) 799,641 976,009
Issuance of Common
Stock.................. 122,500 1,225 488,775 490,000
Repurchase of Common
Stock.................. 583,333 $(3,500,000) (3,500,000)
Stock options
exercised.............. 24,933 249 84,781 85,030
Payment of notes
receivable............. 77,482 77,482
Net income, restated.... 350,049 350,049
--------- ------- ----------- -------- ---------- ------- ----------- -----------
Balance at December 31,
1994, restated......... 5,175,433 51,754 777,126 1,149,690 583,333 (3,500,000) (1,521,430)
Initial public offering
of Common Stock........ 1,700,000 17,000 22,862,473 22,879,473
Conversion of Preferred
Stock.................. 999,998 10,000 5,844,332 5,854,332
Stock options
exercised.............. 167,450 1,675 708,496 710,171
Tax benefit from
exercise of stock
options................ 413,394 413,394
Shares issued under
stock purchase plan.... 7,594 76 88,679 88,755
Net income, restated.... 434,082 434,082
Cash dividends paid by
Jarrah Technologies.... (141,626) (141,626)
--------- ------- ----------- -------- ---------- ------- ----------- -----------
Balance at December 31,
1995, restated......... 8,050,475 $80,505 $30,694,500 $1,442,146 583,333 $(3,500,000) $28,717,151
========= ======= =========== ======== ========== ======= =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................ $ 434,082 $ 350,049 $ 823,028
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation........................ 1,524,976 689,172 210,607
Amortization of capitalized software
costs.............................. 353,385 201,641 5,219
Provision for bad debts............. 472,985 26,371 74,500
Interest accrued on notes receivable
from stockholders.................. (5,482)
Equity in loss of joint venture..... 267,037 111,434
Deferred income taxes............... (790,628) (7,131) (8,780)
Changes in operating assets and
liabilities:
Accounts receivable................ (4,236,544) (1,606,481) (2,245,133)
Due from related parties........... (2,362,752)
Prepaid and other current assets... (1,085,066) (269,197) 141,941
Due from joint ventures............ (1,207,047) (221,043)
Other assets....................... (250,403) (200,935) (8,414)
Accounts payable and accrued ex-
penses............................ 1,353,440 1,228,076 1,400,264
Customer deposits.................. (1,993) (176,617) 796,912
Deferred revenue................... 277,246 356,931 248,717
Income taxes payable............... 91,495 (87,937) 329,592
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERAT-
ING ACTIVITIES....................... (5,159,787) 394,333 1,762,971
------------ ----------- -----------
INVESTING ACTIVITIES
Purchase of marketable securities..... (42,494,016) (52,893)
Proceeds from maturities of marketable
securities........................... 31,906,169
Investment in and advances to joint
ventures............................. (737,224) (536,171)
Purchase of property and equipment.... (2,702,460) (1,537,590) (762,365)
Additions to capitalized software
costs................................ (725,602) (445,093) (189,646)
------------ ----------- -----------
NET CASH USED IN INVESTING ACTIVI-
TIES................................. (14,753,133) (2,571,747) (952,011)
------------ ----------- -----------
FINANCING ACTIVITIES
Notes receivable from stockholders.... 77,482
Net proceeds of notes payable to
bank................................. 1,545,684
Repayment of capital lease obliga-
tions................................ (245,489) (112,776)
Net proceeds from issuance of Common
Stock................................ 22,879,473 490,000 168,002
Proceeds from issuance of Preferred
Stock, net........................... 5,854,332
Purchase of Treasury Stock............ (3,500,000)
Dividends paid........................ (141,626) (68,026)
Exercise of stock options............. 1,123,565 85,030
Issuance of Common Stock under stock
purchase plan........................ 88,755
------------ ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVI-
TIES................................. 25,250,362 2,894,068 99,976
------------ ----------- -----------
Effect of exchange rates on cash...... (18,227) 58,055 5,669
------------ ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS................................ 5,319,215 774,709 916,605
Cash and cash equivalents at beginning
of year.............................. 1,693,118 918,409 1,804
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $ 7,012,333 $ 1,693,118 $ 918,409
============ =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
The Company was incorporated in Delaware on September 18, 1992 to pursue
opportunities in the open client/server software and education markets. The
Company currently provides education services and sells open client/server
software tools globally. Operations commenced on January 1, 1993 with the
purchase and license of certain assets from CTG. During 1992, certain aspects
of the Company existed as the tools division of CTG, providing educational
services and selling software tools globally.
The environment of rapid technological change and intense competition which
is characteristic of the software development industry results in frequent new
products and evolving industry standards. The Company's continued success
depends on its ability to enhance current products and develop new products on
a timely basis which keep pace with the changes in technology, evolving
industry standards and increasingly sophisticated customer needs.
The Company currently derives a significant portion of its revenue from
licenses of its Entera product line and related products and services. As a
result, any factor adversely affecting sales of Entera would have a material
adverse effect on the Company.
Restatement of Financial Statements
Prior to the second quarter of 1995, OEC and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby OEC's customers agreed to purchase certain software and services from
OEC and which specified a future date at or on which a mutually acceptable
software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time
of revenue recognition all products were delivered, OEC believed that
persuasive evidence existed to document an agreement to license OEC's software
by the customer and there were no significant contingencies existing at the
date of revenue recognition. After a review by the Staff, OEC has agreed that
the recognition of revenues under such Non-cancellable LOUs should be delayed
until the earlier of the date such software license and services agreements
were executed by the parties (the "L&S Execution Date") or the expiration of
the Specified Period. The length of the Specified Periods ranged from two days
to 45 days. OEC has restated its historical financial statements contained in
certain of its Reports and this Prospectus/Proxy Statement reflects the
restatement of such financial statements with respect to the five Non-
cancellable LOUs where the earlier of the L&S Execution Date or the end of the
Specified Period occurred in the quarter following the date of execution of
the Non-cancellable LOU. The changes decrease revenue and net income reported
in the fourth quarter of 1994 and increase revenue and net income reported in
each of the first and second quarters of 1995. There was no change in the
aggregate revenue and net income reported over such three quarter period.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiaries. All 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 that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Revenues from the license of software products are recognized upon shipment
to the customer and the agreement as to all material terms of the transaction.
Software products generally are delivered without post sale vendor obligations
and without a significant obligation to the customer. If upon delivery to the
customer, a significant obligation to the customer exists, revenue is deferred
until the obligation is satisfied. The incremental production costs associated
with license revenue such as cost of media, documentation, distribution and
amortization of capitalized software are insignificant in relation to the
related license fees and have been combined with costs of maintenance and
services.
Fees for software maintenance are recognized ratably over the contract
period. Revenues from educational and other services are recognized as the
services are performed.
Advance billings and customer deposits represent amounts advanced by
customers with respect to certain software products and education services.
These amounts are recognized as revenue upon shipment of the software or
fulfillment of the service.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities at
date of purchase of three months or less.
Concentration of Business and Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash, cash equivalents and accounts
receivable. The Company invests its excess cash primarily in high quality
securities and limits the amount of credit exposure to any one financial
institution. This investment policy limits the Company's exposure to
concentration of credit risk and changes in market conditions.
The Company provides credit in the normal course of business, and,
accordingly, performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses. These losses, when realized,
have been within the range of management's expectations.
Investment Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). FAS 115 established the accounting and reporting
requirements for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. All
affected investment securities must be classified as either held-to-maturity,
trading or available-for-sale. Investment securities are deemed to be held-to-
maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are carried at amortized
cost basis. Trading securities are carried at fair value with unrealized
holding gains and losses reported in the income statement. Available-for-sale
securities are carried at fair value with unrealized holding gains and losses
reported as a component of shareholders' equity. The adoption of FAS 115 had
no material impact on the Company's financial position.
F-10
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the Company's investments are classified as held-to-maturity at
December 31, 1995 and 1994. The fair market value of these investments at
December 31, 1995 and 1994 approximates amortized cost basis. Based upon
contractual maturities, all of the Company's investments are scheduled to
mature in 1996. The following is a summary of these investments:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies............................... $12,135,987
Tax-exempt mutual and money market funds........... 1,513,183
90-day bank notes.................................. 2,136,747 $1,000,000
----------- ----------
$15,785,917 $1,000,000
=========== ==========
</TABLE>
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated
at the rate of exchange in effect at year-end, and revenues and expenses are
translated at the average exchange rates during the year. Gains and losses
from translation are not material for the years presented. Foreign currency
transaction gains and losses are included in the accompanying consolidated
statements of income and are not material for the years presented.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided by the use of the straight-line method over the following lives:
<TABLE>
<S> <C>
Furniture, fixtures and equipment.... 5 years
Computer equipment................... 3 years
Purchased computer software.......... 2 years
</TABLE>
Software Development Costs and Research and Development Expenditures
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies.
Amortization of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount determined using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over a
period not to exceed two years from the time the product is commercially
available for delivery to customers.
All other research and development expenditures are charged as research and
development expense in the period incurred.
Income Taxes
The Company provides for income taxes under the liability method prescribed
by Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred income taxes are recognized for the future
tax consequences of differences between the tax and financial accounting bases
of assets and liabilities at each year end. Deferred income taxes are based on
enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
F-11
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and intends to
continue to do so. Accordingly, no compensation expense is recognized for the
stock option grants.
Net Income Per Share
Net income per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during each period. Common
and common equivalent shares issued during the twelve-month period prior to
April 15, 1995, the effective date of the initial public offering, have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method. Included in these amounts are
Common Stock options and 1,428,571 shares of Series A Convertible Preferred
Stock that were converted into 999,998 shares of Common Stock on April 21,
1995 in connection with the initial public offering of Common Stock. Fully
diluted and primary earnings per share data are the same for each period
presented.
Reclassifications
Certain amounts in 1994 and 1993 have been reclassified to permit
comparison.
2. ACQUISITIONS
On August 31, 1995, the Company issued 408,000 shares of Common Stock in
exchange for all outstanding shares of the capital stock of Jarrah
Technologies. The acquisition was accounted for as a pooling of interests and,
accordingly, the accompanying consolidated financial statements of the Company
have been restated to include the accounts and operations of Jarrah
Technologies for all periods prior to the acquisition. Separate results of the
combining entities for the years ended December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Total revenues:
Open Environment Corporation......... $25,340,434 $13,438,803 $ 9,833,999
Jarrah Technologies.................. 4,540,738 4,682,101 3,329,308
----------- ----------- -----------
$29,881,172 $18,120,904 $13,163,307
=========== =========== ===========
Net income (loss):
Open Environment Corporation......... $ 502,281 $ 46,343 $ 483,924
Jarrah Technologies.................. (68,199) 303,706 339,104
----------- ----------- -----------
$ 434,082 $ 350,049 $ 823,028
=========== =========== ===========
Net income (loss) per share:
Open Environment Corporation......... $ .06 $ .01 $ .08
Jarrah Technologies.................. (.01) .04 .05
----------- ----------- -----------
$ .05 $ .05 $ .13
=========== =========== ===========
</TABLE>
The Company recorded acquisition and integration costs of approximately
$679,000 in 1995 for expenses related to the acquisition and integration of
Jarrah Technologies. Charges included professional fees and charges for
regulatory and filing matters ($265,000), travel costs ($222,000), marketing
and collaterals ($139,000), lease termination costs and miscellaneous other
costs ($53,000). Substantially all of these charges were incurred prior to
September 30, 1995, and as of December 31, 1995, $60,000 of these charges,
related to certain legal fees, were unpaid and were classified as accrued
expenses.
F-12
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1995, the Company also recorded special charges of $1,372,000 related to
the purchases of certain technologies. The costs of these purchases were
expensed as purchased research and development costs, as the related
technologies were not at the point of technological feasibility at the date of
purchase and had no alternative future uses. The Company paid $686,000 of this
amount in 1995, and $686,000 is recorded in accrued expenses at December 31,
1995.
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31 are
summarized below:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Furniture, fixtures and equipment..................... $1,115,691 $ 623,746
Computer equipment.................................... 3,488,216 1,857,662
Purchased computer software........................... 796,216 368,710
Leasehold improvements................................ 307,855 174,554
---------- ----------
5,707,978 3,024,672
Accumulated depreciation.............................. 2,493,637 975,280
---------- ----------
Property and equipment, net........................... $3,214,341 $2,049,392
========== ==========
</TABLE>
4. INVESTMENT IN AND ADVANCES TO JOINT VENTURES
On January 17, 1994, the Company entered into a joint venture with a
Japanese corporation to develop, distribute, promote and market the Company's
software products and provide related education services in Japan. Under the
terms of the agreement, the Company purchased 50% of the outstanding voting
common stock and two shares of the non-voting preferred stock.
Concurrent with this agreement, the Company executed a license agreement
with the joint venture whereby the Company granted an exclusive license to
establish, develop, distribute and promote the market for the Company's
software products and educational services and maintenance in Japan. In return
for this license, the Company receives royalties from the sale of these
products and services as follows:
<TABLE>
<S> <C>
Software products........................ 40%
Educational services..................... 25%
Maintenance services..................... 60%
</TABLE>
Royalty income aggregating $520,584 and $801,024 was recognized in
connection with this agreement during the years ended December 31, 1995 and
1994.
On September 30, 1995, the Company sold 30.5% of the outstanding voting
common stock of the joint venture to its joint venture partner for $488,000,
which approximated the Company's cost basis in the joint venture. As a result,
the Company currently owns 19.5% of the voting common stock of the joint
venture. The Company accounted for the joint venture using the equity method
from the inception of the joint venture until September 30, 1995, resulting in
the Company recording its equity in the loss of the joint venture of $267,037
in 1995 and $111,434 in 1994. Effective October 1, 1995, the Company accounts
for its remaining investment in the joint venture using the cost method. At
December 31, 1995, investment in and advances to joint ventures consisted of
investment in and advances to the Japanese joint venture of $630,000, and
investments in other joint ventures of $228,000.
F-13
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited financial information related to the Japanese joint venture at and
for the period ended December 31, 1994 is as follows:
<TABLE>
<S> <C>
Current assets................................................... $1,623,000
Property and equipment and other assets.......................... 272,000
Current liabilities.............................................. 1,724,000
Long-term liabilities............................................ 0
Net sales........................................................ 2,256,000
Gross profit..................................................... 761,000
Net loss......................................................... (223,000)
</TABLE>
5. FINANCING AGREEMENT
The Company has a $3,000,000 credit agreement with its bank, comprised of a
$2,000,000 revolving credit facility for operating purposes and a $1,000,000
facility for capital expenditures. On January 1, 1996, amounts outstanding
against the $1,000,000 capital expenditures portion were converted to a two-
year term note, payable in equal quarterly installments of $125,000 plus
interest. Interest on the demand line of credit accrues at prime, and interest
on the capital expenditures line accrues at prime plus one-quarter percent.
Amounts drawn on the demand line of credit are limited to a percentage of
qualified accounts receivable as defined in the agreement. All borrowings
under the agreement are secured by the assets of the Company. At December 31,
1995, $510,000 was outstanding under the demand line of credit, and $1,000,000
was outstanding under the capital expenditures line.
Among other provisions, the agreement also imposes certain financial
covenants requiring the Company to maintain certain levels of working capital
and minimum leverage ratios. At December 31, 1995, the Company was in
violation of its financial covenant relating to maximum capital expenditures.
The Company has obtained a waiver of this violation.
6. STOCKHOLDERS' EQUITY
Reverse Stock Split
On February 10, 1995, the Company declared a 7-for-10 reverse stock split of
Common Stock. Average shares outstanding and all stock option and per share
amounts included in the accompanying consolidated financial statements and
notes are based on the decreased numbers of shares giving retroactive effect
to the reverse stock split.
Preferred Stock
In November 1994, the Company issued 1,428,571 shares of Series A
Convertible Preferred Stock for $6,000,000, less offering expenses of
$145,668. Of the proceeds from this issuance, $3,500,000 was used to
repurchase 583,333 shares of Common Stock from a major shareholder. The
preferred shares were converted into 999,998 shares of Common Stock upon the
completion of the Company's initial public offering on April 21, 1995.
On February 10, 1995, the Board of Directors authorized an aggregate of
1,000,000 shares of Preferred Stock, $.01 par value per share, issuable in one
or more series, each of such series to have such rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors. At December 31, 1995, none of these shares have been issued.
F-14
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1993 Stock Plan
Under the Company's Amended and Restated 1993 Stock Plan, options for
1,589,000 shares of Common Stock are available for grant to employees,
officers, directors or consultants. The option price and exercise period is
determined by the Board of Directors on the date of grant. The option price is
deemed by the Board of Directors to be not less than fair market value at the
date of grant. All options are exercisable in installments over a two- to
five-year period commencing one year from the date of grant. Option activity
was as follows:
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1993.................... 611,625 $ .05- 5.00
Granted........................................... 607,740 $5.00- 6.00
Exercised......................................... (4,929) $ .05- 5.00
Canceled.......................................... (164,786) $ .05- 5.00
---------
Outstanding at December 31, 1994.................... 1,049,650 $ .05- 6.00
Granted........................................... 482,314 $6.00-20.00
Exercised......................................... (167,462) $ .05- 6.00
Canceled.......................................... (112,973) $ .05-20.00
---------
Outstanding at December 31, 1995.................... 1,251,529 $ .05-20.00
=========
Exercisable at December 31, 1995.................... 258,506
Available for future grants......................... 165,081
</TABLE>
1994 Executive Stock Plan
The Company's 1994 Amended and Restated Executive Stock Plan provides for
651,000 shares of Common Stock to be available for grant to senior executive
employees of the Company. The option price and exercise period is determined
by the Board of Directors on the date of grant. The option price is deemed by
the Board of Directors to be not less than fair market value at the date of
grant. Option activity was as follows:
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
------- -------------
<S> <C> <C>
Outstanding at December 31, 1993
Granted............................................. 651,000 $4.00-5.00
Exercised........................................... (20,005) $ 4.00
-------
Outstanding at December 31, 1994...................... 630,995 $4.00-5.00
Granted.............................................
Exercised...........................................
-------
Outstanding at December 31, 1995...................... 630,995 $4.00-5.00
=======
Exercisable at December 31, 1995...................... 457,745
Available for future grants........................... 0
</TABLE>
F-15
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Directors Plan
The Company's 1994 Directors Plan provides for 28,000 shares of Common Stock
to be available for grant to Directors of the Company, and the 1995 Directors
Plan provides for 70,000 shares of Common Stock to be available for grant to
Directors of the Company. The option price and exercise period is determined
by the Board of Directors on the date of grant. The option price is deemed by
the Board of Directors to be not less than fair market value at the date of
grant. Option activity was as follows:
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
------ -------------
<S> <C> <C>
Outstanding at December 31, 1993
Granted............................................... 28,000 $4.00
Exercised.............................................
------
Outstanding at December 31, 1994........................ 28,000 $4.00
Granted...............................................
Exercised.............................................
------
Outstanding at December 31, 1995........................ 28,000 $4.00
======
Exercisable at December 31, 1995........................ 7,000
Available for future grants............................. 70,000
</TABLE>
1995 Employee Stock Purchase Plan
On February 10, 1995, the Board of Directors adopted the 1995 Employee Stock
Purchase Plan (the Stock Purchase Plan), which authorizes the issuance of up
to 70,000 shares of Common Stock to participants in amounts based on the
participant's compensation and the fair market value of the Company's stock.
Employees with at least six months of service are eligible to participate in
the stock purchase plan. In 1995, 7,594 shares were purchased by participants
in the Stock Purchase Plan, and 62,406 shares were available for issuance
under the Stock Purchase Plan at December 31, 1995.
7. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---------- ---------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Current
Federal.................................... $ 661,460 $(127,910) $182,157
State...................................... 186,800 35,500 85,901
Foreign.................................... 102,363 227,233 174,576
--------- --------- --------
950,623 134,823 442,634
--------- --------- --------
Deferred
Federal.................................... (417,000) 2,900 8,100
State...................................... (128,800) 800 2,600
Foreign.................................... (244,992) (14,357) (21,551)
--------- --------- --------
(790,792) (10,657) (10,851)
--------- --------- --------
Income tax expense........................... $ 159,831 $ 124,166 $431,783
========= ========= ========
</TABLE>
F-16
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
---------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserve........................... $ 231,000 $ 40,600
Equity in loss of joint venture....................... 155,100 44,900
Depreciation.......................................... 96,900 49,300
Purchased research and development.................... 365,100
Foreign NOL carryforwards............................. 265,100 35,900
Other................................................. 97,200 23,200
---------- --------
Total deferred tax assets........................... 1,210,400 193,900
---------- --------
Deferred tax liabilities:
Capitalized software.................................. 315,800 172,300
Capitalized leases.................................... 34,900
Other................................................. 47,400
---------- --------
Total deferred tax liabilities...................... 398,100 172,300
---------- --------
Net deferred tax assets............................. $ 812,300 $ 21,600
========== ========
</TABLE>
A reconciliation of the federal statutory rate to the effective income tax
rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
---------- ---------- ----
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Federal statutory rate......................... 34.0 % 34.0 % 34.0 %
State taxes, net of federal benefit............ 9.4 0.6 4.4
Effect of research and development credits..... (29.6) (13.3) (7.8)
Effect of foreign rate differences............. (1.0) 1.0 2.0
Non-deductible expenses........................ 14.1 3.8 1.8
----- ----- ----
Effective tax rate............................. 26.9 % 26.1 % 34.4 %
===== ===== ====
</TABLE>
At December 31, 1995, the Company had foreign net operating loss
carryforwards of $705,000 for income tax purposes. These carryforwards have no
expiration date.
8. COMMITMENTS
In January 1994, the Company entered into a five-year lease for office space
under an operating lease agreement scheduled to expire in February 1999. The
lease includes a five-year renewal option. Leasehold improvements made by the
landlord for the Company as a condition of occupancy are secured by a $70,000
irrevocable letter of credit issued by the Company's bank.
During 1994 the Company entered into certain equipment leases which were
capitalized in accordance with generally accepted accounting principles. The
Company also leases certain equipment under noncancelable operating leases.
F-17
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments are as follows at December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1996.................................................... $194,848 $ 735,843
1997.................................................... 29,608 691,273
1998.................................................... 649,624
1999.................................................... 358,686
2000.................................................... 211,327
-------- ----------
Total minimum lease payments............................ 224,456 $2,646,753
==========
Less amounts representing interest...................... 18,367
--------
Present value of remaining minimum lease payments....... 206,089
Less amounts due within one year........................ 178,904
--------
Amounts due after one year.............................. $ 27,185
========
</TABLE>
Rent expense relating to operating leases amounted to $926,578, $425,454 and
$177,688 in 1995, 1994 and 1993, respectively.
Assets under capital lease are capitalized using interest rates appropriate
at the inception of each lease. A summary of assets under capital lease are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Furniture, fixtures and equipment......................... $358,105 $358,105
Computer equipment........................................ 206,249 206,249
-------- --------
564,354 564,354
Accumulated amortization.................................. 271,562 131,193
-------- --------
Net book value of assets under capital leases............. $292,792 $433,161
======== ========
</TABLE>
Amortization of assets under capital lease amounted to $140,369 in 1995 and
$131,193 in 1994 and is included in depreciation expense.
9. EMPLOYEE BENEFITS
401(k) Retirement Plan
The Company has a 401(k) retirement plan covering all employees who are at
least 21 years of age and have completed at least one year of service with the
Company. Company contributions under the plan are discretionary. No
contributions were made by the Company during 1995, 1994 or 1993.
10. RELATED PARTY TRANSACTIONS
On January 1, 1993 (the date operations commenced), the Company entered into
a license agreement with CTG. CTG is principally owned by the Company's
Chairman of the Board and a stockholder. Under the terms of the license
agreement, the Company entered into a five-year agreement to license certain
intellectual property from CTG in exchange for a fee of generally 5% of net
software revenues and 1% of education revenues. The terms of the license
agreement were revised effective August 1, 1994 from 5% to 1% fee on software
revenues.
F-18
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On November 23, 1994, the Company entered into an Assignment Agreement with
CTG under which CTG assigned all right, title and interest in the intellectual
property defined under the license agreement to the Company in exchange for
the appointment of CTG as an authorized reseller of certain of the Company's
products pursuant to a Reseller Agreement. Effective with this agreement, the
license agreement was terminated. Royalty expenses paid or accrued to CTG
under the license agreement amounted to $149,633 in 1994 and $183,410 in 1993.
