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FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-45001
BORLAND INTERNATIONAL, INC. VISIGENIC SOFTWARE, INC.
PROSPECTUS PROXY STATEMENT
PROXY STATEMENT
Borland International, Inc., a Delaware corporation ("Borland"), has filed a
Registration Statement on Form S-4 (together with all exhibits thereto, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), covering up to 13,000,000 shares of its common stock, par
value $.01 per share ("Borland Common Stock"), to be issued in the proposed
merger (the "Merger") of Vixen Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Borland ("Sub"), with and into Visigenic
Software, Inc., a Delaware corporation ("Visigenic"), pursuant to the
Agreement and Plan of Merger entered into by and among Borland, Sub and
Visigenic dated as of November 17, 1997 (the "Merger Agreement").
Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time"), Visigenic will become a wholly-owned subsidiary of Borland,
and each outstanding share of common stock, par value $.001 per share, of
Visigenic ("Visigenic Common Stock") will be converted into the right to
receive 0.81988 of a share of Borland Common Stock (the "Exchange Ratio"), and
each outstanding option to purchase Visigenic Common Stock will be assumed by
Borland and will be converted into an option to purchase shares of Borland
Common Stock, with appropriate adjustments based on the Exchange Ratio to the
number of shares issuable thereunder and the exercise price thereof. Based
upon Visigenic's capitalization as of January 23, 1998, Borland will issue
approximately 11,942,707 shares of Borland Common Stock in exchange for all of
the outstanding shares of Visigenic Common Stock.
Under the terms of the Merger Agreement, the Exchange Ratio is fixed, and
there is no provision for adjustment of the Exchange Ratio or termination of
the Merger Agreement based on fluctuations in the price of Borland Common
Stock. Accordingly, the value of the consideration to be received by Visigenic
stockholders will depend on the market price of Borland Common Stock at the
Effective Time. As of January 23, 1998, the last practicable trading day for
which information was available before the printing of this Joint Proxy
Statement/Prospectus, the closing sale prices per share of Borland Common
Stock and Visigenic Common Stock, as reported on The Nasdaq National Market,
were $7.03 and $5.63, respectively.
This Joint Proxy Statement/Prospectus constitutes (i) the Prospectus of
Borland filed as part of the Registration Statement with respect to the
issuance of Borland Common Stock in the Merger, (ii) the Proxy Statement of
Visigenic relating to the special meeting of stockholders of Visigenic (the
"Visigenic Special Meeting") called to vote on the approval and adoption of
the Merger Agreement and the approval of the Merger and (iii) the Proxy
Statement of Borland relating to the special meeting of stockholders of
Borland (the "Borland Special Meeting") called to vote on approval of (a) the
issuance of Borland Common Stock pursuant to the Merger Agreement, (b)
amendments to Borland's 1997 Stock Option Plan to increase the number of
shares reserved for issuance thereunder from 1,600,000 shares to 3,300,000
shares, to increase the one-time option grant limit for newly-hired employees
from 1,500,000 shares to 2,000,000 shares and to increase the annual option
grant limit for continuing employees from 500,000 shares to 1,000,000 shares,
and (c) an amendment to Borland's 1997 Employee Stock Purchase Plan to
increase the number of shares of Borland Common Stock available for purchase
thereunder from 200,000 shares to 400,000 shares. This Joint Proxy
Statement/Prospectus and the accompanying forms of proxies are first being
mailed to the stockholders of Visigenic and Borland on or about January 28,
1998.
SEE "RISK FACTORS" COMMENCING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED CAREFULLY BY BOTH VISIGENIC AND BORLAND STOCKHOLDERS
IN EVALUATING THE PROPOSALS TO BE VOTED ON AT THE BORLAND SPECIAL MEETING AND
THE VISIGENIC SPECIAL MEETING AND THE ACQUISITION OF THE SECURITIES OFFERED
HEREBY.
NEITHER THIS TRANSACTION NOR THE SECURITIES OF BORLAND OFFERED HEREBY HAVE
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
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JANUARY 28, 1998.
<PAGE>
AVAILABLE INFORMATION
Borland and Visigenic are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Borland and Visigenic with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available for inspection at the Commission's Regional
Offices located at 7 World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a website (the "Commission Website") that contains reports, proxy
information statements and other information regarding Borland and Visigenic.
The address of the Commission Website is http:\\www.sec.gov. Borland Common
Stock and Visigenic Common Stock are traded on The Nasdaq National Market.
Reports and other information concerning Borland and Visigenic can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Market Listing Section, 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 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 Agreement.