Under the terms of the Reseller Agreement, as amended, CTG was appointed as
a non-exclusive reseller of the Company's products in the U.S. and Canada
effective February 1, 1995. Prior to February 1, 1995, CTG did not distribute
the Company's products. Pursuant to this agreement, CTG receives a 50%
discount from list prices of the Company's software and a 30% discount from
list prices on the Company's educational programs. The Company is permitted to
cancel the agreement at any time upon payment to CTG of a termination fee
equal to $2,500,000 less 20% of the aggregate list price value of software
products sold by CTG under the Reseller Agreement. Aggregate revenues from CTG
under this agreement in 1995 amounted to $1,653,426.
Until March 1994, the Company shared office and training facilities with
CTG. Among the activities for which the Company paid or accrued amounts to CTG
include: monthly operating, telecommunications and rental expenses for office
space used as the Company's corporate headquarters ($43,903 in 1994 and
$446,467 in 1993), educational lecturing and rental services ($24,596 in 1994
and $293,350 in 1993), monthly reimbursements for amounts paid to vendors for
expenses incurred by the Company ($37,942 in 1994 and $284,981 in 1993), and
reimbursement for new computer equipment shipped directly to the Company
($138,517 in 1993). The Company also sold its rights under a product
development agreement with a software vendor to CTG for $60,000 (included in
other income) during 1994. Amounts paid to CTG were based on actual amounts
incurred by CTG on behalf of the Company. Management of the Company believes
that these charges represent fair market value.
In 1995, the Company entered into a reseller agreement with Object Power
Inc., a Company principally owned by the Company's Chairman of the Board and a
stockholder. Under this agreement, Object Power receives a 50% discount from
list prices of the Company's software and a 25% discount from list prices on
the Company's educational programs and services. Aggregate revenues from
Object Power under this agreement in 1995 amounted to $905,965.
In 1995, the Company purchased the source code to a certain technology from
Object Power for $500,000. At the date of purchase, the technology had not yet
reached the point of technological feasibility and had no alternative future
uses, and as a result the purchase price was fully expensed. The Company is
continuing the development of the technology.
In addition, in 1995 the Company licensed the source code to certain
components of its middleware technology to Object Power for an up-front fee of
$2,200,000. Use of the components of this technology is restricted to the
development and marketing of products that will interoperate with the
Company's product line.
The amount due from related parties at December 31, 1995 represents amounts
related to the transactions described above with Object Power.
11. SUPPLEMENTAL INFORMATION
The Company made income tax payments of $326,443, $165,062 and $91,920 in
1995, 1994 and 1993, respectively. The Company made interest payments (which
also represented interest expense for the periods) of $158,931, $50,136 and
$8,853 in 1995, 1994 and 1993, respectively.
Capital lease obligations incurred are considered noncash items and,
accordingly, are not reflected in the consolidated statements of cash flow.
Capital lease obligations incurred totaled $564,354 during the year ended
December 31, 1994.
F-19
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other assets at December 31, 1995 include $237,000 of notes receivable from
officers of the Company, with interest rates ranging from 6 7/8% to 8%.
Accrued expenses at December 31, 1994 includes $320,353 of accrued
commissions.
12. SIGNIFICANT CUSTOMERS
Approximately 11% and 15% of the Company's revenue in the years ended
December 31, 1995 and 1993, respectively, were from one customer. For the year
ended December 31, 1994, no individual customer accounted for greater than 10%
of the Company's total revenue.
13. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment representing the design,
development, education/training, sales and servicing of software in the open
client/server market. Net sales, operating income, and assets by major
geographic area are summarized below. Inter-area transfers were not material
for the periods presented.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States (including direct
export sales)...................... $25,340,434 $13,438,803 $ 9,833,999
Australia........................... 4,540,738 4,682,101 3,329,308
----------- ----------- -----------
$29,881,172 $18,120,904 $13,163,307
=========== =========== ===========
Income (loss) from operations:
United States....................... $ 492,743 $ 106,831 $ 653,374
Australia........................... (333,133) 395,374 490,296
----------- ----------- -----------
$ 159,610 $ 502,205 $ 1,143,670
=========== =========== ===========
Identifiable assets:
United States....................... $35,017,499 $ 7,936,505 $ 3,341,924
Australia........................... 1,629,174 1,539,153 902,337
----------- ----------- -----------
$36,646,673 $ 9,475,658 $ 4,244,261
=========== =========== ===========
</TABLE>
Export sales from the United States to unaffiliated customers were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Korea......................................... $1,984,157
Australia..................................... 1,299,739 $ 386,384
Netherlands................................... 1,051,255 184,800
China......................................... 702,063
Japan......................................... 666,634 417,829 $205,254
England....................................... 544,669 181,230 42,825
Saudi Arabia.................................. 428,000
India......................................... 239,200
Canada........................................ 25,225 335,400 133,602
Ireland....................................... 703,200
Other international........................... 469,838 500,204 235,361
---------- ---------- --------
$7,410,780 $2,709,047 $617,042
========== ========== ========
</TABLE>
F-20
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995:
------------------------------------------------
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ ---------- ---------- ------------ -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Net sales................ $6,471,684 $7,811,158 $7,996,864 $ 7,601,466
Gross profit............. 5,104,348 6,029,796 6,183,367 5,634,846
Purchased research and
development............. 1,372,116
Acquisition and
integration costs....... 678,655
Income (loss) from
operations.............. 771,620 971,017 185,988 (1,769,015)
Net income (loss)........ 349,262 848,769 266,976 (1,030,926)
Net income (loss) per
common share............ $ .05 $ .10 $ .03 $ (.14)
<CAPTION>
YEAR ENDED DECEMBER 31, 1994:
------------------------------------------------
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ ---------- ---------- ------------ -----------
(RESTATED)
<S> <C> <C> <C> <C>
Net sales................ $3,394,743 $3,943,660 $5,298,457 $ 5,484,044
Gross profit............. 2,103,069 2,221,436 3,704,996 3,769,924
Income (loss) from
operations.............. 5,741 (36,219) 394,783 137,900
Net income (loss)........ (69,778) 71,261 279,115 69,451
Net income (loss) per
common share............ $ (.01) $ .01 $ .04 $ .01
</TABLE>
The acquisition of Jarrah Technologies on August 31, 1995 was accounted for
as a pooling of interests, and, accordingly, the previously reported quarterly
financial results have been restated to include the accounts and operations of
Jarrah Technologies. Quarterly results of operations as listed above also
differ from those previously reported due to the inclusion of the following
amounts related to Jarrah Technologies:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995:
----------------------------------------------
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales................... $1,000,201 $1,396,594 $1,074,059 $1,069,884
Gross profit................ 469,229 619,928 452,003 595,632
Purchased research and
development................ 575,000
Acquisition and integration
costs...................... 54,655
Income (loss) from
operations................. 13,369 55,719 (46,495) (440,720)
Net income (loss)........... 73,369 111,706 (45,302) (207,973)
Net income (loss) per common
share...................... $ .01 $ .01 $ (.01) $ (.02)
<CAPTION>
YEAR ENDED DECEMBER 31, 1994:
----------------------------------------------
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales................... $ 939,614 $1,204,114 $1,259,008 $1,279,367
Gross profit................ 415,247 454,173 564,009 444,341
Income (loss) from
operations................. 148,417 71,771 196,230 (31,180)
Net income (loss)........... 137,745 62,783 118,959 (15,780)
Net income per common
share...................... $ .02 $ .01 $ .02 $ .00
</TABLE>
F-21
<PAGE>
OPEN ENVIRONMENT CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------------ --------------------- ------------ -------------
ADDITIONS
---------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE (1) END OF PERIOD
----------- ------------ ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995:
Deducted from asset
accounts:
Allowance for
doubtful accounts... $100,871 $526,198 $ (53,213) $573,856
-------- -------- --- --------- --------
$100,871 $526,198 $ (53,213) $573,856
======== ======== === ========= ========
Year ended December 31,
1994:
Deducted from asset
accounts:
Allowance for
doubtful accounts... $ 74,500 $152,000 $(125,629) $100,871
-------- -------- --- --------- --------
$ 74,500 $152,000 $(125,629) $100,871
======== ======== === ========= ========
Year ended December 31,
1993:
Deducted from asset
accounts:
Allowance for
doubtful accounts... $ 19,700 $ 62,800 $ (8,000) $ 74,500
-------- -------- --- --------- --------
$ 19,700 $ 62,800 $ (8,000) $ 74,500
======== ======== === ========= ========
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
F-22
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
---------- ---------- ---------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Weighted average shares of common stock
outstanding.................................. 6,609,154 4,729,031 4,588,133
Common stock equivalents:
Series A Convertible Preferred Shares....... 282,191 717,807 999,998
Dilutive effect of stock options............ 1,147,247 967,668 969,647
--------- --------- ---------
8,038,592 6,414,506 6,557,778
========= ========= =========
Net income.................................... $ 434,082 $ 350,049 $ 823,028
========= ========= =========
Net income per share.......................... $ 0.05 $ 0.05 $ 0.13
========= ========= =========
</TABLE>
F-23
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 5,356,953 $ 7,012,333
Marketable securities............................ 7,074,662 10,678,125
Accounts receivable, net......................... 4,131,432 7,609,007
Due from related parties......................... 2,362,752
Due from joint ventures.......................... 440,465 1,428,090
Prepaid expenses and other current assets........ 3,018,312 1,676,530
------------ -----------
Total current assets........................... 20,021,824 30,766,837
Property and equipment, net........................ 2,756,927 3,214,341
Capitalized software costs, net.................... 500,794 800,206
Investment in and advances to joint ventures....... 600,449 858,123
Deferred income taxes.............................. 547,184
Other assets....................................... 553,259 459,982
------------ -----------
$ 24,433,253 $36,646,673
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................... $ 1,761,733 $ 1,545,684
Accounts payable and accrued expenses............ 4,979,343 4,143,880
Advance billings and customer deposits........... 622,786 629,734
Deferred maintenance revenue..................... 701,395 1,054,135
Income taxes payable............................. 350,000
Current portion of capital lease obligations..... 105,990 178,904
------------ -----------
Total current liabilities...................... 8,171,247 7,902,337
Obligations under capital leases, less current
portion........................................... 27,185
Stockholders' equity:
Preferred stock
Common stock..................................... 81,216 80,505
Additional paid-in capital....................... 30,884,254 30,694,500
Retained earnings (deficit)...................... (11,203,464) 1,442,146
Treasury stock................................... (3,500,000) (3,500,000)
------------ -----------
Total stockholders' equity..................... 16,262,006 28,717,151
------------ -----------
$ 24,433,253 $36,646,673
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1995
------------- ------------
(RESTATED) (RESTATED)
<S> <C> <C>
Revenues:
License fees..................................... $ 3,403,832 $ 10,350,944
Maintenance and service fees..................... 2,839,679 2,877,426
Education and training........................... 584,459 1,054,472
------------- ------------
Total revenues................................... 6,827,970 14,282,842
------------- ------------
Cost of revenues:
Cost of software, maintenance and services....... 3,848,551 2,349,670
Cost of education and training................... 681,651 799,028
------------- ------------
Total cost of revenues........................... 4,530,202 3,148,698
------------- ------------
Gross profit....................................... 2,297,768 11,134,144
Operating expenses:
Selling and marketing............................ 8,573,752 5,698,190
General and administrative....................... 1,901,767 1,685,320
Research and development......................... 2,877,271 2,007,997
Provision for restructuring charge............... 1,083,114
------------- ------------
Total operating expenses......................... 14,435,904 9,391,507
------------- ------------
Operating income (loss)............................ (12,138,136) 1,742,637
Equity in loss of joint venture.................... (273,643)
Other income (expense)............................. 340,023 197,410
------------- ------------
Income (loss) before income taxes.................. (11,798,113) 1,666,404
Provision for income taxes......................... 847,497 468,372
------------- ------------
Net income (loss).................................. $ (12,645,610) $ 1,198,032
============= ============
Net income (loss) per share........................ $ (1.69) $ 0.16
============= ============
Dividends.......................................... $ 141,844
============
Dividends per share................................ $ 0.02
============
Weighted average shares outstanding................ 7,497,657 7,616,507
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1995
------------- ------------
(RESTATED) (RESTATED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ (12,645,610) $ 1,198,032
Adjustments to net income (loss):
Depreciation................................... 860,039 604,311
Amortization of capitalized software........... 322,271 135,571
Allowance for doubtful accounts................ 640,230 131,349
Provision for restructuring charges............ 786,451
Equity in loss of joint venture................ (3,239) 273,643
Deferred income taxes.......................... 847,497 (223,703)
Changes in operating assets and liabilities:
Accounts receivable........................... 2,974,802 (3,957,674)
Due from related party........................ 2,212,969 (2,347)
Prepaid expenses and other current assets..... (1,976,063) (577,523)
Due from joint venture........................ 987,625 (197,114)
Other assets.................................. (97,014) (282,098)
Accounts payable and accrued expenses......... 776,007 763,808
Advance billings and customer deposits........ (24,211) (64,204)
Deferred maintenance revenue.................. (352,740) (92,922)
Income taxes payable.......................... (304,609) 337,204
------------- ------------
NET CASH USED IN OPERATING ACTIVITIES............ (4,995,595) (1,953,667)
INVESTING ACTIVITIES
Purchase of marketable securities................ (11,234,563) (19,899,170)
Proceeds from maturities of marketable
securities...................................... 14,840,423 8,055,212
Investment in and advances to joint ventures..... 115,315 (384,537)
Purchase of property and equipment............... (640,224) (1,336,659)
Additions to capitalized software................ (21,567) (166,828)
------------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES...................................... 3,059,384 (13,731,982)
FINANCING ACTIVITIES
Net proceeds (repayments) of notes payable to
bank............................................ 216,049 1,362,203
Repayment of capital lease obligations........... (150,435) (117,696)
Net proceeds from issuance of Common Stock....... 22,996,104
Dividends paid................................... (141,844)
Exercise of stock options........................ 125,067 91,978
Issuance of Common Stock under stock purchase
plan............................................ 65,398
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... 256,079 24,190,745
------------- ------------
Effect of exchange rates on cash................. 24,752 (48,371)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS.. (1,655,380) 8,456,725
Cash and equivalents at beginning of period...... 7,012,333 1,693,118
------------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD............ $ 5,356,953 $ 10,149,843
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented have
been prepared by Open Environment Corporation and subsidiaries (the "Company")
without audit and, in the opinion of management, reflect all adjustments
consisting only of normal recurring adjustments necessary for fair
presentation of the financial results for the interim periods shown. The
results of operations for the interim periods shown in this report are not
necessarily indicative of results for any future interim period or for the
entire fiscal year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company
believes that the disclosures included are adequate to make the information
presented not misleading. The condensed consolidated financial statements and
the notes included herein should be read in conjunction with the financial
statements and notes for the fiscal year ended December 31, 1995 included in
the Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on April 1, 1996.
Restatement of Financial Statements
In December 1995, OEC entered into an agreement (the "Reseller Agreement")
with a reseller (the "Reseller") whereby the Reseller agreed to purchase
products from OEC. In the first quarter of 1996, OEC sold and shipped to the
Reseller an aggregate of $2,500,000 worth of products. The Reseller Agreement
provided the Reseller with certain product return and exchange rights, and
therefore, OEC established a reserve in the first quarter of 1996 of
$1,440,000 to provide for potential returns from the Reseller. Based on the
actual product return and exchange rate experienced under the Reseller
Agreement, OEC increased the reserve by $400,000 in the second quarter of
1996. This product return and exchange rate was higher than originally
anticipated by OEC. After a review by the staff of the Securities and Exchange
Commission (the "Staff") of the Company's reports filed pursuant to the
Securities Exchange Act of 1934 (the "Reports"), OEC determined that due to
the high return and exchange rate, that OEC did not have a sufficient basis
under generally accepted accounting principles to estimate the amount of
returns and exchanges and therefore should have recognized revenue as the
Reseller actually sold product to its customers. OEC restated its historical
financial statements contained in certain of its Reports, and this
Prospectus/Proxy Statement reflects the restatement of OEC's financial
statements, to recognize revenues under the Reseller Agreement as the Reseller
sells product to its customers.
2. CONSOLIDATED FINANCIAL STATEMENT INFORMATION
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during each period.
Included in these amounts are dilutive common stock options and 1,428,571
shares of Series A Convertible Preferred Stock which automatically converted
upon the closing of the initial public offering into 999,998 shares of common
stock on April 13, 1995. Fully diluted and primary earnings per share data are
the same for each period presented.
Investment Securities
All of the Company's investments are classified as held-to-maturity at June
30, 1996 and December 31, 1995. Investment securities are deemed to be held-
to-maturity when the Company has the positive intent and ability to hold the
securities to maturity. The fair market value of these investments at June 30,
1996 and December 31, 1995 approximates amortized cost basis. The following is
a summary of these investments:
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1996 1995
----------- -----------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies.............................. $ 7,052,847 $12,135,987
Tax-exempt mutual and money market funds.......... 2,038,241 1,513,183
90-day bank notes................................. 2,194,927 2,136,747
----------- -----------
$11,286,015 $15,785,917
=========== ===========
</TABLE>
F-27
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Currency Translation
Assets and liabilities of foreign operations are translated at year end
exchange rates, and statement of operations accounts are translated at average
exchange rates. Gains and losses from translation are not material for the
periods presented. Foreign currency transaction gains and losses are included
in the statements of operations and are not material for the periods
presented.
3. INVESTMENT IN AND ADVANCES TO JOINT VENTURES
On January 17, 1994, the Company entered into a joint venture with a
Japanese corporation to develop, distribute, promote and market the Company's
software products and provide related education services in Japan. Under the
terms of the agreement, the Company owned 50% of the outstanding voting common
stock and two shares of the non-voting preferred stock. Concurrent with this
agreement, the Company granted the joint venture an exclusive license to
establish, develop, distribute and market the Company's software products and
educational services in Japan. In return for this license, the Company
receives royalties from the sale of these products and services as follows:
software products (40%); educational services (25%); and maintenance
services (60%).
On September 30, 1995, the Company sold 30.5% of the outstanding voting
common stock of the joint venture to its joint venture partner for $488,000,
which approximated the Company's cost basis in the joint venture. As a result,
the Company currently owns 19.5% of the voting common stock of the joint
venture. The Company accounted for the joint venture using the equity method
from the inception of the joint venture until September 30, 1995. Effective
October 1, 1995, the Company accounts for its remaining investment in the
joint venture using the cost method.
At June 30, 1996, investment in and advances to joint ventures consisted of
investment in and advances to the Japanese joint venture of $464,000, and
investments in other joint ventures of $136,000. Due from joint ventures
represents trade accounts receivable due from the Company's joint ventures.
4. RELATED PARTY TRANSACTIONS
The Company entered into a reseller agreement with Cambridge Technology
Group, Inc. ("CTG"). CTG is principally owned by the Company's Chairman of the
Board and major stockholder. Under the terms of the reseller agreement, as
amended, CTG was appointed as a non-exclusive reseller of the Company's
products in the U.S. and Canada effective February 1, 1995. Prior to February
1, 1995, CTG did not distribute the Company's products. Pursuant to this
agreement, CTG receives a 50% discount from list prices of the Company's
software and a 30% discount from list prices on the Company's educational
programs. The Company is permitted to cancel the agreement at any time upon
payment to CTG of a termination fee equal to $2,500,000 less 20% of aggregate
list price value of software products sold by CTG under the reseller
agreement. The Company made no sales to CTG under this agreement during the
three months ended June 30, 1996. Sales to CTG under this agreement during the
three months ended June 30, 1995 amounted to $600,000.
F-28
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1996 1995 1996 1995
-------------- -------------------------- ------------
<S> <C> <C> <C> <C>
Weighted average shares
of common stock out-
standing............... 7,516,884 6,928,430 7,497,657 5,775,897
Common stock equiva-
lents:
Series A Convertible
Preferred Shares..... 142,857 569,060
Dilutive effect of
stock options........ 1,270,376 1,271,550
-------------- ------------ ------------- -----------
7,516,884 8,341,663 7,497,657 7,616,507
============== ============ ============= ===========
Net income (loss)....... ($7,679,025) $ 848,769 ($12,645,610) $ 1,198,032
============== ============ ============= ===========
Net income (loss) per
share.................. ($1.02) $ 0.10 ($1.69) $ 0.16
============== ============ ============= ===========
</TABLE>
F-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A-1
MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER
AMONG
BORLAND INTERNATIONAL, INC.
ASPEN ACQUISITION CORP.
AND
OPEN ENVIRONMENT CORPORATION
DATED MAY 11, 1996
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TABLE OF CONTENTS
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ARTICLE I
The Merger
1.01. The Merger...................................................... A1-1
1.02. Effective Time; Closing......................................... A1-1
1.03. Effect of the Merger............................................ A1-1
1.04. Certificate of Incorporation; Bylaws............................ A1-2
1.05. Directors and Officers.......................................... A1-2
ARTICLE II
Conversion of Securities; Exchange of Certificates
2.01. Conversion of Securities........................................ A1-2
2.02. Exchange of Certificates........................................ A1-3
2.03. Stock Transfer Books............................................ A1-5
2.04. Stock Options................................................... A1-5
2.05. Employee Stock Purchase Plan.................................... A1-6
ARTICLE III
Representations and Warranties of The Target
3.01. Organization and Qualification; Subsidiaries.................... A1-6
3.02. Certificate of Incorporation and Bylaws......................... A1-6
3.03. Capitalization.................................................. A1-7
3.04. Authority Relative to This Agreement............................ A1-7
3.05. No Conflict; Required Filings and Consents...................... A1-7
3.06. Permits; Compliance............................................. A1-8
3.07. SEC Filings; Financial Statements............................... A1-8
3.08. Absence of Certain Changes or Events............................ A1-9
3.09. Absence of Litigation........................................... A1-9
3.10. Employee Benefit Plans.......................................... A1-10
3.11. Labor Matters................................................... A1-10
3.12. Intellectual Property........................................... A1-10
3.13. Taxes........................................................... A1-11
3.14. Environmental Matters........................................... A1-11
3.15. Target Products; Regulation..................................... A1-12
3.16. Opinion of Financial Advisor.................................... A1-13
3.17. Vote Required................................................... A1-13
3.18. Brokers......................................................... A1-13
3.19. Tangible Property............................................... A1-13
3.20. Material Contracts.............................................. A1-13
3.21. Parachute Payments.............................................. A1-13
3.22. Certain Business Practices...................................... A1-13
3.23. Real Property and Leases........................................ A1-13
3.24. Insurance....................................................... A1-14
3.25. Accounting and Tax Matters...................................... A1-14
3.26. Board Recommendation............................................ A1-14
3.27. Pooling Matters................................................. A1-14
3.28. Change in Control............................................... A1-14
3.29. Interest of Officers and Directors.............................. A1-14
3.30. Disclosure...................................................... A1-14
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ARTICLE IV
Representations and Warranties of Acquiror and Acquiror Sub
4.01. Corporate Organization and Qualification....................... A1-15
4.02. Certificate of Incorporation and Bylaws........................ A1-15
4.03. Capitalization................................................. A1-15
4.04. Authority Relative to This Agreement........................... A1-16
4.05. No Conflict; Required Filings and Consents..................... A1-16
4.06. SEC Filings; Financial Statements.............................. A1-16
4.07. Absence of Certain Changes or Events........................... A1-17
4.08. Absence of Litigation.......................................... A1-17
4.09. Taxes.......................................................... A1-17
4.10. Agreements, Contracts and Commitments.......................... A1-18
4.11. Ownership of Acquiror Sub; No Prior Activities................. A1-18
4.12. Brokers........................................................ A1-18
4.13. Acquiror Common Shares......................................... A1-18
4.14. Pooling Matters................................................ A1-18
ARTICLE V
Conduct of Business Pending The Merger
5.01. Conduct of Business by the Target Pending the Merger........... A1-19
5.02. Conduct of Business by Acquiror Pending the Merger............. A1-20
ARTICLE VI
Additional Agreements
6.01. Registration Statement; Proxy Statement........................ A1-20
6.02. Target Stockholder Meeting..................................... A1-22
6.03. Appropriate Action; Consents; Filings.......................... A1-22
6.04. Access to Information; Confidentiality......................... A1-23
6.05. No Solicitation of Transactions................................ A1-23
6.06. Indemnification of Directors and Officers...................... A1-23
6.07. Obligations of Acquiror Sub.................................... A1-24
6.08. Public Announcements........................................... A1-24
6.09. Delivery of SEC Documents...................................... A1-24
6.10. Environmental Assessment....................................... A1-24
6.11. Notification of Certain Matters................................ A1-24
6.12. Further Action................................................. A1-25
6.13. Affiliates; Accounting and Tax Treatment....................... A1-25
6.14. Antitrust Laws................................................. A1-25
6.15. Tax Free Reorganization........................................ A1-25
ARTICLE VII
Conditions to The Merger
7.01. Conditions to the Obligations of Each Party.................... A1-25
7.02. Conditions to the Obligations of Acquiror and Acquiror Sub..... A1-26
7.03. Conditions to the Obligations of the Target.................... A1-28
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ARTICLE VIII
Termination, Amendment and Waiver
8.01. Termination.................................................... A1-29
8.02. Fees and Expenses.............................................. A1-30
8.03. Amendment...................................................... A1-31
8.04. Waiver......................................................... A1-31
ARTICLE IX
General Provisions
9.01. Non-Survival of Representations, Warranties and Agreements..... A1-31
9.02. Notices........................................................ A1-31
9.03. Certain Definitions............................................ A1-32
9.04. Severability................................................... A1-32
9.05. Assignment; Binding Effect; Benefit............................ A1-33
9.06. Incorporation of Schedules..................................... A1-33
9.07. Specific Performance........................................... A1-33
9.08. Governing Law.................................................. A1-33
9.09. Forum.......................................................... A1-33
9.10. Headings....................................................... A1-33
9.11. Counterparts................................................... A1-33
9.12. Waiver of Jury Trial........................................... A1-33
9.13. Entire Agreement............................................... A1-34
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This AGREEMENT AND PLAN OF MERGER, dated as of May 11, 1996 (this
"Agreement"), by and among Borland International, Inc., a Delaware corporation
("Acquiror"), Aspen Acquisition Corp., a Delaware corporation and a direct,
wholly-owned subsidiary of Acquiror ("Acquiror Sub"), and Open Environment
Corporation, a Delaware corporation (the "Target"), is made with reference to
the following:
1. Acquiror Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the Delaware General Corporation Law
("Delaware Law"), will merge with and into the Target (the "Merger").
2. The Board of Directors of the Target (i) has determined that the
Merger is in the best interests of the Target and its stockholders and has
approved and adopted this Agreement and the transactions contemplated
hereby ("Transactions") and (ii) has unanimously recommended approval and
adoption of this Agreement and approval of the Merger by, and has directed
that this Agreement and the Merger be submitted to a vote of, the
stockholders of the Target.
3. The Boards of Directors of Acquiror and Acquiror Sub have determined
that the Merger is in the best interests of Acquiror, Acquiror Sub and
their stockholders and have unanimously approved and adopted this Agreement
and the Transactions.
4. The parties intend that for income tax purposes the Merger shall
qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and for financial
accounting purposes the Merger shall be accounted for as a pooling of
interests.
The parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as hereinafter defined), Acquiror Sub shall be merged with and into the
Target. As a result of the Merger, the separate corporate existence of
Acquiror Sub shall cease and the Target shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). The name of the
Surviving Corporation shall be Open Environment Corporation.
Section 1.02. Effective Time; Closing. As promptly as practicable and in no
event later than the third business day following the satisfaction or, if
permissible, waiver of the conditions set forth in Article VII (or such other
date as may be agreed in writing by each of the parties hereto), the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State
of Delaware (the "Secretary") in such form as is required by, and executed in
accordance with the relevant provisions of, Delaware Law. The term "Effective
Time" means the date and time of the filing of the Certificate of Merger with
the Secretary (or such later time as may be agreed in writing by each of the
parties hereto and specified in the Certificate of Merger). Immediately prior
to the filing of the Certificate of Merger, a closing will be held at the Palo
Alto, California offices of Baker & McKenzie, 660 Hansen Way, Palo Alto,
California 94304 (or such other place and time as the parties may agree).
Section 1.03. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the rights, privileges, immunities, powers and franchises
(of a public as well as of a private nature) of the Target and Acquiror Sub
and all property (real, personal and mixed) of the Target and Acquiror Sub and
all debts due to either the Target or Acquiror Sub on any account, including
subscriptions to shares, and all other choices in action, and every other
interest of or belonging to or due to each of the Target and Acquiror Sub
shall vest in the Surviving Corporation, and all debts, liabilities,
obligations and duties of each of the Target and Acquiror Sub shall become the
debts, liabilities, obligations and duties of the Surviving
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Corporation and may be enforced against the Surviving Corporation to the same
extent as if such debts, liabilities, obligations and duties had been incurred
or contracted by the Surviving Corporation. The title to any real estate or
any interest therein vested, by deed or otherwise, in the Target or Acquiror
Sub shall not revert or in any way become impaired by reason of the Merger,
and all rights of creditors and all liens upon any property of the Target or
Acquiror Sub shall be preserved unimpaired following the Merger.
Section 1.04. Certificate of Incorporation; Bylaws. (a) At the Effective
Time, the Certificate of Incorporation of Acquiror Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation, except that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
deemed amended at the Effective Time by operation of this Agreement and by
virtue of the Merger without any further action by the stockholders or
directors of the Surviving Corporation, the Target or Acquiror Sub to change
the name of the Surviving Corporation to Open Environment Corporation.
(b) At the Effective Time, the Bylaws of Acquiror Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
Section 1.05. Directors and Officers. The directors and officers of Acquiror
Sub immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation until
a successor is elected or appointed and has qualified or until the earliest of
such director or officer's death, resignation, removal or disqualification.
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.01. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Acquiror Sub, the Target or
the holders of any of the shares of capital stock referred to below:
(a) Subject to the other provisions of this Section 2.01 and to Section
2.02:
(i) each share of common stock, $0.01 par value, of the Target
("Target Common Stock") issued and outstanding immediately prior to the
Effective Time (excluding any shares held by the Target, Acquiror or
Acquiror Sub or any other direct or indirect wholly owned subsidiary of
Acquiror or the Target immediately prior to the Merger (the "Cancelable
Shares")) shall be converted into the right to receive .51 shares (the
"Exchange Ratio") of common stock, $0.01 par value ("Acquiror Common
Stock"), of Acquiror. At the Effective Time, all such shares of Target
Common Stock shall no longer be outstanding and automatically shall be
canceled and cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent the right to receive a
certificate representing the shares of Acquiror Common Stock into which
such shares of Target Common Stock were converted in the Merger. The
holders of certificates previously evidencing such shares of Target
Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Target Common
Stock except as otherwise provided herein or by Delaware Law. Such
certificates previously evidencing shares of Target Common Stock shall
be exchanged for certificates representing whole shares of Acquiror
Common Stock issued in consideration therefor upon the surrender of
such certificates in accordance with the provisions of Section 2.02,
without interest. No fractional shares of Acquiror Common Stock shall
be issued, and, in lieu thereof a cash payment shall be made pursuant
to Section 2.02(e);
(ii) each Cancelable Share shall automatically be canceled and cease
to exist, and no consideration shall be paid or payable in respect of
such shares; and
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(iii) each share of common stock, par value $.01 per share, of
Acquiror Sub ("Acquiror Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and
become one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation at the Effective Time, and the
Surviving Corporation thereafter shall have no other equity securities.
(b) Notwithstanding paragraph (a), if the Average Trading Price (as
hereinafter defined) of the Acquiror Common Stock on the Determination Date
(as hereinafter defined) shall be in excess of $25.00 or below $12.75, then
the Exchange Ratio shall be adjusted downward or upward, respectively, in
accordance with this Section 2.01(b). The term "Average Trading Price"
shall be determined as the average of the closing prices of Acquiror Common
Stock, as quoted on The National Association of Securities Dealers
Automated Quotations--National Market System ("Nasdaq"), for the fifteen
(15) Nasdaq trading days immediately preceding and including the
Determination Date. The term "Determination Date" shall mean the date which
is five (5) business days (or such greater number of days as may be
required by applicable law) prior to the date of the Target Stockholders'
Meeting (as hereinafter defined) or, if such date is not a Nasdaq trading
day, the Nasdaq trading day first immediately preceding such date. If the
Average Trading Price is less than $12.75, then the Exchange Ratio shall be
adjusted to equal .51 times $12.75 divided by the Average Trading Price. If
the Average Trading Price is greater than $25.00, then the Exchange Ratio
shall be adjusted to equal .51 times $25.00 divided by the Average Trading
Price.
(c) If between the date of this Agreement and the Effective Time the
outstanding shares of Acquiror Common Stock or Target Common Stock shall
have been changed into a different number of shares or a different class,
by reason of any stock dividend, reclassification, recapitalization, split,
division, combination or exchange of shares, the Exchange Ratio shall be
correspondingly adjusted to reflect such stock dividend, reclassification,
recapitalization, split, division, combination or exchange of shares.
Section 2.02. Exchange of Certificates. (a) Exchange Agent. As of or before
the Effective Time, Acquiror shall deposit, or shall cause to be deposited,
with a bank or trust company organized under the laws of, and having an office
in, the United States or any state thereof and designated by Acquiror (the
"Exchange Agent"), for the benefit of the holders of shares of Target Common
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, certificates representing the aggregate number of whole shares of
Acquiror Common Stock issuable pursuant to Section 2.01 in exchange for
outstanding shares of Target Common Stock and cash in an amount sufficient to
permit payment of cash payable in lieu of fractional shares pursuant to
Section 2.02(e) (such certificates for shares of Acquiror Common Stock,
together with any dividends or distributions with respect thereto, and cash,
being hereinafter referred to as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions from Acquiror, deliver the
Acquiror Common Stock and cash contemplated to be issued pursuant to Section
2.01 out of the Exchange Fund. The Exchange Fund shall not be used for any
other purpose; provided, however, that the Exchange Fund may be invested by
the Exchange Agent, pursuant to instructions from Acquiror, in obligations of
or guaranteed by the United States of America or any agency thereof and backed
by the full faith and credit of the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Moody's Investors Services,
Inc. or Standard & Poor's Corporation, respectively, or in deposit accounts,
certificates of deposit or banker's acceptances of, repurchase or reverse
repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks located in the United States with capital, surplus and
undivided profits aggregating in excess of $150 million (based on the most
recent financial statements of such bank which are then publicly available at
the SEC or otherwise); provided further that any such investment or resulting
payment of earnings shall not delay the receipt by holders of shares of Target
Common Stock of shares of Acquiror Common Stock into which the Target Common
Stock was converted in the Merger or otherwise impair such holders' respective
rights hereunder. In the event the Exchange Fund shall realize a loss on any
such investment, Acquiror shall promptly thereafter deposit in such Exchange
Fund cash in an amount sufficient to enable such Exchange Fund to satisfy all
remaining obligations originally contemplated to be paid out of such Exchange
Fund. Any net profit resulting from, or interest or income produced by, such
investments shall be payable to the Surviving Corporation or Acquiror, as
Acquiror directs.
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(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Acquiror will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior
to the Effective Time evidenced outstanding shares of Target Common Stock
(other than Cancelable Shares) (the "Certificates") (i) a letter of
transmittal and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates evidencing shares of Acquiror
Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing the number of whole shares
of Acquiror Common Stock which such holder has the right to receive in
respect of the shares of Target Common Stock formerly represented by such
Certificate (after taking into account all shares of Target Common Stock
then held by such holder), together with cash in lieu of fractional shares
of Acquiror Common Stock to which such holder is entitled pursuant to
Section 2.02(e) and any dividends or distribution to which such holder is
entitled pursuant to Section 2.02(c), and the Certificate so surrendered
shall forthwith be canceled. Subject to Section 2.02(h), under no
circumstances will any holder of a Certificate be entitled to receive any
part of the shares of Acquiror Common Stock into which the shares of Target
Common Stock were converted in the Merger until such holder shall have
surrendered such Certificate. In the event of a transfer of ownership of
shares of Target Common Stock which is not registered in the transfer
records of the Target, the shares of Acquiror Common Stock into which the
Target Common Stock were converted in the Merger may be paid in accordance
with this Article II to the transferee if the Certificate evidencing such
shares of Target Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
and by evidence that any applicable stock transfer taxes have been paid.
Until surrendered as contemplated by this Section 2.02, each Certificate
shall be deemed at any time after the Effective Time to evidence only the
right to receive upon such surrender the certificate representing the
number of whole shares of Acquiror Common Stock which such holder has the
right to receive in respect of the shares of Target Common Stock formerly
represented by such Certificate (after taking into account all shares of
Target Common Stock then held by such holder), together with cash in lieu
of fractional shares of Acquiror Common Stock to which such holder is
entitled pursuant to Section 2.02(e) and any dividends or distribution to
which such holder is entitled pursuant to Section 2.02(c).
(c) Distributions with Respect to Unexchanged Shares of Acquiror Common
Stock. No dividends or other distributions declared or made after the
Effective Time with respect to Acquiror Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Acquiror Common Stock evidenced
thereby, until the holder of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of such
Certificate, in addition to the shares of Acquiror Common Stock as provided
in 2.02(b), without interest, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to the whole shares of Acquiror Common Stock evidenced by such
Certificate.
(d) No Further Rights in Target Common Stock. All shares of Acquiror
Common Stock issued or paid upon conversion of the shares of Target Common
Stock in accordance with the terms hereof (including any cash paid or other
distributions pursuant to Section 2.02(c) and (e)) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to such
shares of Target Common Stock.
(e) No Fractional Shares. No certificates or scrip evidencing fractional
shares of Acquiror Common Stock shall be issued upon the surrender for
exchange of Certificates, but in lieu thereof each holder of shares of
Target Common Stock who would otherwise be entitled to receive a fraction
of a share of Acquiror Common Stock, after aggregating all shares of
Acquiror Common Stock which such holder would be entitled to receive under
Section 2.01, shall receive an amount equal to that Average Trading Price
multiplied by the fraction of a share of Acquiror Common Stock to which
such holder would otherwise be entitled, without interest.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Target Common Stock for one year
after the Effective Time shall be delivered to Acquiror,
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upon demand, and, subject to Section 2.02(g), any holders of Target Common
Stock who have not theretofore complied with this Article II shall
thereafter look only to Acquiror for the shares of Acquiror Common Stock,
any cash in lieu of fractional shares of Acquiror Common Stock to which
they are entitled pursuant to Section 2.02(e) and any dividends or other
distributions to which they are entitled pursuant to Section 2.02(c).
(g) No Liability. Neither Acquiror, Exchange Agent nor the Surviving
Corporation shall be liable to any holder of shares of Target Common Stock
for any shares of Acquiror Common Stock or cash (or dividends or
distributions with respect thereto) delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(h) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Acquiror Common Stock, and
unpaid dividends and distributions on shares of Acquiror Common Stock
deliverable in respect thereof pursuant to this Agreement.
Section 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Target shall be closed and there shall be no further
registration of transfers of shares of Target Common Stock thereafter on the
records of the Target. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Acquiror for any reason shall be converted
into the shares of Acquiror Common Stock, cash in lieu of fractional shares of
Acquiror Common Stock to which they are entitled pursuant to Section 2.02(e),
if any, and any dividends or other distributions to which they are entitled
pursuant to Section 2.02(c). If any shares of Target Common Stock are to be
issued to a person other than the registered holder of the Certificate or
Certificates surrendered in exchange therefor, it shall be a condition to such
issuance that the Certificate or Certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such issuance shall pay to the Exchange Agent any transfer or other
taxes required as a result of such issuance to a person other than the
registered holder or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
Section 2.04. Stock Options. (a) All options (the "Target Options")
outstanding, whether or not exercisable, whether or not vested, and whether or
not performance-based, at the Effective Time under the Target's Amended and
Restated 1993 Employee Stock Option Plan and 1995 Directors' Stock Option
Plan, as amended (collectively, the "Target Stock Option Plans"), shall remain
outstanding following the Effective Time. At the Effective Time, the Target
Options shall, by virtue of the Merger and without any further action on the
part of the Target or the holders thereof, be assumed by Acquiror in such
manner that Acquiror (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applied" within the meaning of Section 424
of the Code or (ii) to the extent that Section 424 of the Code does not apply
to any such Target Options, would be such a corporation were Section 424 of
the Code applicable to such Target Options. From and after the Effective Time,
all references to the Target in the Target Stock Option Plans and the
applicable stock option agreements issued thereunder shall be deemed to refer
to Acquiror, which shall have assumed the Target Stock Option Plans as of the
Effective Time by virtue of this Agreement and without any further action.
Each Target Option assumed by Acquiror (each a "Substitute Option") shall be
exercisable upon the same terms and conditions as under the applicable Target
Stock Option Plan and the applicable option agreement issued thereunder,
except that (A) each such Target Option shall be exercisable for, and
represent the right to acquire, that whole number of shares of Acquiror Common
Stock (rounded down to the nearest whole share) equal to the number of shares
of Target Common Stock subject to such Target Option multiplied by the
Exchange Ratio;(B) the option price per share of Acquiror Common Stock shall
be an amount equal to the option price per share of Target Common Stock
subject to such Target Option in effect immediately prior to the Effective
Time divided by the Exchange Ratio (the option price per share, as so
determined, being rounded upward to the nearest full cent); and (C) with
respect to any Target Option which is performance-based, the performance
targets may be
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adjusted following the Effective Time in the good faith judgment of the Board
of Directors of Acquiror to fairly reflect the impact, if any, of the
Transactions. No payment shall be made for fractional interests.
(b) As soon as practicable after the Effective Time, Acquiror shall
deliver to each holder of an outstanding Target Option an appropriate
notice setting forth such holder's rights pursuant thereto and such Target
Option shall continue in effect on the same terms and conditions (including
any anti-dilution provisions, and subject to the adjustments required by
this Section 2.04 after giving effect to the Merger). Acquiror shall comply
with the terms of all such Target Options and ensure, to the extent
required by, and subject to the provisions of, the Target Stock Option
Plans that Target Options which qualified as incentive stock options under
Section 422 of the Code prior to the Effective Time continue to qualify as
incentive stock options after the Effective Time. Acquiror shall take all
corporate action necessary to reserve for issuance a sufficient number of
shares of Acquiror Common Stock for delivery upon exercise of Substitute
Options pursuant to the terms set forth in this Section 2.04. As of the
Effective Time, the shares of Acquiror Common Stock subject to Target
Options will be covered by an effective registration statement on Form S-8
(or any successor form) or another appropriate form and Acquiror shall use
its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of
the prospectus or prospectuses related thereto) for so long as Substitute
Options remain outstanding.
Section 2.05. Employee Stock Purchase Plan. Subject to the consummation of
the Merger, the Target's 1995 Employee Stock Purchase Plan shall be terminated
in accordance with its terms as of the end of the offering period ending June
30, 1996.
ARTICLE III
Representations and Warranties Of The Target
Except as set forth in the Disclosure Schedule delivered by the Target and
signed by the Target and Acquiror for identification prior to the execution
and delivery of this Agreement (the "Target Disclosure Schedule"), which shall
identify exceptions by specific section references, the Target hereby
represents and warrants to Acquiror and Acquiror Sub that:
Section 3.01. Organization and Qualification; Subsidiaries. Each of the
Target and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and all
necessary governmental approvals to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where the
failure to have such governmental approvals would not have individually or in
the aggregate a Material Adverse Effect. As used in this Agreement, the term
"Material Adverse Effect" means with respect to any person, any change or
effect that is or is reasonably likely to be materially adverse to the
financial condition, business or results of operations of such person and its
subsidiaries, taken as a whole. Each of the Target and each of its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to
be so qualified or licensed and in good standing that would not, individually
or in the aggregate, have a Material Adverse Effect. Except as disclosed in
Section 3.01 of the Target Disclosure Schedule, the Target does not directly
or indirectly own any voting equity or similar voting interest in, or any
interest convertible into or exchangeable or exercisable for, any voting
equity or similar voting interest in, any corporation, partnership, joint
venture or other business association or entity.
Section 3.02. Certificate of Incorporation and Bylaws. The Target has
heretofore furnished or made available to Acquiror a complete and correct copy
of its Certificate of Incorporation and Bylaws, each as amended to date, of
the Target and each of its subsidiaries. Neither the Target nor any of its
subsidiaries is in violation of any provision of its Certificate of
Incorporation or Bylaws.
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Section 3.03. Capitalization. The authorized capital stock of the Target
consists of 30,000,000 shares of Target Common Stock and 1,000,000 shares of
preferred stock, $.01 par value ("Target Preferred Stock"). As of the date
hereof (a) 7,519,325 shares of Target Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
not subject to preemptive rights, and (b) 1,203,191 shares of Target Common
Stock are issuable pursuant to outstanding Target Options. No shares of
Preferred Stock are issued and outstanding and no shares of capital stock of
the Target have been acquired by the Target that are subject to outstanding
pledges by the Target to secure the future payment of some or all of the
purchase price for such shares. Except as set forth in this Section 3.03 and
Section 3.03 of the Target Disclosure Schedule, as of the date of this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or
unissued capital stock of the Target obligating the Target to issue or sell
any shares of capital stock of, or other equity interests in, the Target.
Between December 31, 1995 and the date of this Agreement, no shares of Target
Common Stock have been issued by the Target, except pursuant to the exercise
of the stock options, described above, that were outstanding on December 31,
1995, in each case in accordance with their respective terms. All shares of
Target Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding contractual obligations of the Target
to repurchase, redeem or otherwise acquire any shares of Target Common Stock.
Section 3.04. Authority Relative to This Agreement. The Target has all
necessary corporate power and authority to execute and deliver this Agreement
and, with respect to the Merger, upon the approval and adoption of the Merger
by the Target's stockholders in accordance with this Agreement and Delaware
Law, to perform its obligations hereunder and to consummate the Transactions.
The execution and delivery of this Agreement by the Target and the
consummation by the Target of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of the Target are necessary to authorize this
Agreement or to consummate the Transactions (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a
majority of the then outstanding shares of Target Common Stock and the filing
and recordation of an appropriate Certificate of Merger with the Secretary as
required by Delaware Law). This Agreement has been duly and validly executed
and delivered by the Target and, assuming the due authorization, execution and
delivery of this Agreement by Acquiror and Acquiror Sub, constitutes a legal,
valid and binding obligation of the Target, enforceable against the Target in
accordance with its terms.
Section 3.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by the Target do not, and the performance of
this Agreement by the Target will not, subject to, (x) with respect to the
Merger, obtaining the requisite approval and adoption of the Merger by the
Target's stockholders in accordance with this Agreement and Delaware Law, and
(y) obtaining the consents, approvals, authorizations and permits and making
the filings described in Section 3.05(b) and Section 3.05(b) of the Target
Disclosure Schedule, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of the Target, (ii) conflict with or violate any
domestic (federal, state or local) or foreign law, rule, regulation, order,
judgment or decree (collectively, "Laws") applicable to the Target or by which
any property or asset of the Target is bound or affected, or (iii) except as
specified in Section 3.05(a)(iii) of the Target Disclosure Schedule, result in
any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the
Target, or require the consent of any third party, pursuant to, any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Target is a party or
by which the Target or any property or asset of the Target is bound or
affected.
(b) The execution and delivery of this Agreement by the Target do not,
and the performance of this Agreement by the Target will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic,
foreign or supranational, except (i) for applicable requirements, if any,
of the Securities Exchange Act of 1934, as amended (the "Exchange
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Act"), the Securities Act of 1933, as amended (the "Securities Act"), state
securities or "blue sky" laws ("Blue Sky Laws"), the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), and filing and recordation of an appropriate
Certificate of Merger with the Secretary as required by Delaware Law, (ii)
as specified in Section 3.05(b) of the Target Disclosure Schedule and (iii)
where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not have a
Material Adverse Effect on Target and would not prevent or delay
consummation of the Merger, or otherwise prevent the Target from performing
its obligations under this Agreement.
Section 3.06. Permits; Compliance. Except as disclosed in Section 3.06 of
the Target Disclosure Schedule, the Target is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any United States (federal,
state or local) or foreign government or any governmental, regulatory or
administrative authority, agency or commission or court of competent
jurisdiction ("Governmental Authority") necessary for the Target to own, lease
and operate its properties or to carry on its business as it is now being
conducted (the "Target Permits"), except to the extent that the failure to
possess any such franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals or orders
would not in the aggregate have a Material Adverse Effect, and, as of the date
hereof, no suspension or cancellation of any of the Target Permits is pending
or, to the knowledge of the Target, threatened. Except as disclosed in Section
3.06 of the Target Disclosure Schedule, the Target is not in conflict with, or
in default or violation of, (i) any Law applicable to the Target or by which
any property or asset of the Target is bound or affected, (ii) any of the
Target Permits or (iii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Target is a party or by which the Target or any
property or asset of the Target is bound or affected.
Section 3.07. SEC Filings; Financial Statements. (a) The Target has filed
all forms, reports and documents required to be filed by it with the
Securities and Exchange Commission ("SEC") (collectively other than
registration statements on Form S-8, the "Target SEC Reports"). The Target SEC
Reports (i) at the time filed, complied in all material respects in accordance
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations thereunder and (ii) did not, at the time
they were filed (or at the effective date thereof in the case of registration
statements), 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 made therein, in the light of the circumstances under which
they were made, not misleading.