This Joint Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement. Such additional information may be
obtained from the Commission's principal office in Washington, D.C. or on the
Commission Website. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated by reference in this Joint
Proxy Statement/ Prospectus 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 BORLAND DOCUMENTS BY REFERENCE
The following Borland documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. Borland's Annual Report on Form 10-K, as amended, for the fiscal year
ended March 31, 1997;
2. Borland's Quarterly Reports on Form 10-Q for the three-month periods
ended June 30, 1997 and September 30, 1997;
3. The description of Borland's capital stock contained in Borland's
Registration Statement, as amended, filed under the Exchange Act; and
4. Borland's Current Reports on Form 8-K filed July 14, 1997, August 5,
1997, September 23, 1997 and November 21, 1997, and Borland's Current
Report on Form 8-K/A filed August 5, 1997.
All documents and reports subsequently filed by Borland pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and prior to the Effective Time shall be deemed to
be incorporated by reference in this Joint Proxy Statement/Prospectus and to be
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein or
in any other 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 Joint Proxy
Statement/Prospectus.
ii
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This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available, without charge, to any person,
including any beneficial owner of Borland capital stock, or Visigenic Common
Stock, to whom this Joint Proxy Statement/Prospectus is delivered, upon written
or oral request, directed to Borland International, Inc., 100 Borland Way,
Scotts Valley, California 95066 (telephone number (408) 431-1000), Attention:
Investor Relations. In order to assure timely delivery of the requested
material before the Borland Special Meeting and the Visigenic Special Meeting,
any request should be made prior to February 17, 1998.
No persons have been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby and, if given or made, such information or
representation must not be relied upon as having been authorized by Borland or
Visigenic. This Joint Proxy Statement/Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it
is not lawful to make any such offer or solicitation in such jurisdiction.
Neither the delivery of this Joint Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall under any circumstances create
any implication that there has been no change in the affairs of Borland or
Visigenic since the date hereof or that the information herein is correct as of
any time subsequent to its date.
INFORMATION PROVIDED BY BORLAND AND VISIGENIC
The information set forth in this Joint Proxy Statement/Prospectus concerning
Borland and Sub has been provided by Borland and has not been independently
investigated or verified by Visigenic; and the information set forth in this
Joint Proxy Statement/Prospectus concerning Visigenic has been provided by
Visigenic and has not been independently investigated or verified by Borland.
All unaudited pro forma combined financial information herein has been prepared
by Borland using the historical financial information of Borland and Visigenic,
which was furnished by Borland and Visigenic, respectively.
Registered trademarks of Borland include Borland C++, Borland C++ Builder,
Delphi, IntraBuilder, JBuilder, Entera, OLEnterprise, Visual dBASE, dBASE,
InterBase, Paradox and Open Environment. Visigenic and the Visigenic logo are
registered trademarks of Visigenic. VisiBroker, VisiBase, VisiODBC and
VisiChannel are trademarks of Visigenic. This Joint Proxy Statement/Prospectus
also includes trademarks and trade names of companies other than Borland and
Visigenic, which are the property of their respective owners.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION.................................................... ii
INCORPORATION OF CERTAIN BORLAND DOCUMENTS BY REFERENCE.................. iii
INFORMATION PROVIDED BY BORLAND AND VISIGENIC............................ iii
SUMMARY.................................................................. 1
The Companies.......................................................... 1
Date and Place of the Special Meetings................................. 2
Stockholders Entitled to Vote.......................................... 2
Purposes of the Meetings............................................... 2
Vote Required; Voting Agreements....................................... 3
The Merger............................................................. 3
Reasons for the Merger................................................. 4
Recommendations of the Boards of Directors............................. 5
Opinions of Financial Advisors......................................... 6
Interests of Certain Persons in the Merger............................. 7
No Solicitation........................................................ 8
Conditions to the Merger............................................... 8
Termination............................................................ 8
Surrender of Visigenic Stock Certificates.............................. 9
Certain Federal Income Tax Consequences................................ 9
Accounting Treatment................................................... 9
No Appraisal Rights.................................................... 9
Restrictions on Resale of Borland Common Stock......................... 9
Comparison of Stockholder Rights....................................... 10
Amendments to the Borland 1997 Stock Option Plan....................... 10
Amendment to the Borland 1997 Employee Stock Purchase Plan............. 10
SELECTED HISTORICAL CONSOLIDATED AND PRO FORMA UNAUDITED COMBINED
CONDENSED FINANCIAL INFORMATION......................................... 11
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION................... 12
SUMMARY PRO FORMA UNAUDITED COMBINED CONDENSED FINANCIAL INFORMATION..... 13
COMPARATIVE PER SHARE DATA............................................... 14
MARKET PRICE INFORMATION................................................. 15
RISK FACTORS............................................................. 17
Risks Relating to the Merger........................................... 17
Risks Relating to Borland, Visigenic and the Combined Company.......... 18
THE MEETINGS............................................................. 28
General................................................................ 28
Matters to be Considered at the Meetings............................... 28
Recommendations of the Boards of Directors............................. 28
Voting at the Meetings; Record Dates................................... 29
Adjournment of the Borland Special Meeting or the Visigenic Special
Meeting............................................................... 30
Proxies................................................................ 30
THE MERGER............................................................... 32
Background of the Merger............................................... 32
</TABLE>
iv
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<TABLE>
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<S> <C>