(b) Each of the financial statements (including, in each case, any notes
thereto) contained in the Target SEC Reports was prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis ("U.S. GAAP") throughout the periods indicated (except as
may be indicated in the notes thereto and except that financial statements
included with quarterly reports on Form 10-Q do not contain all U.S. GAAP
notes to such financial statements) and each fairly presented in all
material respects the financial position, results of operations and changes
in stockholders' equity and cash flows of the Target as at the respective
dates thereof and for the respective periods indicated therein (subject, in
the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to have a Material Adverse Effect).
(c) Except (i) to the extent set forth on the balance sheet of the Target
as at December 31, 1995, including the notes thereto (the "1995 Balance
Sheet"), (ii) as set forth in Section 3.07(c) of the Target Disclosure
Schedule or (iii) disclosed in any SEC Report filed by the Target after
December 31, 1995, the Target does not have any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise) which would
be required to be reflected on a balance sheet, or in the notes thereto,
prepared in accordance with U.S. GAAP, except for liabilities and
obligations incurred in the ordinary course of business consistent with
past practice since December 31, 1995, which would not, individually or in
the aggregate, be material in amount.
(d) The Target has heretofore furnished to Acquiror complete and correct
copies of all amendments and modifications (if any) that have not been
filed by the Target with the SEC to all agreements, documents
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and other instruments that previously had been filed by the Target as
exhibits to the Target SEC Reports and are currently in effect.
Section 3.08. Absence of Certain Changes or Events. Since December 31, 1995,
except as contemplated by, or disclosed pursuant to, this Agreement, including
Section 3.08 of the Target Disclosure Schedule, or disclosed in any Target SEC
Report filed since December 31, 1995 and prior to the date of this Agreement,
the Target has conducted its business only in the ordinary course and in a
manner consistent with past practice and, since December 31, 1995, there has
not been (a) any event or events (whether or not covered by insurance),
individually or in the aggregate, having a Material Adverse Effect, provided,
however, that the Material Adverse Effect for purposes of this Section 3.08
shall not include any adverse effect following the date of this Agreement on
the financial condition, business or results of operations of Target that is
directly attributable to the Merger and the Transactions contemplated by this
Agreement, the announcement of the Merger or any material economic downturn in
the computer software industry or any material national economic downturn; (b)
any material change by the Target in its accounting methods, principles or
practices; (c) any entry by the Target into any commitment or transaction
material to the Target, except in the ordinary course of business and
consistent with past practice; (d) any declaration, setting aside or payment
of any dividend or distribution in respect of any capital stock of the Target
or any redemption, purchase or other acquisition of any of its securities; (e)
other than pursuant to the Plans (as defined in Section 3.10), any increase in
or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan or individual agreement or arrangement, except in the
ordinary course of business consistent with past practice; (f) any acquisition
or sale of a material amount of property or assets of the Target or any of its
subsidiaries; (g) any alteration in any term of any outstanding security of
the Target or any of its subsidiaries; (h) any (A) incurrence, assumption or
guarantee by the Target or any of its subsidiaries or any debt for borrowed
money; (B) issuance or sale of any securities convertible into or exchangeable
for debt securities of the Target or any of its subsidiaries; or (C) issuance
or sale of options or other rights to acquire from the Target or any of its
subsidiaries, directly or indirectly, debt securities of the Target or any of
its subsidiaries or any securities convertible into or exchangeable for any
such debt securities; (i) any creation or assumption by the Target or any of
its subsidiaries of any mortgage, pledge, security interest or lien or other
encumbrance on any asset (other than liens arising under existing lease
financing arrangements or liens arising in the ordinary course of the Target's
business which in the aggregate are not material and liens for taxes not yet
due and payable); (j) any making of any loan, advance or capital contribution
to or investment in any person other than travel loans or advances made in the
ordinary course of business of the Target and its subsidiaries; (k) any entry
into, amendment of, relinquishment, termination or non-renewal by the Target
or any of its subsidiaries or any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Target in excess
of $100,000 other than in the ordinary course of business; (l) any transfer or
grant of a right under the Target's Intellectual Property Rights (as defined
in Section 3.12), other than those transferred or granted in the ordinary
course of business consistent with past practice; (m) any labor dispute, other
than routine immaterial individual grievances, or any activity or proceeding
by a labor union or representative thereof to organize any employees of the
Target or any of its subsidiaries; or (n) any agreement or arrangement made by
the Target or any of its subsidiaries to take any action which, if taken prior
to the date hereof, would have made any representation or warranty set forth
in this Section 3.08 untrue or incorrect as of the date when made.
Section 3.09. Absence of Litigation. Except as disclosed in Section 3.09 of
the Target Disclosure Schedule or the Target SEC Reports filed prior to the
date of this Agreement, there is no claim, action, proceeding or investigation
pending or, to the best knowledge of the Target, threatened against the
Target, before any arbitrator or Governmental Authority which (a) individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect, (b) seeks to and is reasonably likely to significantly delay or
prevent the consummation of the Merger, or (c) has been asserted through the
date hereof by reason of a material warranty claim covering any of the
Target's current or past products. Neither the Target nor any property or
asset of the Target is in violation of any order, writ, judgment, injunction,
decree, determination or award having, individually or in the aggregate, a
Material Adverse Effect.
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Section 3.10. Employee Benefit Plans. Section 3.10 of the Target Disclosure
Schedule lists (i) all material employee benefit plans, programs and
arrangements maintained for the benefit of any current or former employee,
officer or director of the Target (the "Plans") and (ii) all written contracts
and agreements relating to employment and all severance agreements, with any
of the directors, officers or employees of the Target (other than, in each
case, any such contract or agreement that is terminable by the Target at will
without expense arising from such termination, penalty or other adverse
consequence) (the "Target Employment Contracts"). Section 3.10 of the Target
Disclosure Schedule sets forth the name of each officer or employee of the
Target with an annual base compensation greater than $100,000 and the annual
base compensation applicable to each such officer or employee. The Target has
furnished Acquiror with a copy of each Plan and has made available upon
request each material document prepared in connection with each Plan and each
Target Employment Contract. None of the Plans is a multi-employer plan within
the meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). None of the Plans promises or provides retiree medical or life
insurance benefits to any person. Each Plan intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service that it is so qualified and nothing has occurred
since the date of such letter to affect the qualified status of such Plan.
Each Plan has been operated in accordance with its terms and the requirements
of applicable law except where the failure to so operate would not have a
Material Adverse Effect. The Target has not incurred any direct or indirect
material liability under, arising out of or by operation of Title IV of ERISA
in connection with the termination of, or withdrawal from, any Plan or other
retirement plan or arrangement and, as of the date hereof, no fact exists or
event has occurred that would reasonably be expected to give rise to any such
liability. No Plan is or has been covered by Title IV of ERISA or Section 412
of the Code. The Target has not incurred any liability under, and have
complied in all respects with, the Worker Adjustment Retraining Notification
Act and no fact or event exists that could give rise to liability under such
act, except for such occurrences, noncompliances and liabilities as would not,
individually or in the aggregate, have a Material Adverse Effect.
Section 3.11. Labor Matters. The Target has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Target's knowledge, threatened with respect to the
Target. Except as set forth in Section 3.11 of the Target Disclosure Schedule,
no employee has any agreement or contract, written or verbal, regarding his or
her employment. To the Target's knowledge, no employee of the Target, nor any
consultant with whom the Target has contracted, is in violation of any term of
any employment contract, patent disclosure agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, the Target because of the nature of the business to be conducted by the
Target; and to the Target's knowledge the continued employment by the Target
of its present employees, and the performance of the Target's contracts with
its independent contractors, will not result in any such violation. The Target
has not received any notice alleging that any such violation has occurred.
Except as set forth in Section 3.11 of the Target Disclosure Schedule, each
employee is employed on an "at will" basis and has no right to any material
compensation following termination of employment with the Target. The Target
is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Target, nor does the
Target have a present intention to terminate the employment of any officer,
key employee or group of key employees. Each employee, of the Target has
executed a Proprietary Information and Inventions Agreement substantially in
the form provided to counsel to the Acquiror.
Section 3.12. Intellectual Property. Section 3.12 of the Target Disclosure
Schedule (A)(i) identifies each fictitious business name, trademark, service
mark, trade name, copyright and all registrations and applications for any of
the foregoing; (ii) lists each patent, invention, industrial model, process,
design and all registrations and applications for any of the foregoing; and
(iii) identifies any know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trade dress, labels and logos, pertaining to any product,
software or service manufactured, marketed, licensed or sold by the Company in
the conduct of its business or used, employed or exploited in the development,
license, sale, marketing, distribution or maintenance thereof; and (B) lists
all contracts and other agreements to which the Target is a party, including,
such contracts and agreements where Target is either as licensee or licensor,
for each of the foregoing items of intellectual property (all of the
foregoing, the "Target's Intellectual Property").
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None of the Target's affiliates, including, to the Target's knowledge, any of
its stockholders, has any interest (other than as a stockholder of the Target)
in, owns, possesses or otherwise holds in any manner any of the Target's
Intellectual Property. All patents, copyrights, trademarks, including state,
federal and foreign registrations and applications, and other rights and
property that are necessary to the conduct of Target's business are listed in
Section 3.12 of the Target Disclosure Schedule and are valid and in full force
and effect. No rights or properties listed in Section 3.12 of the Target
Disclosure Schedule are subject to maintenance fees or renewal fees. Except as
set forth on Schedule 3.12 of the Target Disclosure Schedule, the Target owns
or has the exclusive right to use the Target's Intellectual Property in
connection with the business now operated by it. The Target has taken
reasonable security measures to protect the secrecy, confidentiality and value
of the Target's Intellectual Property. All trade secrets of the Target are
presently valid and protectible and are not part of the public knowledge or
literature, nor, to the Target's knowledge, have they been used, divulged or
appropriated for the benefit of any person other than the Target or to the
detriment of the Target. The Target has not received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the Target's Intellectual Property, and there is no claim, action, suit or
proceeding pending or, to the best of Target's knowledge, threatened or
reasonably anticipated against the Target with respect thereto nor any basis
therefor. Except as set forth in Section 3.12 of the Target Disclosure
Schedule, the Target is not required to pay any royalty or other amount to
anyone with respect to any of the Target's Intellectual Property. The Target's
trademarks, service marks, trade names, trade dress, labels and logos
described in Section 3.12 of the Target Disclosure Schedule are sufficient for
the conduct of its business as now conducted by it and as described in the SEC
Reports. Neither the Target nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement of
any the Target Intellectual Property other than indemnification provisions of
customary scope for the industry included in license agreements executed by
Target in the ordinary course of business. Neither the Target nor any of its
subsidiaries has entered into any agreement granting any third party the right
to bring infringement actions with respect to, or otherwise to enforce rights
with respect to, any the Target Intellectual Property.
Section 3.13. Taxes. (a) The Target has (i) filed all federal, state, local
and foreign tax returns required to be filed by it prior to the date of this
Agreement (taking into account extensions), (ii) paid or accrued all taxes
shown to be due on such returns and paid all applicable ad valorem and value
added taxes as are due, and (iii) paid or accrued all taxes for which a notice
of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth on Section 3.13(a) of the Target Disclosure Schedule,
neither the Internal Revenue Service nor any other taxing authority has
asserted any claim for taxes, or to the best knowledge of the Target, is
threatening to assert any claims for taxes, which claims, individually or in
the aggregate, could have a Material Adverse Effect. The Target has open years
for federal tax returns only as set forth in the Section 3.13(a) of Target
Disclosure Schedule. The Target has withheld or collected and paid over to the
appropriate governmental authorities (or is properly holding for such payment)
all taxes required by law to be withheld or collected, except for amounts
which would not, individually or in the aggregate, have a Material Adverse
Effect. The Target has not made an election under Section 341(f) of the Code.
There are no liens for taxes upon the assets of the Target (other than liens
for taxes that are not yet due or that are being contested in good faith by
appropriate proceedings), except for liens which would not, individually or in
the aggregate, have a Material Adverse Effect.
(b) The Target has not taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 3.14. Environmental Matters. (a) For purposes of this Agreement, the
following terms shall have the following meanings: (i) "Hazardous Substances"
means (A) those substances defined in or regulated under the following federal
statutes and their state counterparts, as each may be amended from time to
time, and all regulations thereunder: the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act,
the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide, and Rodenticide Act, the
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Toxic Substances Control Act and the Clean Air Act; (B) petroleum and
petroleum products, byproducts and breakdown products including crude oil and
any fractions thereof; (C) natural gas, synthetic gas, and any mixtures
thereof; (D) polychlorinated biphenyls; (E) any other chemicals, materials or
substances defined or regulated as toxic or hazardous or as a pollutant or
contaminant or as a waste under any applicable Environmental Law; and (F) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation; and (ii)
"Environmental Laws" means any federal, state or local law, rule or
regulation, now or hereafter in effect and as amended, and any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment, health, safety or natural resources, including,
without limitation, those relating to (A) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances or (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances.
(b) Except as described in Section 3.14 of the Target Disclosure Schedule
or as would not individually or in the aggregate result in or be likely to
result in any fine, tax, assessment, penalty, loss, cost, damage,
liability, expense or other payment related thereto in excess of $100,000:
(i) the Target is and has been in compliance with all applicable
Environmental Laws; (ii) the Target has obtained all permits, approvals,
identification numbers, licenses or other authorizations required under any
applicable Environmental Laws ("Environmental Permits") and is and has been
in compliance with their requirements; (iii) such Environmental Permits are
transferable to the Surviving Corporation pursuant to the Merger without
the consent of any Governmental Authority; (iv) to the best knowledge of
Target, there are no underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Substances are being or have been treated, stored or disposed of
on any owned or leased real property or on any real property formerly
owned, leased or occupied by the Target; (v) there is, to the best
knowledge of the Target, no asbestos or asbestos-containing material on any
owned or leased real property in violation of applicable Environmental
Laws; (vi) the Target has not released, discharged or disposed of Hazardous
Substances on any owned or leased real property or on any real property
formerly owned, leased or occupied by the Target and to the best knowledge
of Target none of such property is contaminated with any Hazardous
Substances; (vii) the Target is not undertaking, and has not completed, any
investigation or assessment or remedial or response action relating to any
such release, discharge or disposal of or contamination with Hazardous
Substances at any site, location or operation, either voluntarily or
pursuant to the order of any Governmental Authority or the requirements of
any Environmental Law; (viii) there are no past, pending or threatened
actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violation, notices of liability or potential liability,
investigations, proceedings, consent orders or consent agreements relating
in any way to Environmental Laws, any Environmental Permits or any
Hazardous Substances ("Environmental Claims") against the Target or any of
its property, and there are no circumstances that can reasonably be
expected to form the basis of any such Environmental Claim, including
without limitation with respect to any off-site disposal location presently
or formerly used by the Target or, to the best knowledge of Target, any of
its predecessors; and (ix) the Target can maintain present production
levels or any planned expansion of production levels without requiring any
material capital or operating expenditures to comply with applicable
Environmental Laws and without any modification of its Environmental
Permits or obtaining any additional Environmental Permits.
(c) The Target has provided or made available to Acquiror or Acquiror Sub
copies of any environmental reports, studies or analyses in its possession
or under its control relating to owned or leased real property or the
operations of the Target.
Section 3.15. Target Products; Regulation. Except as disclosed in Section
3.15 of the Target Disclosure Schedule, there have been no written notices,
citations or decisions by any Governmental Authority that any product
produced, manufactured, marketed or distributed at any time by the Target (the
"Target Products") is defective or fails to meet any applicable standards
promulgated by any such Governmental Authority.
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Section 3.16. Opinion of Financial Advisor. The Target has received the
written opinion of Donaldson Lufkin & Jenrette ("Target Banker") on the date
of this Agreement to the effect that the consideration to be paid by Acquiror
in the Merger is fair from a financial point of view to the Target's
stockholders as of the date thereof, and the Target will promptly, after the
date of this Agreement, deliver a copy of such opinion to Acquiror. A copy of
the Target Banker engagement letter, dated March 7, 1996, has previously been
delivered to Acquiror.
Section 3.17. Vote Required. The affirmative vote of the holders of a
majority of the then outstanding shares of Target Common Stock is the only
vote of the holders of any class or series of capital stock of the Target
necessary to approve the Merger.
Section 3.18. Brokers. No broker, finder or investment banker (other than
Target Banker) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Target. The Target has heretofore furnished to Acquiror a
correct copy of all agreements between the Target and Target Banker pursuant
to which such firm would be entitled to any payment relating to the
Transactions.
Section 3.19. Tangible Property. The Target and its subsidiaries have good
and sufficient title to all their tangible properties and assets required to
conduct their respective businesses, with only such exceptions as,
individually or in the aggregate, would not have a Material Adverse Effect.
Section 3.20. Material Contracts. Section 3.20 of the Target Disclosure
Schedule lists each contract which is required by its terms or is currently
expected to result in the payment or receipt by the Target of more than
$100,000 and which is not terminable by the Target without the payment of any
termination fee, penalty or fine on not more than three months' notice (a
"Material Contract") to which the Target is a party. Material Contracts shall
also include any contract containing covenants purporting to limit the
Target's freedom or that of any of its subsidiaries to compete in any line of
business in any geographic area and any other agreement, contract or
commitment which is material to the Target and its subsidiaries taken as a
whole. Each Material Contract is in full force and effect and is enforceable
against the parties thereto (other than the Target) in accordance with its
terms, and no condition or state of facts exists that, with notice or the
passage of time, or both, would constitute a material default by the Target
or, to the best knowledge of the Target, any third party under such Material
Contracts. The Target has duly complied in all material respects with the
provision of each Material Contract to which it is a party. There is no
agreement, judgment, injunction, order or decree binding upon the Target or
any of its subsidiaries which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of the
Target or any of its subsidiaries, any acquisition of property by the Target
or any of its subsidiaries or the conduct of business by the Target or any of
its subsidiaries as currently conducted.
Section 3.21. Parachute Payments. Except as disclosed in Section 3.21 of the
Target Disclosure Schedule, the Target has not entered into any agreement that
would result in the making of "parachute payments," as defined in Section 280G
of the Code, to any person.
Section 3.22. Certain Business Practices. As of the date of this Agreement,
except for such actions which would not have a Material Adverse Effect,
neither the Target nor any director, officer, or, to the best knowledge of the
Target, any agent or employee of the Target has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other material unlawful
payment.
Section 3.23. Real Property and Leases. The Target has good and sufficient
title or leasehold interests to all its real properties to conduct its
business as currently conducted.
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Section 3.24. Insurance. All material assets and risks of the Target are
covered by valid and currently effective insurance policies in such types and
amounts as are consistent with customary practices and standards of companies
engaged in businesses and operations similar to those of the Target.
Section 3.25. Accounting and Tax Matters.
(a) The Target is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(b) The Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(c) The amount of the net deferred tax asset reflected on the Target's
books and records as of December 31, 1995, as computed in accordance with
U.S. GAAP, was $812,300, it being understood that no representation is made
hereby with respect to the ability of the Acquiror to realize such tax
deferred assets.
Section 3.26. Board Recommendation. At a meeting duly called and held in
compliance with Delaware Law, the Board of Directors of the Target has
unanimously adopted a resolution (i) approving the Merger, based on a
determination that the Merger is fair to the holders of Target Common Stock
and is in the best interests of such Target stockholders and (ii) approving
and adopting this Agreement and the transactions contemplated hereby and
recommending approval and adoption of this Agreement and the transactions
contemplated hereby by the stockholders of the Target.
Section 3.27. Pooling Matters. Neither the Target nor, to the best of
Target's knowledge, any of its affiliates has taken or agreed to take any
action that (without giving effect to any action taken or agreed to be taken
by the Acquiror or any of its affiliates) would affect the ability of the
Acquiror to account for the business combination to be effected by the Merger
as a pooling of interests in accordance with U.S. GAAP and applicable SEC
rules.
Section 3.28. Change in Control. Except as set forth in Section 3.28 of the
Target Disclosure Schedule, the Target is not a party to any contract,
agreement or understanding which contains a "change in control," "potential
change in control" or similar provision. Except as set forth in this
Agreement, the consummation of the Transactions will not (either alone or upon
the occurrence of any additional acts or events) result in any payment
(whether of severance pay or otherwise) becoming due from the Target to any
person.
Section 3.29. Interest of Officers and Directors. Except as disclosed in
Section 3.29 of the Target Disclosure Schedule, no officer or director of the
Target or any "affiliate" or "associate" (as those terms are defined in Rule
405 promulgated under the Securities Act) of any such person has had, either
directly or indirectly, a material interest in: (i) any person or entity which
purchases from, or sells, licenses or furnishes to, the Target or any of its
subsidiaries any goods, property, technology or intellectual or other property
rights or services; (ii) any contract or agreement to which the Target or any
of its subsidiaries is a party or by which it or its assets or properties may
be bound or affected; or (iii) any property, real or personal, tangible or
intangible, used in or pertaining to its business or that of its subsidiaries,
including any interest in the Target Intellectual Property, except for rights
as a shareholder, and except for rights under any Plan.
Section 3.30. Disclosure. No representation or warranty made by the Target
in this Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished or to be
prepared and furnished by the Target or its representatives pursuant hereto or
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements or facts contained
herein or therein not misleading in light of the circumstances under which
they were furnished. To the best knowledge of the Target after reasonable
inquiry, there is no event, fact or condition that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect that has not
been set forth in this Agreement or in the Target Disclosure Schedule.
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ARTICLE IV
Representations and Warranties of Acquiror and Acquiror Sub
Except as set forth in the Disclosure Schedules delivered by Acquiror to the
Target and signed by the Target and Acquiror for identification prior to the
execution and delivery of this Agreement (the "Acquiror Disclosure Schedule"),
which shall identify exceptions by specific section references, Acquiror and
Acquiror Sub hereby, jointly and severally, represent and warrant to the
Target that:
Section 4.01. Corporate Organization and Qualification. Acquiror and each of
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror and each of its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to
be so qualified or licensed and in good standing as would not, individually or
in the aggregate, have a Material Adverse Effect.
Section 4.02. Certificate of Incorporation and Bylaws. Acquiror has
heretofore furnished or made available to the Target a complete and correct
copy of the Certificate of Incorporation and Bylaws of Acquiror, and the
Certificate of Incorporation and Bylaws of Acquiror Sub, each as amended to
date. Neither Acquiror nor Acquiror Sub is in violation of any provision of
its Certificate of Incorporation or Bylaws.
Section 4.03. Capitalization. As of the date of this Agreement, the
authorized capital stock of Acquiror consists of 100,000,000 shares of
Acquiror Common Stock and 1,000,000 shares of preferred stock, $0.01 par value
("Acquiror Preferred Stock"). As of March 31, 1996, (a) 3,168,378 shares of
Acquiror Common Stock were issued and outstanding, all of which were validly
issued, fully paid and nonassessable, (b) no shares of Acquiror Common Stock
were held in the treasury of Acquiror, (c) 6,577,211 shares of Acquiror Common
Stock were reserved for future issuance pursuant to outstanding stock options
or stock incentive rights granted pursuant to Acquiror's stock option plan,
(d) no shares of Acquiror Preferred Stock were outstanding, and (e) an
indeterminate number of shares of Acquiror Common Stock was reserved for
issuance pursuant to the Company's Stockholders' Rights Plan. The authorized
capital stock of Acquiror Sub consists of 1,000 shares of Acquiror Sub Common
Stock, of which, as of the date of this Agreement, 100 shares are issued and
outstanding and held by Acquiror. Except as contemplated by this Agreement and
as set forth in Section 4.03 of the Acquiror Disclosure Schedule, as of the
date of this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of Acquiror or any subsidiary of Acquiror,
including Acquiror Sub ("Acquiror Subsidiary"), obligating Acquiror or any
Acquiror Subsidiary to issue or sell any shares of capital stock of, or other
equity interests in, Acquiror or any Acquiror Subsidiary. Between March 31,
1996 and the date of this Agreement, no shares of Acquiror Common Stock have
been issued by Acquiror, except pursuant to the options, warrants or other
rights, agreements, arrangements and commitments described in Section 4.03 of
the Acquiror Disclosure Schedule, in each case, in accordance with their
respective terms. There are no outstanding contractual obligations of Acquiror
or any Acquiror Subsidiary to repurchase, redeem or otherwise acquire any
shares of Acquiror Common Stock, or any capital stock of, or any equity
interests in, any Acquiror Subsidiary. The shares of Acquiror Common Stock to
be issued pursuant to the Merger will be duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights created by
statute, Acquiror's Certificate of Incorporation or Bylaws or any agreement to
which Acquiror is a party or by which Acquiror is bound and will, when issued,
be registered under the Securities Act and the Exchange Act and registered or
exempt from registration under applicable Blue Sky Laws.
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Section 4.04. Authority Relative to This Agreement. Each of Acquiror and
Acquiror Sub has all necessary corporate power and authority to execute and
deliver this Agreement and, with respect to the Merger, to perform its
obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by Acquiror and Acquiror Sub and the consummation
by Acquiror and Acquiror Sub of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of Acquiror or Acquiror Sub are necessary to authorize
this Agreement or to consummate the Transactions (other than, with respect to
the issuance of Acquiror Common Stock pursuant to the Merger, the applicable
rules and regulations of Nasdaq, and with respect to the Merger, the approval
and adoption of this Agreement by the sole holder of the outstanding shares of
Acquiror Sub and the filing and recordation of appropriate Certificate of
Merger with the Secretary as required by Delaware Law). This Agreement has
been duly and validly executed and delivered by Acquiror and Acquiror Sub and,
assuming the due authorization, execution and delivery of this Agreement by
the Target, constitutes a legal, valid and binding obligation of each of
Acquiror and Acquiror Sub enforceable against each of Acquiror and Acquiror
Sub in accordance with its terms.
Section 4.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Acquiror and Acquiror Sub do not, and the
performance of this Agreement by Acquiror and Acquiror Sub will not, subject
to obtaining the consents, approvals, authorizations and permits and making
the filings described in Section 4.05(b) and Section 4.05(b) of the Acquiror
Disclosure Schedule, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of either Acquiror or any Acquiror Subsidiary, (ii)
conflict with or violate any Law applicable to Acquiror or any Acquiror
Subsidiary or by which any property or asset of any of them is bound or
affected, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any property or asset of Acquiror or any Acquiror Subsidiary or require the
consent of any third party pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Acquiror or any Acquiror Subsidiary is a party or by which
Acquiror or any Acquiror Subsidiary or any property or asset of any of them is
bound or affected, except for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror or prevent Acquiror and
Acquiror Sub from performing their respective obligations under this Agreement
and consummating the Transactions.
(b) The execution and delivery of this Agreement by Acquiror and Acquiror
Sub do not, and the performance of this Agreement by Acquiror and Acquiror
Sub will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Exchange Act, the Securities Act, Blue Sky Laws, the HSR Act and filing and
recordation of an appropriate Certificate of Merger with the Secretary as
required by Delaware Law, (ii) as specified in Section 4.05(b) of the
Acquiror Disclosure Schedule, and (iii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have a Material Adverse Effect on Acquiror and
would not prevent or delay consummation of the Transactions, or otherwise
prevent Acquiror or Acquiror Sub from performing their respective
obligations under this Agreement.
Section 4.06. SEC Filings; Financial Statements. (a) Acquiror has filed all
forms, reports and documents required to be filed by it with the SEC since
March 31, 1993 (collectively other than registration statements on Form S-8,
the "Acquiror SEC Reports"). The Acquiror SEC Reports (i) at the time filed
complied in all material respects in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder and (ii) did not, at the time they were filed (or at
the effective date thereof in the case of registration statements), 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
made therein, in the light of the circumstances under which they were made,
not misleading. No subsidiary of Acquiror is currently required to file any
form, report or other document with the SEC under Section 12 of the Exchange
Act.
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(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Acquiror SEC Reports was prepared
in accordance with U.S. GAAP throughout the periods indicated (except as
may be indicated in the notes thereto and except that financial statements
included with interim reports do not contain all U.S. GAAP notes to such
financial statements) and each fairly presented in all material respects
the consolidated financial position, results of operations and changes in
stockholders' equity and cash flows of Acquiror and its consolidated
subsidiaries as at the respective dates thereof and for the respective
periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments which were not and are not
expected, individually or in the aggregate, to have a Material Adverse
Effect on Acquiror.
(c) Except (i) to the extent set forth on the balance sheet of the
Acquiror as at December 31, 1995, including the Notes thereto (the
"Acquiror 1995 Balance Sheet"), (ii) as set forth in Section 4.06 of the
Acquiror Disclosure Schedule or (iii) disclosed in any SEC Report filed by
the Acquiror after December 31, 1995, the Acquiror does not have any
liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with U.S.
GAAP which would have a Material Adverse Effect, except for liabilities and
obligations incurred in the ordinary course of business consistent with
past practice since December 31, 1995.
(d) The Acquiror has furnished to Target complete and correct copies of
all material amendments and modifications (if any) that have not been filed
by the Acquiror with the SEC to all agreements, documents and other
instruments that previously had been filed by the Acquiror as exhibits to
Acquiror SEC Reports and are currently in effect.
Section 4.07. Absence of Certain Changes or Events. Since March 31, 1996,
except as contemplated by, or disclosed pursuant to, this Agreement including
Section 4.07 of the Acquiror Disclosure Schedule or disclosed by Acquiror to
the Target in writing on the date hereof, or disclosed in any Acquiror SEC
Report filed since March 31, 1996 and prior to the date of this Agreement,
Acquiror and the Acquiror Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past practice and, since
March 31, 1996, there has not been (a) any event or events (whether or not
covered by insurance), individually or in the aggregate, having a Material
Adverse Effect on Acquiror, (b) any material change by Acquiror in its
accounting methods, principles or practices, (c) any entry by Acquiror or any
Acquiror Subsidiary into any commitment or transaction material to Acquiror or
the Acquiror Subsidiaries, except in the ordinary course of business and
consistent with past practice, (d) any declaration, setting aside or payment
of any dividend or distribution in respect of any capital stock of Acquiror or
any redemption, purchase or other acquisition of any of its securities, (e)
other than pursuant to Acquiror's benefit plans any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the ordinary course of business consistent
with past practice, or (f) any agreement or arrangements made by the Acquiror
or any Acquiror Subsidiary to take any action which, if taken prior to the
date hereof, would have made any representation or warranty set forth in this
Section 4.07 untrue or incorrect as of the date when made.
Section 4.08. Absence of Litigation. Except as disclosed in Section 4.08 of
the Acquiror Disclosure Schedule or the Acquiror SEC Reports filed prior to
the date of this Agreement, there is no claim, action, proceeding or
investigation pending or, to the best knowledge of Acquiror, threatened
against Acquiror or any subsidiary, before any arbitrator or Governmental
Authority, which (a) individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Acquiror or (b) seeks to delay
or prevent the consummation of the Merger. Neither Acquiror nor any Acquiror
Subsidiary nor any property or asset of Acquiror or any Acquiror Subsidiary is
in violation of any order, writ, judgment, injunction, decree, determination
or award having, individually or in the aggregate, a Material Adverse Effect.
Section 4.09. Taxes. (a) Each of Acquiror and each Acquiror Subsidiary have
(i) filed all federal and foreign tax returns required to be filed by it prior
to the date of this Agreement (taking into account extensions),
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(ii) paid or accrued all taxes shown to be due on such returns and has paid
all applicable ad valorem and value added taxes as are due and (iii) paid or
accrued all taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clause (i), (ii) or (iii) for any such
filings, payments or accruals which would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror. Except as set forth on
Section 4.09 of the Acquiror Disclosure Schedule, neither the Internal Revenue
Service nor any other taxing authority has asserted any claim for taxes, or to
the best knowledge of Acquiror, is threatening to assert any claims for taxes,
which claims, individually or in the aggregate, would have a Material Adverse
Effect on Acquiror. Acquiror and each Acquiror Subsidiary have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such payment) all taxes required by law to be withheld or
collected, except for amounts which would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror. Acquiror has not made
an election under Section 341(f) of the Code. There are no liens for taxes
upon the assets of Acquiror or any Acquiror Subsidiary (other than liens for
taxes that are not yet due or that are being contested in good faith by
appropriate proceedings), except for liens which would not, individually or in
the aggregate, have a Material Adverse Effect on Acquiror.
(b) Acquiror has not taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 4.10. Agreements, Contracts and Commitments. Acquiror has not
breached, or received in any writing any claim or threat that it has breached,
any of the terms or conditions of any material agreement, contract or
commitment filed as an exhibit to any Acquiror SEC Reports ("Acquiror Material
Contract") in such a manner as would permit any third party to cancel or
terminate the same or would permit any third party to seek material damages
from the Acquiror under any Acquiror Material Contract. Each Acquiror Material
Contract that has not expired or been terminated is in full force and effect
and is not subject to any material default thereunder of which Acquiror is
aware by any third party obligated to the Acquiror pursuant to any such
Acquiror Material Contract.
Section 4.11. Ownership of Acquiror Sub; No Prior Activities. (a) Acquiror
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or
organization and the Transactions and except for this Agreement and any
other agreements or arrangements contemplated by this Agreement, Acquiror
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
Section 4.12. Brokers. No broker, finder or investment banker (other than
Broadview Associates ("Acquiror Banker")) is entitled to any brokerage,
finder's or other fee or commission in connection with the Transactions based
upon arrangements made by or on behalf of Acquiror or Acquiror Sub.
Section 4.13. Acquiror Common Shares. The shares of Acquiror Common Stock to
be exchanged for Target Common Stock, when issued and delivered to the
Exchange Agent for the benefit of the stockholders of Target pursuant to the
Merger, will be (i) validly issued, fully paid and non-assessable, and free of
pre-emptive rights with no personal liability attaching to the ownership
thereof, (ii) registered in accordance with the provisions of this Agreement
under the Securities Act, (iii) either registered or exempt from registration,
as the case may be, under all applicable state securities or Blue Sky Laws,
(vi) approved for trading on Nasdaq upon official notice of issuance and (v)
except with respect to "affiliates" of the Acquiror or the Target, such shares
will be freely tradeable without any restrictions upon transfer.
Section 4.14. Pooling Matters. Neither Acquiror nor, to the best of
Acquiror's knowledge, any of its affiliates, has, through the date of this
Agreement, taken or agreed to take any action that (without giving effect
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to any action taken or agreed to be taken by the Target or any of its
affiliates) would effect the ability of the Acquiror to account for the
business combination to be effected by the Merger as a pooling of interests in
accordance with U.S. GAAP and applicable SEC rules.
ARTICLE V
Conduct of Business Pending The Merger
Section 5.01. Conduct of Business by the Target Pending the Merger. The
Target covenants and agrees that, between the date of this Agreement and the
Effective Time, except as set forth in Section 5.01 of the Target Disclosure
Schedule or as contemplated by any other provision of this Agreement, unless
Acquiror shall otherwise agree in writing (which agreement shall not be
unreasonably withheld or delayed), (1) the business of the Target shall be
conducted only in, and the Target shall not take any action except in, the
ordinary course of business and in a manner substantially consistent with past
practice, (2) the Target shall use all commercially reasonable efforts to
preserve substantially intact its business organization, to keep available the
services of the current officers, employees and consultants of the Target and
to preserve the current relationships of the Target with customers, suppliers
and other persons with which the Target has significant business relations,
and (3) the Target shall not:
(a) amend or otherwise change its Certificate of Incorporation or Bylaws;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any
shares of capital stock of the Target of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Target (except for the
issuance of shares of capital stock issuable pursuant to currently
outstanding Target Options and rights pursuant to Plans currently in effect
on the date hereof and described in Section 3.10 of the Target Disclosure
Schedule), or (ii) any of the Target's assets, except for sales in the
ordinary course of business and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) reclassify, combine, split, divide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof or any
assets; (ii) acquire (including, without limitation, by purchase, license
or other technology transfer arrangement) any third party technology or
rights to technology other than the acquisition of generally available
hardware and software products acquired in the ordinary course of business
and which have a cost not in excess of $100,000; (iii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans or advances, except
for indebtedness incurred in the ordinary course of business and consistent
with past practice and other indebtedness with a maturity of not more than
one year in a principal amount not, in the aggregate, in excess of
$100,000; (iv) enter into any contract or agreement material to the
business, results of operations or financial condition of the Target other
than in the ordinary course of business, consistent with past practice; (v)
authorize any capital expenditure, other than capital expenditures included
in Target's capital budget for 1996 which has been provided to Acquiror or
set forth in Section 5.01(e)(iv) of the Target Disclosure Schedule; (vi)
enter into or amend any contract, agreement, commitment or arrangement with
any related party to Target; or (vii) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth
in this subsection (e);
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(f) except in the ordinary course of business consistent with past
practice and except in the case of officers for annual increases in
compensation payable or to become payable to any officer of the Target
consistent with past practices of the Target, (i) increase the compensation
payable or to become payable to any director, officer or other employee, or
grant any bonus, to, or grant any severance or termination pay to, or enter
into any employment or severance agreement with any director, officer or
other employee of the Target, (ii) enter into any collective bargaining
agreement, or (iii) establish, adopt, enter into or amend any bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation or other plan, trust or fund for the
benefit of any director, officer or class of employees;
(g) settle or compromise any pending or threatened litigation which is
material or which relates to the transactions contemplated hereby, provided
that nothing in this Section 5.01(g) will prohibit the Target's Board of
Directors from settling or compromising any such litigation if, after
consultation with independent counsel, the Target's Board of Directors
believes that such action is necessary to comply with its fiduciary duties;
(h) grant or convey to any person any rights, including, but not limited
to, by way of sale, license or sub-license, in any of the Target's
Intellectual Property other than the grant of licenses in the ordinary
course of business and consistent with past practice which licenses do not
involve committed or contingent payment obligations to the Target which may
exceed $100,000;
(i) enter into or amend any agreement with any person for the sale,
licensing, development, marketing, distribution, manufacture or commercial
exploitation of any of the Target's products or the Target's Intellectual
Property other than any end user license agreement entered into in the
ordinary course of business in which Target's liabilities and obligations
are less than $50,000; or
(j) abandon, or fail to pay any maintenance fees, or fail to renew any
patent, copyright, trademark or service mark registration, or application
for any of the foregoing, or license agreement, owned by the Target.
Section 5.02. Conduct of Business by Acquiror Pending the Merger. Acquiror
covenants and agrees that, between the date of this Agreement and the
Effective Time, except as set forth in Section 5.02 of the Acquiror Disclosure
Schedule or as contemplated by any other provision of this Agreement, unless
the Target shall otherwise agree in writing (which agreement will not be
unreasonably withheld or delayed), (i) the businesses of the Acquiror and each
Acquiror Subsidiary shall be conducted only in, and the Acquiror shall not,
and shall cause each Acquiror Subsidiary not to, take any action except in,
the ordinary course of business and in a manner substantially consistent with
past practice, and (ii) Acquiror shall not amend any of the terms or
provisions of the Acquiror Common Stock.
ARTICLE VI
Additional Agreements
Section 6.01. Registration Statement; Proxy Statement. (a) As promptly as
practicable after the execution of this Agreement, Acquiror shall prepare and
file with the SEC a registration statement on Form S-4 (together with all
amendments thereto, the "Registration Statement") including therein a combined
proxy statement to be sent to the stockholders of the Target (the "Proxy
Statement") and Prospectus, in connection with the registration under the
Securities Act of the shares of Acquiror Common Stock to be issued to the
stockholders of the Target pursuant to the Merger. Acquiror and the Target
each shall use all reasonable efforts to cause the Registration Statement to
become effective as promptly as practicable, and, prior to the effective date
of the Registration Statement, Acquiror shall take all or any action required
under any applicable federal or state securities laws in connection with the
issuance of shares of Acquiror Common Stock pursuant to the Merger. Each of
the Target and Acquiror shall pay its own expenses incurred in connection with
the Registration Statement, Proxy Statement and the Target's Stockholders'
Meeting (as hereinafter defined), including, without limitation, the fees and
disbursements of their respective counsel, accountants and other
representatives, except that the Target and Acquiror each shall pay one-half
of any printing, filing and other fees and expenses incurred
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in connection therewith. The Target shall furnish all information concerning
the Target as Acquiror may reasonably request in connection with such actions
and the preparation of the Registration Statement and Proxy Statement. As
promptly as practicable after the Registration Statement shall have become
effective, the Target shall mail the Proxy Statement to its stockholders. The
Proxy Statement shall include the unanimous recommendation of the Board of
Directors of the Target in favor of the Merger, unless otherwise necessary due
to the applicable fiduciary duties of the directors of the Target, as
determined by such directors in good faith after consultation with independent
legal counsel (who may be such party's regularly engaged independent legal
counsel), subject to Section 6.05.
No amendment or supplement to the Proxy Statement or the Registration
Statement will be made by Acquiror or the Target without the approval of the
other party, which shall not be unreasonably withheld. Acquiror and the Target
each will advise the other, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of
the qualification of the Acquiror Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
Acquiror shall promptly prepare and submit to Nasdaq a listing application
covering the shares of Acquiror Common Stock issuable in the Merger, and shall
use its reasonable best efforts to obtain, prior to the Effective Time,
approval for the listing of such Acquiror Common Stock, subject to official
notice of issuance and the Target shall cooperate with Acquiror with respect
to such listing.
(b) Acquiror represents, warrants and agrees that the information
supplied by Acquiror for inclusion in the Registration Statement and the
Proxy Statement shall not, at (i) the time the Registration Statement is
declared effective, (ii) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Target, (iii) the time of the Target's Stockholder Meeting, and (iv) the
Effective Time, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with
respect to any material fact, or omit to state any material fact required
to be stated therein, or necessary in order to make the statements therein
not false or misleading. If at any time prior to the Effective Time any
event or circumstance relating to Acquiror or any Acquiror Subsidiary, or
their respective officers or directors, should be discovered by Acquiror
which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, Acquiror shall promptly inform
the Target. Notwithstanding the foregoing, Acquiror and Acquiror Sub make
no representation or warranty with respect to any information supplied by
the Target or any of its representatives which is contained in the
Registration Statement or Proxy Statement. All documents that Acquiror is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
aspects with the applicable requirements of the Securities Act and the
rules and regulations promulgated thereunder and the Exchange Act and the
rules and regulations promulgated thereunder.
(c) The Target represents, warrants and agrees that the information
supplied by the Target for inclusion in the Registration Statement and the
Proxy Statement shall not, at (i) the time the Registration Statement is
declared effective, (ii) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the stockholders of the
Target, (iii) the time of the Target's Stockholder Meeting, and (iv) the
Effective Time, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with
respect to any material fact, or omit to state any material fact required
to be stated therein, or necessary in order to make the statements therein
not false or misleading. If at any time prior to the Effective Time any
event or circumstance relating to the Target, or its officers or directors,
should be discovered by the Target which should be set forth in an
amendment or a supplement to the Registration Statement or Proxy Statement,
the Target shall promptly inform Acquiror. Notwithstanding the foregoing,
the Target makes no representation or warranty with respect to any
information supplied by Acquiror or any of its representatives in the
Registration Statement or Proxy Statement. All documents that
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the Target is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and substance in
all material respects with the applicable requirements of the Securities
Act and the rules and regulations promulgated thereunder and the Exchange
Act and the rules and regulations promulgated thereunder.
(d) The Target, Acquiror and Acquiror Sub each hereby (i) consents to the
use of its name and, on behalf of its subsidiaries and affiliates, the
names of such subsidiaries and affiliates and to the inclusion of financial
statements and business information relating to such party and its
subsidiaries and affiliates (in each case, to the extent required by
applicable securities laws) in the Registration Statement and the Proxy
Statement; (ii) agrees to use all reasonable efforts to obtain the written
consent of any person or entity retained by it which may be required to be
named (as an expert or otherwise) in the Registration Statement or the
Proxy Statement; and (iii) agrees to cooperate, and agrees to use all
reasonable efforts to cause its subsidiaries and affiliates to cooperate,
with any legal counsel, investment banker, accountant or other agent or
representative retained by any of the parties specified in clause (i) above
in connection with the preparation of any and all information required, as
determined after consultation with each party's counsel, to be disclosed by
applicable securities laws in the Registration Statement or the Proxy
Statement.
Section 6.02. Target Stockholder Meeting. The Target shall call and hold a
meeting of its stockholders (the "Target's Stockholder Meeting") as promptly
as practicable for the purpose of voting upon the approval of the Merger, and
the Target shall use its best efforts to hold the Target's Stockholder Meeting
as soon as practicable after the date on which the Registration Statement
becomes effective. The Target shall use its best efforts to solicit from its
stockholders proxies in favor of the approval of the Merger, and shall take
all other action reasonably necessary or advisable to secure the vote or
consent of stockholders required by Delaware Law to obtain such approvals
(including unanimously recommending such approval), unless otherwise necessary
under the applicable fiduciary duties of the directors of the Target, as
determined by its directors in good faith after consultation with independent
legal counsel (who may be such party's regularly engaged independent legal
counsel).
Section 6.03. Appropriate Action; Consents; Filings. (a) The Target and
Acquiror shall use their best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper
or advisable under applicable Law or required to be taken by any Governmental
Authority or otherwise to consummate and make effective the Transactions as
promptly as practicable, (ii) obtain from any Governmental Authorities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Acquiror or the Target or any of their
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Transactions, including, without
limitation, the Merger, and (iii) as promptly as practicable, make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the Securities Act
and the Exchange Act, and any other applicable federal or state securities
Laws, (B) the rules and regulations of the Nasdaq, (C) Delaware Law, (D) the
HSR Act and any related governmental request thereunder, and (E) any other
applicable Law; provided that Acquiror and the Target shall cooperate with
each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party and its
advisors prior to filing and, if requested, to accept all reasonable
additions, deletions or changes suggested in connection therewith. The Target
and Acquiror shall use reasonable best efforts to furnish to each other all
information required for any application or other filing to be made pursuant
to the rules and regulations of any applicable Law (including all information
required to be included in the Proxy Statement and the Registration Statement)
in connection with the transactions contemplated by this Agreement.
(b) (i) Each of Acquiror and the Target shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, their reasonable best efforts
to obtain any third party consents (including those set forth in Section
3.05(a)(iii)), (A) necessary to consummate the Transactions, (B) disclosed
or required to be disclosed in the Target Disclosure Schedule or the
Acquiror Disclosure Schedule or (C) required to prevent a Material Adverse
Effect from occurring prior to or after the Effective Time.
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(ii) In the event that Acquiror or the Target shall fail to obtain
any third party consent described in subsection (b)(i) above, it shall
use its best efforts, and shall take any such actions reasonably
requested by the other party, to minimize any adverse effect upon the
Target and Acquiror, their respective subsidiaries, and their
respective businesses resulting, or which could reasonably be expected
to result after the Effective Time, from the failure to obtain such
consent.
(c) From the date of this Agreement until the Effective Time, each party
shall promptly notify the other party of any pending, or to the best
knowledge of such party, threatened, action, proceeding or investigation by
or before any Governmental Authority or any other person (i) challenging or
seeking material damages in connection with the Merger or the conversion of
the Target Common Stock into Acquiror Common Stock pursuant to the Merger
or (ii) seeking to restrain or prohibit the consummation of the Merger or
otherwise limit the right of Acquiror or, to the knowledge of such party,
any Acquiror Subsidiary to own or operate all or any portion of the
businesses or assets of the Target, which in either case is reasonably
likely to have a Material Adverse Effect on the Target prior to the
Effective Time, or a Material Adverse Effect on the Acquiror and the
Acquiror Subsidiaries (including the Surviving Corporation) after the
Effective Time.
Section 6.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement (as hereinafter defined), from the date hereof to
the Effective Time, Acquiror and the Target will each provide to the other,
during normal business hours and upon reasonable notice, access to all
information and documents which the other may reasonably request regarding the
business, assets, liabilities, employees and other aspects of the other party,
other than information and documents that in the opinion of such other party's
counsel may not be disclosed under applicable Law.
Section 6.05. No Solicitation of Transactions. The Target shall not,
directly or indirectly, through any officer, director, agent or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from
any person relating to any acquisition or purchase of all or any material
portion of the assets of, or any equity interest in, the Target or any merger,
consolidation, share exchange, business combination or other similar
transaction with the Target or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing; provided, however, that nothing contained in this Section 6.05
shall prohibit the Board from furnishing information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
proposal in writing by such person to acquire the Target pursuant to a merger,
consolidation, share exchange, business combination or other similar
transaction or to acquire all or substantially all of the assets of the Target
received by the Board after the date of the Agreement, if, and only to the
extent that, (a) the Board, after consultation with Target Banker and based
upon the advice of outside counsel that such action is required in order for
the Board not to breach its fiduciary duties to stockholders imposed by
Delaware Law and (b) prior to furnishing such information to, or entering into
discussions or negotiations with, such person, the Target (i) gives Acquiror
and Acquiror Sub as promptly as practicable prior written notice of the
Target's intention to furnish such information or begin such discussions and
(ii) receives from such person an executed confidentiality agreement on terms
no less favorable to the Target than those contained in the Confidentiality
Agreement. The Target shall notify Acquiror promptly if any proposal or offer,
or any inquiry or contact with any person with respect thereto, is made and
shall, in any such notice to Acquiror, indicate in reasonable detail the
identity of the person making such proposal, offer, inquiry or contact and the
terms and conditions of such proposal, offer, inquiry or contact. The Target
agrees not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which the Target is a party. The
Target immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
Section 6.06. Indemnification of Directors and Officers. Acquiror agrees for
a period of five years after the Effective Time to preserve the assets of
Target or otherwise to provide sufficient assets to Target to enable Target to
adequately indemnify its former officers and directors for acts prior to the
Effective Time. Acquiror further agrees that all rights to indemnification,
including, without limitation, provisions relating to advances of expenses
incurred in defense of any action or suit, existing in favor of the present or
former directors and officers
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of Target (collectively, the "Indemnified Parties"), as provided in Acquiror's
Certificate of Incorporation or By-Laws or pursuant to any other agreements or
similar documents, as in effect of the date hereof, with respect to matters
occurring through the Effective Time, shall survive the Merger and this
Agreement shall continue in force and effect for a period of five years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any and all claims (a "Claim") asserted or made within such period
shall continue until disposition of such Claim.
(a) Acquiror shall maintain in effect for not less than three years after
the Effective Time the current policies of directors' liability insurance
and fiduciary liability insurance maintained by Target with respect to
matters occurring prior to the Effective Time; provided, however, that (i)
Acquiror may substitute therefor policies of substantially the same or
better coverage containing terms and conditions which are not less
advantageous in any material respect to the Indemnified Parties; (ii)
Acquiror shall not be required to pay an annual premium for such insurance
in excess of 125% of the premium in effect immediately prior to the
Effective Time; and (iii) Acquiror shall control all negotiations with
applicable brokers and insurers.
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the Transactions in commenced, whether before or
after the Effective Time, the parties hereto agree to cooperate and,
subject to Acquiror's right to control the defense thereof (subject, in the
case of any non-monetary settlement thereof, to the consent of the affected
defendants whose consent shall not be unreasonably withheld), use their
respective best efforts to assist in the defense or settlement of such
matter so as to minimize the exposure of the parties thereunder.
(c) This Section 6.06 is intended to benefit the Indemnified Parties and
shall be binding upon all successors and assignees of the Acquiror and
Target.
Section 6.07. Obligations of Acquiror Sub. Acquiror shall take all action
necessary to cause Acquiror Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to conditions
set forth in this Agreement.
Section 6.08. Public Announcements. (a) Acquiror and the Target shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or any Transaction and
shall not issue any such press release or make any such public statement prior
to such consultation; and (b) prior to the Determination Date, the Target will
not issue any other press release or otherwise make any statements regarding
its business, except as may be required by Law or any listing agreement with
the National Association of Securities Dealers, Inc. (the "NASD") to which the
Target is a party.
Section 6.09. Delivery of SEC Documents. Each of the Target and Acquiror
shall promptly deliver to the other true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement.
Section 6.10. Environmental Assessment. The Target agrees that Acquiror may
perform or have performed on its behalf an environmental assessment of the
owned or leased real property of the Target. The Target will give Acquiror and
the officers, directors, employees, agents, consultants and representatives of
Acquiror access to such owned or leased real property, including without
limitation, access to enter upon and investigate and collect air, surface
water, groundwater and soil samples, in order to conduct the environmental
assessment. The Target will cooperate with Acquiror in connection with such
assessment, including, without limitation, scheduling site visits as necessary
to complete the assessment prior to the Effective Time. The environmental
assessment conducted by Acquiror or on Acquiror's behalf shall be satisfactory
to Acquiror in its sole and absolute discretion; provided, however, that it is
expressly agreed and understood that the delivery or contents of such report
shall not under any circumstances be asserted by the Acquiror as grounds for
termination of this Agreement or refusal to consummate the Transactions
contemplated hereby.
Section 6.11. Notification of Certain Matters. The Target shall give prompt
notice to Acquiror, and Acquiror shall give prompt notice to the Target, of
(i) the occurrence, or non-occurrence, of any event the
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occurrence, or non-occurrence, of which would be likely to cause any material
representation or warranty contained in this Agreement to be untrue or
inaccurate, and (ii) any failure of the Target, Acquiror or Acquiror Sub, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.11 shall not limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.
Section 6.12. Further Action. At any time and from time to time, each party
to this Agreement agrees, subject to the terms and conditions of this
Agreement, to take such actions and to execute and deliver such documents as
may be necessary to effectuate the purposes of this Agreement at the earliest
practicable time.
Section 6.13. Affiliates; Accounting and Tax Treatment. Section 6.13 of the
Target Disclosure Schedule lists the names and addresses of those persons who
are, in the Target's reasonable judgment, "affiliates" of the Target within
the meaning of Rule 145 under the Securities Act or otherwise under applicable
SEC accounting releases without respect to pooling-of-interests accounting
treatment (each, a "Target Affiliate"). The Target shall use its best efforts
to obtain Affiliate Agreements in the form of Exhibit A hereto ("Affiliate
Agreements") from (i) at least 30 days prior to the Effective Time, each of
the officers, directors and stockholders of the Target specified in Section
6.13 of the Target Disclosure Schedule and (ii) any person who may be deemed
to have become an affiliate of the Target (under Rule 145 under the Securities
Act or otherwise under applicable SEC accounting releases with respect to
pooling-of-interests accounting treatment) after the date of this Agreement
and on or prior to the Effective Time as soon as practicable after the date on
which such person attains such status. Each party hereto shall use their best
efforts to cause the Merger to qualify, and shall not take any actions which
would (or fail to take any actions the failure of which would) prevent the
Merger from qualifying, for pooling-of-interests accounting treatment and as a
reorganization qualifying under the provisions of Section 368(a) of the Code.
Section 6.14. Antitrust Laws. As promptly as practical, Target, Acquiror and
Acquiror Sub shall make all findings and submissions under the HSR Act as may
be reasonably required to be made in connection with this Agreement and the
Transactions. Subject to the terms of the Confidentiality Agreement, Target
shall furnish to Acquiror and Acquiror Sub, and Acquiror and Acquiror Sub
shall furnish to Target, such information and assistance as the other may
reasonably request in connection with the preparation of any such filings or
submissions.
Section 6.15. Tax Free Reorganization. Acquiror and Target shall use their
respective best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Code.
ARTICLE VII
Conditions to the Merger
Section 7.01. Conditions to the Obligations of Each Party. The obligations
of the Target, Acquiror and Acquiror Sub to consummate the Merger are subject
to the satisfaction of the following conditions:
(a) this Agreement and the Transactions contemplated hereby shall have
been approved and adopted by the affirmative vote of the stockholders of
the Target in accordance with Delaware Law and the Target's Certificate of
Incorporation and Bylaws and the rules of the NASD;
(b) no Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any order, executive order, stay, decree, judgment or
injunction (each an "Order") or statute, rule, regulation which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger;
(c) the Registration Statement shall have been declared effective, and no
stop order suspending the effectiveness of the Registration Statement shall
be in effect;
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(d) Acquiror and the Target shall have received from Nasdaq evidence that
the shares of Acquiror Common Stock to be issued to the stockholders of the
Target in the Merger shall be quoted on Nasdaq immediately following the
Effective Time;
(e) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated; and
(f) Acquiror and Target shall each have received substantially identical
written opinions from their respective counsel, Baker & McKenzie and Hale
and Dorr, in form and substance reasonably satisfactory to them to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code. In rendering such opinions, counsel may rely
upon (and, to the extent reasonably required, the parties and Target's
stockholders shall make) reasonable representations related thereto; and
(g) Acquiror and the Target shall have received the opinion of Price
Waterhouse LLP and Ernst & Young LLP, respectively, dated as of the date on
which the Registration Statement shall become effective and the Effective
Time, to the effect that the Merger qualifies for pooling-of-interests
accounting treatment if consummated in accordance with this Agreement.
Section 7.02. Conditions to the Obligations of Acquiror and Acquiror
Sub. The obligations of Acquiror and Acquiror Sub to consummate the Merger are
subject to the satisfaction of the following further conditions:
(a) the Target 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 each
of the representations and warranties of the Target contained in this
Agreement shall be true and correct in all material respects as of the
Effective Time as though made on and as of the Effective Time, except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date and Acquiror
shall have received a certificate of an executive officer of the Target to
that effect; and
(b) the Target shall not have become subject to any action or event which
resulted in or may likely result in a Material Adverse Effect, provided,
however, that Material Adverse Effect for purposes of this condition
7.02(b) shall not include any adverse effect resulting from an item
expressly disclosed in the Target Disclosure Schedule dated 5/7/96 or
directly attributable to reactions of customers or employees to the
announcement of the Merger or a material national economic downturn; and
(c) Acquiror shall have received from the Target "cold comfort" letters
of Ernst & Young LLP of the kind contemplated by the Statement of Auditing
Standards with respect to Letters to Underwriters promulgated by the
American Institute of Certified Public Accountants (the "AICPA Statement")
dated the date on which the Registration Statement shall become effective
and the Effective Time, respectively, and addressed to Acquiror, in form
and substance reasonably satisfactory to Acquiror, in connection with the
procedures undertaken by them with respect to the financial statements of
the Target contained in the Registration Statement and the other matters
contemplated by the AICPA Statement and customarily included in comfort
letters relating to transactions similar to the Merger; and
(d) Acquiror shall have received from each Target Affiliate and any other
person who may be deemed to have become an affiliate of the Target (under
Rule 145 under the Securities Act or otherwise under applicable SEC
accounting releases with respect to pooling-of-interests accounting
treatment) after the date of this Agreement and on or prior to the
Effective Time a signed Affiliate Agreement; and
(e) Each of the persons identified in Part A to Section 7.02 of the
Target Disclosure Schedule (the "Part A Employees") will continue to be
employed by Target and Acquiror shall have received such written or other
assurance as it shall reasonably require regarding the commitment of the
Part A Employees to remain as employees of Acquiror following the Effective
Time; and Target will use its best efforts to maintain substantially all
persons identified in Part B of Section 7.02 of the Target Disclosure
schedule (the "Part B Employees") as employees of Target; and
(f) Target shall have used all commercially reasonable efforts to
preserve substantially intact Target's business, organization, employees,
and all relationships with customers and suppliers with which Target has or
anticipates having significant business relations; and
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(g) Acquiror shall have received reasonable and adequate assurance, to
its satisfaction, that (i) Target's OEM Source License Agreement dated
12/29/95 between Target and Object Power, Inc. does not include any binding
and enforceable support obligations of Target and unless and until a
separate written support agreement is executed by Target with Acquiror's
written consent there will be no such binding and enforceable support
obligations of Target thereunder; and (ii) Target's Reseller Agreement
between Target and Cambridge Technology Group, Inc. shall not be applicable
to any of Acquiror's products, including any of such products based upon or
including Target's products, without Acquiror's written consent; and
(h) Acquiror and Target shall have received all permits and
authorizations necessary for the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement and Target
shall have received consents or waivers under all contracts and agreements
which might reasonably be interpreted as requiring such consent or waiver
as a result of the Merger; and
(i) Acquiror shall have received an opinion of Hale and Dorr, general
counsel to Target, addressed to Acquiror, dated the Closing Date, and
satisfactory in form and substance to Acquiror and its counsel, to the
following effect:
i. Target is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as then being conducted, and to
enter into this Agreement and perform its obligations hereunder;
ii. the authorized capitalization of Target is as stated in such
opinion (which amounts shall be consistent with Target's
representations and warranties and covenants herein); and all of the
outstanding shares of capital stock of Target are validly issued, fully
paid and non-assessable, with no personal liability attaching to the
ownership thereof;
iii. each subsidiary of Target is duly incorporated, validly existing
and in good standing under the laws of its respective organization and
has all requisite power and authority to own, lease and operate its
properties and to carry on its business as then being conducted;
iv. the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not conflict
with, result in the breach of any provision of or the termination of,
or constitute a default under, any corporate charter or bylaws or to
the knowledge of such counsel, any instrument, agreement or commitment
referred to in the Target Disclosure Schedule and, to the knowledge of
such counsel, will not constitute a violation of any order, judgment or
decree to which Target or any of its subsidiaries is a party or by
which any of them or any of their respective assets or properties is or
may be bound or require any approval or consent which has not been
obtained under any instrument, agreement or commitment referred to in
the Target Disclosure Schedule;
v. to the knowledge of such counsel, no litigation, proceeding or
investigation is pending or threatened against Target or any of its
subsidiaries, except as previously disclosed to Acquiror pursuant to
this Agreement or not required to be disclosed under this Agreement;
and (B) neither Target nor any of its subsidiaries is subject to, in
violation of, or in default with respect to any continuing judicial or
administrative order, writ, injunction or decree applicable
specifically to it or to its business, properties, assets or employees;
vi. the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not violate
any provision of law applicable to Target or any of its subsidiaries,
and no holder of Target Common Stock is entitled to dissent from the
Merger under Delaware law; and
vii. All corporate proceedings, including appropriate action by the
Board of Directors and the shareholders of Target, necessary to
authorize the execution and delivery by Target of this Agreement and
its performance of its obligations hereunder have been duly and validly
taken; and this Agreement constitutes a valid and binding obligation of
Target, enforceable against it in accordance with its terms;
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<PAGE>
and as to such other matters as Acquiror or its counsel may reasonably
request. In providing such opinion, Hale and Dorr may rely, with respect to
law other than the federal law of the United States, on the opinions of
other counsel of established reputation reasonably satisfactory to
Acquiror.
Section 7.03. Conditions to the Obligations of the Target. The obligations
of the Target to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) Acquiror and Acquiror Sub shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the
Effective Time and each of the representations and warranties of Acquiror
and Acquiror Sub contained in this Agreement shall be true and correct in
all material respects as of the Effective Time, as though made on and as of
the Effective Time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date and the Target shall have received a certificate of an
executive officer of Acquiror to that effect; and
(b) the opinion of Target Banker, in the form included in the Proxy
Statement, shall not have been withdrawn or modified in any materially
adverse respect; and
(c) Target shall have received from the Acquiror "cold comfort" letters
of Price Waterhouse LLP of the kind contemplated by the AICPA Statement
dated the date on which the Registration Statement shall become effective
and the Effective Time, respectively, and addressed to Acquiror, in form
and substance reasonably satisfactory to Acquiror, in connection with the
procedures undertaken by them with respect to the financial statements of
the Target contained in the Registration Statement and the other matters
contemplated by the AICPA Statement and customarily included in comfort
letters relating to transactions similar to the Merger; and
(d) Acquiror shall have received from each Acquiror Affiliate and any
other person who may be deemed to have become an affiliate of the Target
(under Rule 145 under the Securities Act or otherwise under applicable SEC
accounting releases with respect to pooling-of-interests accounting
treatment) after the date of this Agreement and on or prior to the
Effective Time a signed Affiliate Agreement; and
(e) Acquiror and Target shall have received all permits and
authorizations necessary for the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement and Target
shall have received consents or waivers under all contracts and agreements
which might reasonably be interpreted as requiring such consent or waiver
as a result of the Merger; and
(f) Acquiror shall have received an opinion of Baker & McKenzie, counsel
to Acquiror, addressed to Target, dated the Closing Date, and satisfactory
in form and substance to Target and its counsel, to the following effect:
i. Acquiror is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as then being conducted, and to
enter into this Agreement and perform its obligations hereunder;
ii. the authorized capitalization of Acquiror is as stated in such
opinion (which amounts shall be consistent with Acquiror's
representations and warranties and covenants herein);
iii. the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not
conflict with, result in the breach of any provision of or the
termination of, or constitute a default under, the corporate charter or
bylaws of Acquiror;
iv. the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not violate
any provision of law applicable to Acquiror, except where such
violation will not result in a Material Adverse Event;
v. all corporate proceedings necessary to authorize the execution and
delivery by Acquiror of this Agreement and its performance of its
obligations hereunder have been duly and validly taken; and this
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Agreement constitutes a valid and binding obligation of Target,
enforceable against it in accordance with its terms.
vi. The Acquiror Common Shares issued in the Merger will be, when
issued in accordance with the Agreement, duly authorized, validly
issued, fully paid and nonassessable.
vii. The Acquiror Common Shares issued in the Merger have been
registered under the Securities Act pursuant to the Registration
Statement and have been authorized for listing on the Nasdaq National
Market.
In providing such opinion, Baker & McKenzie may rely, with respect to law
other than the federal law of the United States, on the opinions of other
counsel of established reputation reasonably satisfactory to Acquiror.
ARTICLE VIII
Termination, Amendment and Waiver
Section 8.01. Termination. This Agreement may be terminated and the Merger
and the other Transactions may be abandoned at any time prior to the Effective
Time, notwithstanding any requisite approval and adoption of this Agreement
and the transactions contemplated hereby, as follows:
(a) by mutual written consent duly authorized by the Boards of Directors
of each of Acquiror, Acquiror Sub and the Target;
(b) by either Acquiror or the Target, if either (i) the Effective Time
shall not have occurred on or before September 10, 1996; provided, however,
that the right to terminate this Agreement under this Section 8.01(b) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; or (ii) there shall be any
Order which is final and nonappealable preventing the consummation of the
Merger, except if the party relying on such Order has not complied with its
obligations under Section 6.03(a);
(c) by Acquiror, if (i) the Board of Directors of the Target withdraws
its recommendation of this Agreement or the Merger or shall have resolved
to do so, or (ii) the Board of Directors of the Target shall have
recommended to the stockholders of the Target any Business Combination
Transaction (as hereinafter defined) or resolved to do so, or (iii) a
tender offer or exchange offer for 50% or more of the outstanding shares of
capital stock of the Target is commenced, and the Board of Directors of the
Target fails to recommend against the stockholders of the Target tendering
their shares into such tender offer or exchange offer;
(d) by the Target, if, in the exercise of its good faith judgment
(subject to Section 6.05) as to its fiduciary duties to its stockholders
under applicable law, the Board of Directors of the Target determines,
after consultation with counsel and in reliance upon the advice thereof,
that such termination is required by such fiduciary duties by reason of a
proposal that either constitutes a Business Combination Transaction or may
reasonably be expected to lead to a Business Combination Transaction (a
"Business Combination Transaction Proposal"); provided that any termination
of this Agreement by the Target pursuant to this Section 8.01(d) shall not
be effective until the Target has made payment of the full fee required by
Section 8.02(a) hereof;
(e) by Acquiror, if the stockholders of the Target shall have failed to
approve and adopt this Agreement, the Merger and other Transactions at a
meeting duly convened therefor;
(f) by Acquiror, upon a breach of any representation, warranty, covenant
or agreement on the part of the Target set forth in this Agreement, or if
any representation or warranty of the Target shall have become untrue, in
either case such that the conditions set forth in Section 7.02(a) would not
be satisfied (a "Terminating Target Breach"); provided, however, that, if
such Terminating Target Breach is curable
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by the Target through the exercise of its best efforts and for so long as
the Target continues to exercise such best efforts, Acquiror may not
terminate this Agreement under this Section 8.01(f); or
(g) by the Target, upon breach of any representations, warranty, covenant
or agreement on the part of Acquiror set forth in this Agreement, or if any
representation or warranty of Acquiror shall have become untrue, in either
case such that the conditions set forth in Section 7.03(a) would not be
satisfied ("Terminating Acquiror Breach"); provided, however, that, if such
Terminating Acquiror Breach is curable by Acquiror through best efforts and
for so long as Acquiror continues to exercise such best efforts, the Target
may not terminate this Agreement under this Section 8.01(g).
Section 8.02. Fees and Expenses. (a) The Target shall pay Acquiror a fee (an
"Alternative Proposal Fee") of $2,500,000, which amount is inclusive of all of
Acquiror Acquisition Expenses (as hereinafter defined), if:
(i) this Agreement is terminated pursuant to Section 8.01(c) or (d); or
(ii) this Agreement is terminated pursuant to Section 8.01(e) as a result
of the failure of the stockholders of the Target to approve the Merger and
a Business Combination Transaction Proposal shall have been made prior to
such termination, and any Business Combination Transaction is thereafter
consummated within 18 months of such termination.
As used herein, the term "Business Combination Transaction" shall mean any
of the following involving the Target: (1) any merger, consolidation, share
exchange, business combination or other similar transaction (other than the
Transactions); (2) any sale, lease, exchange, transfer or other disposition
(other than a pledge or mortgage) of 25% or more of the assets of the Target
in a single transaction or series of transactions; or (3) the acquisition by a
person or entity or any "group" (as such term is defined under Section 13(d)
of the Exchange Act and the rules and regulations thereunder) of beneficial
ownership of 20% or more of the shares of Target Common Stock, whether by
tender offer, exchange offer or otherwise.
(b) Acquiror shall be entitled to receive the Acquiror Acquisition
Expenses (but not the Alternative Proposal Fee) in immediately available
funds in the event that this Agreement is terminated by Acquiror pursuant
to Section 8.01(b) (subject to the proviso thereof) or Section 8.01(f).
Target shall be entitled to receive the Target Acquisition Expenses in
immediately available funds in the event that this Agreement is terminated
by Target pursuant to Section 8.01(b) (subject to the proviso thereof) or
Section 8.01(g).
(c) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to Section 8.01, all obligations of the parties hereto
shall terminate except the obligations of the parties pursuant to this
Section 8.02 and Sections 8.03, 8.04, 9.03, 9.04, 9.05, 9.06, 9.07, 9.08,
9.09, 9.11 and 9.12 and pursuant to the Confidentiality Agreement. No
termination of this Agreement pursuant to Section 8.01(f) or 8.01(g) shall
prejudice the ability of a non-breaching party from seeking damages from
any other party for any breach of this Agreement, including, without
limitation, attorneys' fees and the right to pursue any remedy at law or in
equity. Notwithstanding the foregoing, if Acquiror is required to file suit
to seek the Alternative Proposal Fee, and it ultimately succeeds on the
merits, it shall be entitled to all expenses, including attorneys' fees,
which it has incurred in enforcing its rights under this Section 8.02.
(d) As used herein, "Acquisition Expenses" means all out-of-pocket
expenses and fees actually incurred or accrued by a party or on their
respective behalf in connection with the Transactions prior to the
termination of this Agreement (including, without limitation, all fees and
expenses of counsel, financial advisors, banks or other entities providing
financing (including financing, commitment and other fees payable thereto),
accountants, environmental and other experts and consultants to a party and
its affiliates, and all printing and advertising expenses) and in
connection with the negotiation, preparation, execution, performance and
termination of this Agreement, the structuring of the Transactions, any
agreements relating thereto and any filings to be made in connection
therewith.
(e) Except as set forth in this Section and Section 6.01, all costs and
expenses incurred in connection with this Agreement and the Transactions
shall be paid by the party incurring such expenses, whether or
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<PAGE>
not any Transaction is consummated. Notwithstanding the foregoing, the
Acquiror shall pay all filing fees required in connection with any HSR
filings.
(f) Any amounts due pursuant to this Section 8.02 shall be paid in
immediately available funds within three days of delivery of written notice
demanding same.
Section 8.03. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after the approval
and adoption of this Agreement and the Transactions by the stockholders of the
Target, no amendment may be made which would reduce the amount or change the
type of consideration into which each share of Target Common Stock shall be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 8.04. Waiver. Except as otherwise provided under Delaware law, at
any time prior to the Effective Time, any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any agreement or condition contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
ARTICLE IX
General Provisions
Section 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
and any certificate delivered pursuant hereto by any person shall terminate at
the Effective Time, except that the agreements set forth in Articles I and II
and Section 6.06 shall survive the Effective Time indefinitely.
Section 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.02):
if to Acquiror or Acquiror Sub:
Borland International, Inc.
100 Borland Way
Scotts Valley, California 95066
Attention: General Counsel
Facsimile: (408) 431-4171
with a copy to:
Peter M. Astiz, Esq.
Baker & McKenzie
660 Hansen Way
Palo Alto, California 94303
Facsimile: (415) 856-9299
if to the Target:
Open Environment Corporation
25 Travis Street
Boston, Massachusetts 02134
Attention: President
Facsimile: (617) 562-5942
A1-31
<PAGE>
with a copy to:
John A. Burgess, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Facsimile: (617) 526-5000
Section 9.03. Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a specified person means a person who, directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares means a person who
shall be deemed to be the beneficial owner of such shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding, (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or any person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any such
shares, or (iv) pursuant to Section 13(d) of the Exchange Act and any rules
or regulations promulgated thereunder;
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the New York, New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government; and
(f) "subsidiary" or "subsidiaries" of any person means any corporation,
partnership, joint venture or other legal entity of which such person
(either alone or through or together with any other subsidiary), owns or
has rights to acquire, directly or indirectly, more than 50% of the stock
or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of
such corporation or other legal entity.
Section 9.04. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of Law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner
in order that the Transactions be consummated as originally contemplated to
the fullest extent possible.
Section 9.05. Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this
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<PAGE>
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Article II and Sections 6.06 and 6.13 (collectively, the "Third Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
Section 9.06. Incorporation of Schedules. The Target Disclosure Schedule and
the Acquiror Disclosure Schedule referred to herein and signed for
identification by the parties hereto are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
Section 9.07. 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
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
Section 9.08. Governing Law. EXCEPT TO THE EXTENT THAT DELAWARE LAW IS
MANDATORILY APPLICABLE TO THE MERGER AND THE RIGHTS OF THE STOCKHOLDERS OF THE
TARGET AND ACQUIROR SUB, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
EXECUTED IN AND TO BE PERFORMED WHOLLY IN THAT STATE. ALL ACTIONS AND
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND
DETERMINED IN ANY FEDERAL COURT SITTING IN THE COUNTY OF SAN FRANCISCO IN THE
STATE OF CALIFORNIA.
Section 9.09. Forum. Acquiror and the Target for themselves, their
successors and assigns, hereby (a) irrevocably submit to the exclusive
jurisdiction of the federal courts located in the State of California and
agree and consent that service of process may be made upon any of them in any
legal proceeding arising exclusively out of or in connection with this
Agreement or the Transactions by service of process as provided by California
law, (b) irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
litigation arising exclusively out of or in connection with this Agreement or
the Transactions brought in the federal courts located in the State of
California, (c) for such purposes irrevocably waive any claims that any
litigation brought in any such court has been brought in an inconvenient
forum, (d) agree to designate and maintain an agent for service of process in
the State of California, in connection with any such litigation and to deliver
to the other party evidence thereof, (e) irrevocably consent to the service of
process with respect to any of the aforementioned courts in any such
litigation by the mailing of copies thereof by certified mail, return receipt
requested, postage prepaid, to such party and its counsel at their addresses
set forth herein, and (f) irrevocably agree that any legal proceeding against
Acquiror or the Target arising out of or in connection with this Agreement or
its obligations hereunder shall be brought in the federal courts of the State
of California.
Section 9.10. Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 9.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 9.12. Waiver of Jury Trial. Each of Acquiror, the Target and
Acquiror Sub hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the actions of
Acquiror, the Target or Acquiror Sub in the negotiation, administration,
performance and enforcement thereof.
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<PAGE>
Section 9.13. Entire Agreement. This Agreement, the Target Disclosure
Schedule, the Acquiror Disclosure Schedule, the confidentiality agreement,
dated January 10, 1996, (the "Confidentiality Agreement"), between the Target
and Acquiror, and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
IN WITNESS WHEREOF, Acquiror, Acquiror Sub and the Target have caused this
Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
Borland International, Inc.
/s/ Robert H. Kohn
By __________________________________
Name: Robert H. Kohn
Title: Senior Vice President and
Secretary
Aspen Acquisition Corp.
/s/ Robert H. Kohn
By __________________________________
Name: Robert H. Kohn
Title: Vice President and
Secretary
Open Environment Corporation
/s/ Adam Honig
By __________________________________
Name: Adam Honig
Title: President
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<PAGE>
APPENDIX A-2
AMENDMENT NO. 1 TO MERGER AGREEMENT
This AMENDMENT NO. 1 (this "Amendment") is made and entered into as of this
31st day of July 1996 by and among Borland International, Inc., a Delaware
corporation ("Acquiror"), Aspen Acquisition Corp., a Delaware corporation and
a direct, wholly-owned subsidiary of Acquiror ("Acquiror Sub"), and Open
Environment Corporation, a Delaware corporation (the "Target"), with reference
to the following:
Acquiror, Acquiror Sub and Target are parties to that certain Agreement and
Plan of Merger dated as of May 11, 1996 (the "Merger Agreement"), pursuant
to which Acquiror is to acquire Target by way of a merger of Acquiror Sub
into Target (the "Merger").
The parties hereto agree that the Merger Agreement is amended as follows:
1. The first sentence of Section 2.01 (a)(i) of the Merger Agreement is
amended to read as follows:
(i) each share of common stock, $0.01 par value, of the Target
("Target Common Stock") issued and outstanding immediately prior to the
Effective Time (excluding any shares held by the Target, Acquiror or
Acquiror Sub or any other direct or indirect wholly owned subsidiary of
Acquiror or the Target immediately prior to the Merger (the "Cancelable
Shares") shall be converted into the right to receive 0.66 shares (the
"Exchange Ratio") of common stock, $0.01 par value ("Acquiror Common
Stock"), of Acquiror.
2. Section 2.01(b) is amended to read as follows:
(b) For the purposes of this Agreement, the term "Average Trading
Price" shall be determined as the average of the closing prices of
Acquiror Common Stock, as quoted on The National Association of
Securities Dealers Automated Quotations--National Market System
("Nasdaq"), for the fifteen (15) Nasdaq trading days immediately
preceding and including the Determination Date. The term "Determination
Date" shall mean the date which is five (5) business days (or such
greater number of days as may be required by applicable law) prior to
the date of the Target Stockholders' Meeting (as hereinafter defined)
or, if such date is not a Nasdaq trading day, the Nasdaq trading day
first immediately preceding such date.
3. The second sentence of Section 4.03 of the Merger Agreement is
corrected to state that as of March 31, 1996, the total number of shares of
Acquiror Common Stock which were issued and outstanding was 31,168,378.
4. Sections 7.02 (a) and (b) of the Merger Agreement are amended to read:
(a) the Target 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 each of the representations and warranties of the Target
contained in this Agreement shall have been true and correct as of the
date of the Merger Agreement was originally executed in all material
respects, and Acquiror shall have received a certificate of an
executive officer of the Target to that effect; provided however, that
the financial performance of Target for the quarter ended June 30, 1996
and any adverse effect attributable to a decline in the Target's
financial performance subsequent to June 30, 1996 shall not be
considered a breach of the representations and warranties of the
Target; and
(b) the Target shall not have become subject to any action or event
which resulted in or may likely result in a Material Adverse Effect,
provided, however, that Material Adverse Effect for purposes of this
condition 7.02(b) shall not include: (i) any adverse effect resulting
from an item expressly disclosed in the Target Disclosure Schedule
dated 5/7/96, (ii) directly attributable to reactions of customers or
employees to the announcement of the Merger (iii) a material national
economic downturn (iv) or any adverse effect attributable to a decline
in financial performance; and
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<PAGE>
5. Sections 7.02(e) and (g) are deemed waived; provided however, that
Target shall use its best efforts to (i) keep the Part A Employees and Part
B Employees as employees of the Target and (ii) secure the commitment of
such employees to remain as employees of Acquiror following the Effective
Time.
6. Section 7.03(a) of the Merger Agreement is amended to read:
(a) Acquiror and Acquiror Sub shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the
Effective Time and each of the representations and warranties of
Acquiror and Acquiror Sub contained in this Agreement shall have been
true and correct as of the date the Merger Agreement was originally
executed in all material respects, and Target shall have received a
certificate of an executive officer of Acquiror to that effect;
provided however, that the financial performance of Acquiror for the
quarter ended June 30, 1996 and any adverse effect attributable to a
decline in Acquiror's financial performance subsequent to June 30, 1996
shall not be considered a breach of the representations and warranties
of Acquiror; and
7. The date after which the Merger Agreement may be terminated pursuant
to Section 8.01(b) is changed from September 10, 1996 to October 31, 1996.
8. Except as provided above, the Merger Agreement remains in full force
and effect.
IN WITNESS WHEREOF, Acquiror, Acquiror Sub and the Target have caused this
Amendment to be executed as of the date first written above by their
respective officers thereunto duly authorized.
BORLAND INTERNATIONAL, INC.
By /s/ Robert H. Kohn
-----------------------------------
Name: Robert H. Kohn
Title: Senior Vice President and
Secretary
ASPEN ACQUISITION CORP.
By /s/ Robert H. Kohn
-----------------------------------
Name: Robert H. Kohn
Title: Vice President and
Secretary
OPEN ENVIRONMENT CORPORATION
By /s/ Adam Honig
-----------------------------------
Name: Adam Honig
Title: President
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<PAGE>
APPENDIX A-3
AMENDMENT NO. 2 TO MERGER AGREEMENT
This AMENDMENT NO. 2 (this "Amendment") is made and entered into as of this
8th day of October 1996 by and among Borland International, Inc., a Delaware
corporation ("Acquiror"), Aspen Acquisition Corp., a Delaware corporation and
a direct, wholly-owned subsidiary of Acquiror ("Acquiror Sub"), and Open
Environment Corporation, a Delaware corporation (the "Target"), with reference
to the following:
Acquiror, Acquiror Sub and Target are parties to that certain Agreement and
Plan of Merger dated as of May 11, 1996 (the "Merger Agreement"), pursuant
to which Acquiror is to acquire Target by way of a merger of Acquiror Sub
into Target.
The parties hereto agree that the Merger Agreement is amended as follows:
1. The date after which the Merger Agreement may be terminated pursuant
to Section 8.01(b) is changed from October 31, 1996 to November 25, 1996.
2. The parties agree that the terms of the Merger Agreement and their
respective rights and obligations thereunder, remain in full force and
effect notwithstanding the restatement of, or amendment to, the OEC
financial statements included as part of the Proxy Statement/Prospectus
Amendment No. 3 to be filed with the Securities and Exchange Commission on
October 11.
3. Except as provided above, the Merger Agreement remains in full force
and effect.
IN WITNESS WHEREOF, Acquiror, Acquiror Sub and the Target have caused this
Amendment to be executed as of the date first written above by their
respective officers thereunto duly authorized.
BORLAND INTERNATIONAL, INC.
By /s/ Paul W. Emery, II
-----------------------------------
Name: Paul W. Emery, II
Title: Vice President
ASPEN ACQUISITION CORP.
By /s/ Paul W. Emery, II
-----------------------------------
Name: Paul W. Emery, II
Title: Vice President
OPEN ENVIRONMENT CORPORATION
By /s/ Adam Honig
-----------------------------------
Name: Adam Honig
Title: President
A3-1
<PAGE>
APPENDIX B
OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
July 30, 1996
The Board of Directors
Open Environment Corporation
25 Travis Street
Boston, MA 02134
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Open Environment Corporation (the "Company") of
the Exchange Ratio (as defined below) to be received by such shareholders in
accordance with the terms of the Agreement and Plan of Merger, dated as of May
11, 1996 as amended as of July 30, 1996 (the "Agreement"), among Borland
International, Inc. ("Borland"), the Company and Aspen Acquisition Corp.
("Sub"), a wholly-owned subsidiary of Borland, pursuant to which Sub would be
merged into the Company and the Company would become a wholly-owned subsidiary
of Borland (the "Merger").
Pursuant to the Agreement, each share of common stock, $.01 par value per
share, of the Company (the "Company Shares") will be converted into the right
to receive .66 shares of common stock, $.01 par value per share, of Borland
(the "Borland Shares"). Consummation of the Merger is subject to the terms and
conditions set forth in the Agreement. We further understand that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and that, for accounting purposes,
the Merger is intended to be treated as a pooling of interests.
In arriving at our opinion, we have reviewed the Agreement and certain
financial and other information that was publicly available or furnished to us
by the Company and Borland, including information provided during discussions
with their respective managements. In addition, we reviewed the historical
stock prices and trading volumes of the common stock of the Company and
Borland, reviewed the capitalization, cash position and financial condition of
the Company and Borland, reviewed the relative contributions of the Company
and Borland to selected pro forma financial data of the combined company,
reviewed prices paid in other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion. We were not requested to, nor did we, solicit the
interest of any other party in acquiring the Company.
In rendering our opinion, we have assumed, and relied upon the accuracy,
completeness and fairness of all of the financial and other information that
was available to us from public sources and that was provided to us by the
Company or Borland or their representatives or otherwise reviewed by us. With
respect to financial projections supplied to us, we assumed that they had been
prepared on a basis reflecting the best currently available estimates and
judgments of the managements of the Company and Borland as to the future
operating and financial performance of the Company and Borland. We have not
assumed any responsibility for independent verification of such information or
any independent evaluation or appraisal of the Company's assets or
liabilities. Our opinion below is directed to the Board of Directors of the
Company and does not constitute a recommendation to any stockholder of the
Company with respect to how such stockholder should vote on the proposed
Merger. We have relied on advice of counsel to the Company as to all legal
matters relating to the Agreement.
B-2
<PAGE>
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion unless requested by the Company pursuant to
the terms of our engagement letter with the Company. We are expressing no
opinion herein as to the prices at which the Borland Shares will actually
trade at any time.
Donaldson, Lufkin & Jenrette Securities Corporation, as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. In the ordinary course of
our business, we and our affiliates may actively trade the debt and equity
securities of the Company and Borland for our or their own accounts and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities. We have, in the past, also provided
investment banking services to the Company, including acting as lead
underwriter of the Company's initial public offering in April 1995, and have
received usual and customary fees for the rendering of such services.
Based upon and subject to the foregoing and such other factors as we deemed
relevant, we are of the opinion that, as of the date hereof, the Exchange
Ratio is fair, from a financial point of view, to the holders of Company
Shares.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
B-3
<PAGE>
APPENDIX C
PRINCIPAL STOCKHOLDER AGREEMENTS
AGREEMENT
This Agreement, dated as of May 11, 1996, is by and between Borland
International, Inc., a Delaware corporation ("Acquiror"), and John J. Donovan,
Sr. (the "Stockholder") with the reference to the following:
1. Concurrently herewith, Acquiror, Acquiror Acquisition Company, a
Delaware corporation and a wholly-owned subsidiary of Acquiror ("Acquiror
Sub"), and Open Environment Corporation, a Delaware corporation (the
"Company"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement"; capitalized terms used without definition herein having the
meanings ascribed thereto in the Merger Agreement); the Stockholder is the
record and beneficial owner of shares of Target Common Stock (the
"Block Shares");
2. Approval of the Merger Agreement and the Merger by the Company's
stockholders is a condition to the consummation of the Merger; and
3. As a condition to its entering into the Merger Agreement, Acquiror has
required that the Stockholder agree, and the Stockholder has agreed, to
enter into this Agreement.
The parties hereto agree as follows:
Section 1. Voting Agreement and Grant of Proxy. From the date of this
Agreement until the earlier to occur of the termination of this Agreement in
accordance with its terms or the Effective Time (the "Expiration Date"):
(a) The Stockholder hereby agrees that at any meeting of the stockholders
of the Company, however called, and any action by consent of the
stockholders of the Company, the Stockholder shall vote the Block Shares,
and any other voting securities of the Company, whether issued heretofore
or hereafter, which are held of record or beneficially by the Stockholder,
(i) in favor of the Merger and the Merger Agreement, and (ii) against any
proposal for any recapitalization, merger (other than the Merger), sale of
assets or other business combination between the Company and any person or
entity (other than Acquiror or Acquiror Sub) or any other action or
agreement that Acquiror notifies the Stockholder in writing before any vote
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Merger Agreement or
which could result in any of the conditions to the Merger Agreement not
being fulfilled.
(b) Except as provided in this Section 1 and except for transfers to the
Stockholder from an affiliate, the Stockholder hereby agrees that it shall
not, and shall not offer or agree to, sell, transfer, tender, assign,
hypothecate or otherwise dispose of, or create or permit to exist any
pledge, lien, security interest, mortgage, charge, claim, option, proxy,
voting restriction, right of first refusal, limitation on disposition, or
encumbrance of any kind on or with respect to the Block Shares or other
voting securities of the Company, whether issued heretofore or hereafter,
which are held of record or beneficially by the Stockholder.
(c) The Stockholder, by this Agreement, with respect to the Block Shares
and any other voting securities of the Company, whether issued heretofore
or hereafter, which are held of record by the Stockholder, does hereby
constitute and appoint Acquiror and Acquiror Sub, or any nominee of
Acquiror and Acquiror Sub, with full power of substitution, from the date
hereof until the Expiration Date, as its true and lawful attorney and proxy
(its "Proxy"), for and in its name, place and stead, to demand that the
Secretary of the Company call a special meeting of the stockholders of the
Company for the purpose of considering any actions related to the Merger
Agreement and to vote each of the Block Shares and any other voting
securities of the Company, whether issued heretofore or hereafter, which
are held of record by the Stockholder, at every annual, special or
adjourned meeting of the stockholders of the Company, including the right
to sign its name (as stockholder) to any consent, certificate or other
document relating to the Company that the law of the State of Delaware may
permit or require:
(i) in favor of the Merger and the Merger Agreement; and
(ii) against any proposal for any recapitalization, merger (other
than the Merger), sale of assets or other business combination between
the Company and any person or entity (other than Acquiror or
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Acquiror Sub) or any other action or agreement that Acquiror notifies
the Stockholder in writing before any vote would result in a breach of
any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement or could result in
any of the conditions to the Merger Agreement not being fulfilled.
THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN
INTEREST. The Stockholder acknowledges receipt and review of a copy of the
Merger Agreement. The Stockholder hereby revokes all proxies heretofore
made by it that are inconsistent with this Section 1.
(d) The Stockholder shall perform such further acts and execute such
further documents and instruments as may reasonably be required to vest in
Acquiror and Acquiror Sub the power to carry out and give effect to the
provisions of this Agreement.
(e) The Company will cause each certificate of the Stockholder evidencing
the Block Shares outstanding during the period that this Section 1 is in
effect to bear a legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF AN AGREEMENT DATED , AS IT MAY BE
AMENDED, AMONG ACQUIROR, TARGET AND ACQUIROR SUB AND THE REGISTERED
HOLDER OF THIS CERTIFICATE, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE ISSUER.
Upon the expiration of the period during which this Section 1 is in effect
or in the event that the Block Shares otherwise cease to be subject to the
restrictions on transfer set forth in this Agreement, the Company shall, upon
the written request of the Stockholder, issue to the Stockholder a new
certificate evidencing such shares without the legend required by this Section
1(e).
(f) The Stockholder agrees that until the Expiration Date it will not
vote any of the Block Shares at any annual, special or adjourned meeting of
the stockholders of the Company, including the right to sign its name (as
stockholder) to any consent, certificate or other document relating to the
Company that the law of the State of Delaware may permit or require, in any
manner that is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or materially adversely affect the
transactions contemplated by the Merger Agreement.
Section 2. Securities Act Covenants and Representations. Subject to
Acquiror's obligations under Section 3.1, the Stockholder hereby agrees and
represents to Acquiror as follows:
(a) The Stockholder has been advised that the offer, sale and delivery of
the Acquiror Common Stock to the Stockholder pursuant to the Merger may not
be registered under the Securities Act, despite Acquiror's obligations to
use commercially reasonable efforts to effect such registration. The
Stockholder has been advised that if the offer, sale and delivery of the
Acquiror Common Stock to the Stockholder pursuant to the Merger has not
been registered under the Securities Act, then such shares (the "Merger
Shares") may not be offered, sold, pledged, hypothecated or otherwise
transferred unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Stockholder has also
been advised that even if the sale and delivery to the Stockholder of the
Merger Shares is registered under the Securities Act, to the extent the
Stockholder is considered an "affiliate" of the Company at the time the
Merger Agreement is submitted for a vote of the stockholders of the
Company, any public offering or sale by the Stockholder of the Merger
Shares will, under current law, require either (i) the further registration
under the Securities Act of the Merger Shares, which Acquiror is obligated
under Section 3.1 to use commercially reasonable efforts to effect, (ii)
compliance with Rule 145 promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act or (iii) the
availability of another exemption from such registration under the
Securities Act.
(b) The Stockholder has read this Agreement and the Merger Agreement and
has discussed their requirements and other applicable limitations upon its
ability to sell, transfer or otherwise dispose of the
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Merger Shares, to the extent the Stockholder believed necessary, with its
counsel or counsel for the Company.
(c) The Stockholder also understands that stop transfer instructions will
be given to Acquiror's transfer agents with respect to the Merger Shares
and that a legend will be placed on the certificates for the Merger Shares
issued to the Stockholder, to the extent the Stockholder is considered an
"affiliate" of the Company at the time the Merger Agreement is submitted
for a vote of the stockholders of the Company.
Section 3. Tax Representation. The Stockholder represents and warrants to
Acquiror that, except as set forth on Exhibit A hereto, it has no present plan
or intention to sell, exchange, transfer by gift, or otherwise dispose of the
Merger Shares.
Section 4. Hart-Scott-Rodino Antitrust Improvements Act of 1976. In
connection with the Merger, to the extent required by applicable law, the
Stockholder agrees promptly and timely to file, or cause to be filed, all
notifications, including responses to requests for information, required to be
filed by it by the HSR Act. The Stockholder agrees to cooperate with Acquiror,
Acquiror Sub and the Company to the extent necessary to permit them to prepare
their separate filings and to supply any additional information that may be
submitted to the Federal Trade Commission or the Department of Justice
relating to the transactions contemplated by the Merger Agreement under the
antitrust laws.
Section 5. No Solicitation. The Stockholder agrees that until the Expiration
Date, it will not negotiate with any person other than Acquiror with respect
to the acquisition of the Company or the Target Common Stock owned by the
Stockholder and it will not, and will not permit any of its officers,
directors, employees, agents or representatives (including without limitation,
investment bankers, attorneys and accountants) to (a) initiate contact with,
(b) make, solicit or encourage any inquiries or proposals, (c) enter into or
participate in any discussions or negotiations with, (d) disclose, directly or
indirectly, any information not customarily disclosed concerning the business
and properties of the Company or Stockholder's interest in the Company under
the control of Stockholder to or (e) afford any access to the Company's
properties, books and records in its possession or under its control to any
person in connection with any possible proposal relating to (i) the
disposition of the Company's or the Stockholder's businesses or substantially
all of their respective assets, (ii) the acquisition of equity or debt
securities of the Company or the Stockholder, including equity or debt
securities in the Company owned by the Stockholder, or (iii) the merger, share
exchange or business combination, or similar acquisition transaction of or
involving the Company or the Stockholder with any person other than Acquiror.
Until the Expiration Date, the Stockholder will immediately notify Acquiror
orally, and subsequently confirm in writing, all the relevant details relating
to all inquiries and proposals which it may receive relating to any such
matters. Until the Expiration Date, the Stockholder will not, and will not
permit any of its representatives, at any time, to enter into or participate
in any discussions or negotiations regarding, or accept, any proposal for such
a transaction received by them from a third party or that a third party
expresses a desire to communicate to it.
The foregoing is entered into in the undersigned's capacity as a stockholder
of the Company and does not limit any action taken by the undersigned in his
capacity as a director of the Company in the discharge of his fiduciary duties
in accordance with the provisions of Section 6.05 of the Merger Agreement.
Section 6. No Hiring of Employees. For a period commencing on the date of
this Agreement through a date two (2) years after the Effective Time, the
Stockholder, for the benefit of himself and any entity in which the
Stockholder has a direct or indirect interest, whether as a proprietor,
partner, stockholder, officer, director, employee, agent, representative or
otherwise, shall not to hire or engage, or attempt to hire or engage, directly
or indirectly, any person who shall have been an employee of Target or
Acquiror on the date of this Agreement or within thirty days (30) prior to the
execution hereof.
Section 7. Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with
all of their obligations under this Agreement. Without limiting the generality
of the foregoing,
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none of the parties hereto shall enter into any agreement or arrangement (or
alter, amend or terminate any existing agreement or arrangement) if such
action would materially impair the ability of any party to effectuate, carry
out or comply with all the terms of this Agreement. If requested by Acquiror,
the Stockholder agrees to execute a letter to Acquiror representing that the
Stockholder executing such letter has complied with its obligations hereunder
as of the date of such letter.
Section 8. Representations and Warranties of Acquiror. Acquiror represents
and warrants to the Stockholder as follows: Each of this Agreement and the
Merger Agreement has been approved by the Board of Directors of Acquiror, and
the Merger Agreement has been approved by the Board of Directors of Acquiror
Sub and by Acquiror as the sole stockholder of Acquiror Sub, in each case
representing all necessary corporate action on the part of Acquiror and
Acquiror Sub (no action by the stockholders of Acquiror being required). Each
of this Agreement and the Merger Agreement has been duly executed and
delivered by a duly authorized officer of Acquiror and, in the case of the
Merger Agreement, Acquiror Sub. Each of this Agreement and the Merger
Agreement constitutes a valid and binding agreement of Acquiror and, in the
case of the Merger Agreement, Acquiror Sub, enforceable against Acquiror and,
in the case of the Merger Agreement, Acquiror Sub in accordance with its
terms.
Section 9. Representations and Warranties of the Stockholder. The
Stockholder represents and warrants to Acquiror as follows: This Agreement has
been duly executed and delivered by the Stockholder and constitutes the valid
and binding agreement of the Stockholder, enforceable against the Stockholder
in accordance with its terms. The Block Shares are the only voting securities
of the Company owned (beneficially or of record) by the Stockholder, and,
except as provided in this Agreement, the Block Shares are not subject to any
voting trust, voting agreement or similar arrangement whatsoever.
Section 10. Effectiveness and Termination. It is a condition precedent to
the effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered. In the event the Merger Agreement is terminated in
accordance with its terms, this Agreement shall automatically terminate and be
of no further force or effect. Upon such termination, except for any rights
any party may have in respect of any breach by any other party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder.
Section 11. Miscellaneous.
(a) Notices, Etc. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing
and shall be deemed to have been duly given to any party when delivered
personally (by courier service or otherwise), when delivered by telecopy
and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid, in each case to the applicable addresses
set forth below:
If to Acquiror: Borland International, Inc.
100 Borland Way
Scotts Valley, CA 95066
Attn: General Counsel
with a copy to: Baker & McKenzie
660 Hansen Way
Palo Alto, CA 94304
Attn: Peter M. Astiz, Esq.
If to the Stockholder: _____________________________________
_____________________________________
_____________________________________
Attn: _______________________________
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with a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John A. Burgess, Esq.
or to such other address as such party shall have designated by notice so
given to each other party.
(b) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by Acquiror and the Stockholder.
(c) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation in the case
of any corporate party hereto any corporate successor by merger or
otherwise.
(d) Entire Agreement. This Agreement embodies the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the
parties hereto relating to such subject matter other than those expressly
set forth in this Agreement.
(e) Severability. If any term of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such
term to the other parties or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by applicable law,
provided that in such event the parties shall negotiate in good faith in an
attempt to agree to another provision (in lieu of the term or application
held to be invalid or unenforceable) that will be valid and enforceable and
will carry out the parties' intentions hereunder.
(f) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of
the exercise of any thereof by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
(g) 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 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, shall 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.
(h) Third Party Beneficiaries. Except for those persons for whom
indemnification is provided, this Agreement is not intended to be for the
benefit of and shall not be enforceable by any person or entity which is
not a party hereto. Those persons for whom indemnification is provided,
however, may enforce this Agreement.
(i) Governing Law. This Agreement is governed by and construed in
accordance with the laws of the State of Delaware (without regard to
conflict of laws principles).
(j) Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and
shall not affect the interpretation or construction hereof. Whenever the
context may require, any pronoun used herein shall include the
corresponding masculine, feminine or neuter forms.
(k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together constitute an instrument. Each counterpart may consist of a
number of copies each signed by less that all, but together signed by all,
the parties hereto.
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In Witness Whereof, the parties have duly executed this Agreement as of the
date first above written.
Borland International, Inc.
By:
-------------------------------
Stockholder
By:
-------------------------------
The Company by execution of this Agreement acknowledges that the execution,
delivery and performance of this Agreement, as it may be amended from time to
time, has been approved by its Board of Directors, and agrees to perform all
of its obligations under Section 1(e) of this Agreement.
Open Environment Corporation
By:
-------------------------------
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
generally and in pertinent part that a Delaware corporation may indemnify its
directors and officers against expenses, judgments, fines and settlements
actually and reasonably incurred by them in connection with any civil,
criminal, administrative, or investigative suit or action except actions by or
in the right of the corporation if, in connection with the matters in issues,
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and in connection with
any criminal suit or proceeding, if in connection with the matters in issue,
they had no reasonable cause to believe their conduct was unlawful. Section
145 further provides that in connection with the defense or settlement or any
action by or in the right of the corporation, a Delaware corporation may
indemnify its directors and officers against expenses actually and reasonably
incurred by them if, in connection with the matters in issue, they acted in
good faith, in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification may be
made with respect to any claim, issue or matter as to which such person has
been adjudged liable for negligence or misconduct unless the Court of Chancery
or the court in which such action or suit to brought approves such
indemnification. Section 145 further permits a Delaware corporation to grant
its directors and officers additional rights of indemnification through bylaw
provisions and otherwise, and to purchase indemnity insurance on behalf of its
directors and officers.
Article Seventh of the Borland Certificates provides, in general, that the
Registrant may indemnify its directors and officers under certain of the
circumstances defined in Section 145, and that no director of Borland will be
personally liable to Borland or its stockholders for monetary damages for any
breach of such director's fiduciary duty, with certain exceptions. This
Article further allows Borland to purchase and maintain insurance on behalf of
its directors, officers, employees, or agents and to provide for such
indemnification by means of a trust fund, security interest, letter of credit,
surety bond, contract, and/or similar arrangement. The directors and officers
of Borland and its subsidiaries are insured (subject to certain exceptions and
deductions) against liability which they may incur in their capacity as such,
including liabilities under the Securities Act, under a liability insurance
policy carried by Borland. Borland has also entered into agreements with its
officers and directors which essentially provide that Borland will indemnify
the officers and directors to the extent set forth in the Certificate of
Incorporation and Bylaws of Borland.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of May 11, 1996 by and among
Borland International Inc., Aspen Acquisition Corp. and Open
Environment Corporation (the "Merger Agreement") (attached as
Appendix A1 to the Prospectus/Proxy Statement)
2.2 Amendment No. 1 to Merger Agreement dated July 31, 1996 (attached as
Appendix A2 to the Prospectus/Proxy Statement)
2.3 Amendment No. 2 to Merger Agreement dated October 8, 1996 (attached
as Appendix A3 to the Prospectus/Proxy Statement)
4.1 Certificate of Incorporation of Borland as restated and subsequently
amended (incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report of Form 10-K for the year ended March 31, 1996)
4.2 Bylaws of Borland (incorporated by reference to Exhibit 3.2 to
Registrant's Annual Report of Form 10-K for the year ended March 31,
1996)
5.1 Opinion of Baker & McKenzie, counsel to Registrant, as to the
legality of the shares of Common Stock registered hereunder
8.1 Tax opinion of Hale and Dorr, counsel to OEC
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
8.2 Tax opinion of Baker & McKenzie, counsel to the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of William Buck
23.4 Consent of Hale and Dorr (included in Exhibit 8.1)
23.5 Consent of Baker & McKenzie (included in Exhibits 5.1 and 8.2)
24.1 Powers of Attorney
99.1 Proxy Card
99.2 Fairness Opinion (attached as Appendix B to the Prospectus/Proxy
Statement)
99.3 Principal Stockholder Agreement (attached as Appendix B to the
Prospectus/Proxy Statement)
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) 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;
(c) To include any material information with respect to the plan of
distribution to previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(ii) 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
thereof.
(iii) 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.
(iv) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the Registration Statement shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(v) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(vi) That every prospectus (a) that is filed pursuant to paragraph (v)
immediately preceding, or (b) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
(vii) Insofar as indemnification for liabilities arising under the
Securities Act of 1993 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
Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 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 or appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(viii) To respond to request for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form within one business day of receipt of such request, and to send the
incorporated documents by first-class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(ix) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SCOTTS VALLEY, STATE OF
CALIFORNIA, ON OCTOBER 9, 1996.
Borland International Inc.
(Registrant)
/s/ Paul W. Emery, II
By: _________________________________
PAUL W. EMERY, II Vice President
and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
* Acting Chief October 9, 1996
- ------------------------------------- Executive Officer
WHITNEY LYNN and Director
/s/ Paul W. Emery, II Vice President of October 9, 1996
- ------------------------------------- Finance and
PAUL W. EMERY, II Administration,
Chief Financial
Officer, Principal
Accounting Officer
and Secretary
* Director October 9, 1996
- -------------------------------------
WILLIAM MILLER
* Director October 9, 1996
- -------------------------------------
GEORGE HARA
* Director October 9, 1996
- -------------------------------------
DAVID HELLER
* Director October 9, 1996
- -------------------------------------
PHILIPPE KAHN
* Director October 9, 1996
- -------------------------------------
STEPHEN LEWIS
* Director October 9, 1996
- -------------------------------------
HARRY SAAL
*By /s/ Paul W. Emery, II
----------------------------------
(PAUL W. EMERY, II, ATTORNEY IN
FACT)
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS DESCRIPTION PAGE NO.
-------- ----------- ----------
<C> <S> <C>
5.1 Opinion of Baker & McKenzie, counsel to Registrant, as
to the legality of the share of Common Stock registered
hereunder
8.1 Tax opinion of Hale and Dorr, counsel to OEC
8.2 Tax opinion of Baker & McKenzie
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of William Buck
23.4 Consent of Hale and Dorr (included in Exhibit 8.1)
23.5 Consent of Baker & McKenzie (included in Exhibits 5.1
and 8.2)
24.1 Powers of Attorney
99.1 Proxy Card
99.2 Fairness Opinion (attached as Appendix B to the
Prospectus/Proxy Statement)
99.3 Principal Stockholder Agreement (attached as Appendix B
to the Prospectus/Proxy Statement)
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
[BAKER & McKENZIE LETTERHEAD]
October 11, 1996
Borland International, Inc.
100 Borland Way
Scotts Valley, CA 95066-3249
Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed by you
with the Securities and Exchange Commission on or about October 9, 1996 in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of up to 5,760,787 shares (the "Shares") of your Common Stock,
par value $.01 per share. The Shares will be issued in connection with the
merger of Aspen Acquisition Corp., your wholly-owned subsidiary, with and into
Open Environment Corporation. As your legal counsel, we have examined the
proceedings taken and are familiar with the proceedings proposed to be taken by
you in connection with the sale and issuance of the Shares.
It is our opinion that the Shares, when issued and sold in the manner
referred to in the manner described in the Registration Statement will be
legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement and further consent to the use of our name wherever appearing in said
Registration Statement and amendments thereto. By giving such consent we do not
thereby admit that we are experts with respect to the Registration Statement,
including this exhibit, within the meaning of the term "expert" as used in the
Act, or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ BAKER & McKENZIE
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF HALE AND DORR APPEARS HERE]
October 11, 1996
Open Environment Corporation
25 Travis Street
Boston, Massachusetts 02134
Re: Merger pursuant to Agreement and Plan of Merger
among Borland International, Inc., Aspen
Acquisition Corp., and Open Environment Corporation
---------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Prospectus/Proxy Statement relating to the Agreement and Plan of
Merger dated as of May 11, 1996, as amended (the "Merger Agreement"), by and
among Borland International, Inc., a Delaware corporation ("Borland"), Aspen
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Borland
("Merger Subsidiary"), and Open Environment Corporation, a Delaware corporation
("OEC"). Pursuant to the Merger Agreement, Merger Subsidiary will merge with
and into OEC (the "Merger"). Except as otherwise provided, capitalized terms
not defined herein have the meanings set forth in the Merger Agreement and the
exhibits thereto or in the letters delivered to Hale and Dorr by Borland, OEC,
and certain OEC shareholders containing certain representations of Borland, OEC,
and certain OEC shareholders relevant to this opinion (the "Representation
Letters"). All section references, unless otherwise indicated, are to the
United States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to OEC in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, the Principal Stockholder Agreements, as defined and described in the
Registration Statement, and such other documents as we considered relevant to
our analysis. In our examination of documents, we have assumed the authenticity
of original documents, the accuracy of copies, the genuineness of signatures,
and the legal capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the
<PAGE>
Open Environment Corporation
October 11, 1996
Page 2
terms and conditions set forth in the Merger Agreement without the waiver or
modification of any such terms and conditions. Furthermore, we have assumed
that all representations contained in the Merger Agreement, as well as those
representations contained in the Representation Letters are, and at the
Effective Time will be, true and complete in all material respects, and that
any representation made in any of the documents referred to herein "to the
best of the knowledge and belief" (or similar qualification) of any person or
party is correct without such qualification. We have also assumed that as to
all matters for which a person or entity has represented that such person or
entity is not a party to, does not have, or is not aware of, any plan,
intention, understanding, or agreement, there is no such plan, intention,
understanding, or agreement. We have not attempted to verify independently
such representations, but in the course of our representation, nothing has
come to our attention that would cause us to question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We
express no opinion regarding the tax consequences of the Merger to shareholders
of OEC that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for OEC stock.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a), and each of Borland, Merger Subsidiary, and OEC will
be a party to the reorganization within the meaning of Section
368(b);
<PAGE>
Open Environment Corporation
October 11, 1996
Page 3
2. No gain or loss will be recognized by Borland, Merger Subsidiary, or
OEC as a result of the Merger;
3. No gain or loss will be recognized by the shareholders of OEC upon the
exchange of OEC stock solely for shares of Borland stock in the Merger;
4. Cash received by the shareholders of OEC in lieu of fractional shares
of Borland stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of
Section 302, as if such fractional shares had been issued in the
Merger and then redeemed by Borland;
5. The tax basis of the shares of Borland stock received by the
shareholders of OEC in the Merger will be equal to the tax basis of
the shares of OEC stock exchanged therefor in the Merger, reduced by
any basis allocable to a fractional share of Borland stock treated as
sold or exchanged under Section 302; and
6. The holding period for the shares of Borland stock received by the
shareholders of OEC will include the holding period for the shares of
OEC stock exchanged therefor in the Merger, provided that the shares
of OEC stock are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Baker & McKenzie has
delivered, and has not withdrawn, the opinion provided for in Section 7.01(f) of
the Merger Agreement. No opinion is expressed as to any federal income tax
consequence of the Merger except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as
<PAGE>
Open Environment Corporation
October 11, 1996
Page 4
an exhibit to the Registration Statement and further consent to the use of our
name in the Registration Statement in connection with references to this opinion
and the tax consequences of the Merger. In giving this consent, however, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HALE AND DORR
HALE AND DORR
<PAGE>
EXHIBIT 8.2
[BAKER & McKENZIE LETTERHEAD]
October 11, 1996
Borland International, Inc.
100 Borland Way
Scotts Valley, California 95066
Re: Merger pursuant to Agreement and Plan of Merger
among Borland International, Inc., Aspen Acquisition Corp.,
and Open Environment Corporation
-----------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section 7.01(f)
of the Agreement and Plan of Merger dated as of May 11, 1996, as amended on July
31, 1996 and October 8, 1996 (the "Agreement"), by and among Borland
International, Inc., a Delaware corporation ("Borland"), Aspen Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of Borland ("Merger
Subsidiary"), and Open Environment Corporation, a Delaware corporation ("OEC").
Pursuant to the Agreement, Merger Subsidiary will merge with and into OEC (the
"Merger"). Except as otherwise provided, capitalized terms not defined herein
have the meanings set forth in the Agreement or in the letters or certificates
delivered to us by Borland, Merger Subsidiary, OEC and certain OEC shareholders
containing certain representations of Borland, Merger Subsidiary, OEC and
certain OEC shareholders (the "Representation Letters"). All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
We have acted as counsel to Borland in connection with the merger. As
such, and for the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto): (a) the Agreement; (b) the Representation
Letters; (c) the registration statement on Form S-4, which includes the
Prospectus/Proxy Statement relating to the Agreement (the "Registration
Statement"); and (d)
<PAGE>
Borland International, Inc.
October 11, 1996
Page 2
such other instruments and documents related to the formation, organization and
operation of Borland, Merger Subsidiary and OEC and related to the consummation
of the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
there is prior to the Effective Time) due execution and delivery of all
documents where due execution and delivery are a prerequisite to the
effectiveness thereof;
2. The truth and accuracy at all relevant times, of all representations
and warranties and statements made or agreed to by Borland, Merger Subsidiary,
OEC, their managements, employees, officers, directors and stockholders in
connection with the Merger, including but not limited to those set forth in the
Agreement (including the exhibits) and the Representation Letters; and that all
covenants contained in the Agreement are performed without waiver or breach of
any material provision thereof; and
3. There is no plan or intention on the part of OEC's shareholders (a
"Plan") to engage in a sale, exchange, transfer, distribution, pledge, or other
disposition (including a distribution by a partnership to its partners or by a
corporation to its shareholders) or any transaction which results in a reduction
of risk of ownership, or a direct or indirect disposition (a "Sale") of shares
of Borland Common Stock to be received in the Merger that would reduce the OEC
shareholders' ownership of Borland Common Stock to a number of shares having an
aggregate fair market value, as of the Effective Time of the Merger, of less
than fifty percent (50%) of the value of all the stock of OEC outstanding
immediately prior to the Merger. Shares of OEC stock which are exchanged for
cash in lieu of fractional shares of Borland Common Stock or which are sold,
redeemed or disposed of in a transaction that is in contemplation of or related
to the Merger shall be considered shares of OEC stock held by shareholders of
OEC immediately before the Merger which are exchanged in the Merger for shares
of Borland Common Stock which are then disposed of pursuant to a Plan.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and each of Borland, Merger Subsidiary, and OEC will
be a party to the reorganization within the meaning of Section 368(b) of the
Code;
<PAGE>
Borland International, Inc.
October 11, 1996
Page 3
2. No gain or loss will be recognized by the holders of OEC Common Stock
upon the receipt of Borland Common Stock solely in exchange for such OEC Common
Stock in the Merger (except to the extent of cash received in lieu of fractional
shares);
3. The aggregate tax basis of the Borland Common Stock received by OEC
stockholders in the Merger (including the basis of any fractional share of
Borland Common Stock for which cash is received) will be the same as the
aggregate tax basis of the OEC Common Stock surrendered in exchange therefor;
4. The holding period of the Borland Common Stock received by each OEC
stockholder in the Merger (including the holding period of any fractional share
of Borland Common Stock for which cash is received) will include the period
during which the OEC Common Stock, surrendered in exchange therefor was held,
provided such OEC Common Stock is held as a capital asset at the Effective Time;
5. Cash received by holders of OEC Common Stock in lieu of fractional
shares of Borland Common Stock will be treated as received as a distribution in
redemption of such fractional shares as if such fractional shares of Borland
Common Stock had been issued in the Merger and then redeemed by Borland in a
taxable transaction; and
6. No gain or loss will be recognized by Borland, Merger Subsidiary, or
OEC as a result of the Merger.
This opinion does not address the various state, local, or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger except as
specifically set forth herein and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein. In particular,
we express no opinion regarding, among other things:
1. The survival and/or availability to Borland or OEC after the Merger of
any federal income tax attributes, including any net operating loss
carryforward, after application of any provision of the Code, as well as the
regulations promulgated thereunder;
2. The tax consequences of the Merger that may be relevant to particular
security holders of OEC such as insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, dealers in securities, foreign persons,
holders of options or warrants, persons who hold shares acquired as part of a
conversion transaction, and holders of shares acquired upon exercise of stock
options or in other compensatory transactions; and
3. The tax consequences to OEC shareholders of other transactions effected
prior to or after the Merger (whether or not such transactions are consummated
in connection with the Merger).
<PAGE>
Borland International, Inc.
October 11, 1996
Page 4
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any other transaction whatsoever including the
Merger if all the transactions described in the Agreement are not consummated in
accordance with the terms of such Agreement and without waiver of any material
provision thereof. To the extent any of the representations, warranties,
statements and assumptions material to our opinion and upon which we have relied
are not complete, correct, true and accurate in all material respects at all
relevant times, our opinion would be adversely affected and should not be relied
upon.
This opinion represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes would not adversely
affect the accuracy of the conclusions stated therein. Nevertheless, by
rendering this opinion, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
The opinion is being furnished to you pursuant to Section 7.01(f) of the
Agreement and in connection with the filing of the Registration Statement, and
may not be relied upon by, transmitted to or filed with any person, firm or
company or institution without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement. We also
consent to the references to Baker & McKenzie in the sections captioned "Certain
United States Federal Income Tax Consequences" and "Legal Matters" in the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Baker & McKenzie
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Borland
International, Inc. of our report dated April 24, 1996, except for Note 14 which
is dated as of May 15, 1996, appearing on page 26 of Borland International,
Inc.'s Annual Report on Form 10-K for the year ended March 31, 1996. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended March 31, 1996, which appears on page 44 of Borland
International Inc.'s Annual Report on Form 10-K when such schedule is read in
conjunction with the consolidated financial statements referred to in our
report. We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
Price Waterhouse LLP
San Jose, California
October 9, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Borland
International, Inc. for the registration of 5,760,787 shares of its common
stock and to the inclusion therein of our report dated March 27, 1996, except
as to the fourth paragraph of Note 1, as to which the date is October 4, 1996,
with respect to the consolidated financial statements and schedule of Open
Environment Corporation.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 7, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF WILLIAM BUCK, CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Borland
International, Inc. for the registration of approximately 5,760,787 shares of
its common stock and to the inclusion therein of our reports dated September 3,
1996, with respect to the consolidated financial statements of Jarrah
Technologies Pty Limited for the years ended December 31, 1993 and 1994 which
are included in the consolidated financial statements of Open Environment
Corporation included in the Registration Statement on Form S-4.
/s/ N T Hatzistergos
- ----------------------------------
Sydney, New South Wales, Australia
October 10, 1996
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ DAVID HELLER
---------------------------------
DAVID HELLER
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ STEPHEN J. LEWIS
---------------------------------
STEPHEN J. LEWIS
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ WILLIAM F. MILLER
---------------------------------
WILLIAM F. MILLER
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ HARRY J. SAAL
---------------------------------
HARRY J. SAAL
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ GEORGE HARA
---------------------------------
GEORGE HARA
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ PHILIPPE KAHN
---------------------------------
PHILIPPE KAHN
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ WHITNEY G. LYNN
---------------------------------
WHITNEY G. LYNN
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make and
appoint WILLIAM F. MILLER, PAUL W. EMERY, II and DUANE MENSINGER and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Borland International,
Inc., the registration statements on Form S-4 and Form S-8 or other appropriate
form registering up to 10,000,000 shares of the Common Stock of Borland
International, Inc., and any and all amendments thereto (including post
effective amendments) to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and any and all other instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable Borland International, Inc. to comply with the
1933 Act and the rules, regulations and requirements of the SEC in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Dated: October 2, 1996
/s/ PAUL W. EMERY, II
---------------------------------
PAUL W. EMERY, II
<PAGE>
EXHIBIT 99.1
REVOCABLE PROXY
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF OPEN ENVIRONMENT CORPORATION
The undersigned stockholder of OPEN ENVIRONMENT CORPORATION, a Delaware
corporation (the "Company"), hereby appoint(s) [Name] and [Name], and each of
them, each with full power of substitution and resubstitution, proxies and
attorneys in fact of the undersigned, with all of the powers that the
undersigned would possess if personally present, to attend and act for the
undersigned at the Special Meeting of Stockholders (the "Special Meeting") of
the Company to be held on November 18, 1996 at Hale and Dorr, 60 State St.,
Boston, MA commencing at 10:00 a.m., Boston time, and any and all adjournments
and postponements thereof, and (without limiting the generality of the
foregoing) in connection therewith to vote and represent all of the shares of
common stock of the Company that the undersigned would be entitled to vote.
Said proxies and attorneys, and each of them, shall have all of the powers
that the undersigned would have if voting in person. The undersigned hereby
revokes any other proxies to vote at such meeting and hereby ratifies and
confirms all that said proxies and attorneys, and each of them, may lawfully do
by virtue hereby. SAID PROXIES, WITHOUT HEREBY LIMITING THEIR SEVERAL
AUTHORITY, ARE SPECIFICALLY AUTHORIZED TO VOTE IN ACCORDANCE WITH THEIR BEST
JUDGMENT WITH RESPECT TO ALL MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL
MEETING AND ALL MATTERS PRESENTED AT THE MEETING BUT WHICH ARE NOT KNOWN TO THE
BOARD OF DIRECTORS OF THE COMPANY AT THE TIME OF THE SOLICITATION OF THIS
PROXY.
(Continued and to be signed on reverse side)
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE FOLLOWING
PROPOSALS:
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
May 11, 1996, as amended, among Borland International Inc., Aspen
Acquisition Corp. and Open Environment Corporation and the transactions
contemplated thereunder.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Proposal to approve granting to the Board of Directors discretionary
authority to adjourn the Special Meeting in order to solicit additional
votes for the Merger.
[_] FOR [_] AGAINST [_] ABSTAIN
Each of the above-named proxies present at the Special Meeting, either in
person or by substitute, shall have and exercise all the powers of said
proxies hereunder.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AT THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF IN ACCORDANCE WITH THE INSTRUCTIONS SET
FORTH ABOVE OR, IN THE EVENT NO INSTRUCTIONS ARE SET FORTH, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting and Prospectus/Proxy Statement (with all Appendices and annexes) dated
October 17, 1996 relating to the Special Meeting.
Date ___________________________ ___________________________________________
Signature
Date ___________________________ ___________________________________________
Signature
IMPORTANT: Please date this Proxy and sign
exactly as your name appears above. If
shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give title as such. If a
corporation, please sign in full corporate
name by the president or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