Reasons for the Merger; Recommendations of the Boards of Directors...... 35
Joint Reasons for the Merger.......................................... 35
Borland's Reasons for the Merger...................................... 37
Visigenic's Reasons for the Merger.................................... 38
Opinion of Financial Advisor to Borland................................. 39
Opinion of Financial Advisor to Visigenic............................... 43
Interests of Certain Persons in the Merger.............................. 48
Voting Agreements....................................................... 49
Employment Agreements................................................... 49
Non-Compete and Non-Solicitation Agreements............................. 49
Severance and Consulting Agreements..................................... 49
Accounting Treatment.................................................... 50
Certain Federal Income Tax Consequences................................. 50
No Appraisal Rights..................................................... 52
Regulatory Requirements................................................. 52
Federal Securities Law Compliance....................................... 52
Nasdaq National Market Quotation........................................ 53
THE MERGER AGREEMENT...................................................... 54
The Merger.............................................................. 54
Conversion of Securities................................................ 54
Representations and Warranties.......................................... 55
Certain Covenants and Agreements........................................ 55
No Solicitation......................................................... 56
Indemnification......................................................... 57
Conditions.............................................................. 58
Stock Plans and Options................................................. 58
Termination; Termination Fees and Expenses.............................. 59
Amendment and Waiver.................................................... 61
INFORMATION CONCERNING BORLAND............................................ 62
Business................................................................ 62
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 67
Management.............................................................. 77
Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners...................................................... 79
INFORMATION CONCERNING VISIGENIC.......................................... 80
Business................................................................ 80
Properties.............................................................. 86
Legal Proceedings....................................................... 86
Selected Financial Data................................................. 87
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 88
Management.............................................................. 97
Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners...................................................... 99
Director Compensation................................................... 101
Information Regarding Executive Officer Compensation.................... 101
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 102
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET...................... 103
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS........... 104
NOTES TO PRO FORMA UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS...... 105
</TABLE>
v
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<TABLE>
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COMPARISON OF RIGHTS OF BORLAND STOCKHOLDERS AND VISIGENIC STOCKHOLDERS... 107
Special Meetings........................................................ 107
Classification of Board of Directors.................................... 107
Removal of Directors.................................................... 107
Introduction of Business by Stockholders at Meeting of Stockholders..... 107
Amendment of Bylaws and Certificate..................................... 108
DESCRIPTION OF BORLAND CAPITAL STOCK...................................... 109
Common Stock............................................................ 109
Preferred Stock......................................................... 109
Borland Rights Agreement................................................ 110
AMENDMENTS TO THE BORLAND 1997 STOCK OPTION PLAN.......................... 111
General................................................................. 111
Summary of the Option Plan.............................................. 111
Summary of Federal Income Tax Consequences.............................. 114
Vote Required and Borland Board Recommendation.......................... 115
AMENDMENT TO THE BORLAND 1997 EMPLOYEE STOCK PURCHASE PLAN................ 116
Summary of the Purchase Plan............................................ 116
Summary of Federal Income Tax Consequences.............................. 118
Vote Required and Borland Board Recommendation.......................... 119
STOCKHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETINGS......... 119
LEGAL MATTERS............................................................. 119
EXPERTS................................................................... 120
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
ANNEX A--Agreement and Plan of Merger..................................... A-1
ANNEX B--Opinion of Hambrecht & Quist LLC................................. B-1
ANNEX C--Opinion of BancAmerica Robertson Stephens........................ C-1
</TABLE>
vi
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/ Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Joint Proxy Statement/Prospectus and the
Annexes hereto. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this Joint
Proxy Statement/Prospectus. Borland stockholders and Visigenic stockholders are
urged to read this Joint Proxy Statement/Prospectus and the Annexes hereto in
their entirety.
This Joint Proxy Statement/Prospectus contains a number of forward-looking
statements which reflect the current views of Borland and/or Visigenic with
respect to future events that are expected to have an effect on their future
individual or combined financial performance, including but not limited to
forward-looking statements regarding the expected benefits and synergies of the
proposed strategic business combination, and regarding the reasons for the
transaction. These forward-looking statements are subject to various risks and
uncertainties, including those set forth under "Risk Factors" and elsewhere
herein, that could cause actual results to differ materially from historical
results or those currently anticipated. Readers are cautioned not to place
undue reliance on these forward-looking statements.
THE COMPANIES
Borland. Borland develops, markets and supports software development tools,
intelligent middleware, database management systems, and application management
systems for business enterprises and independent software developers. Borland
has several product lines and additional complementary products and services
that are designed to meet the needs of software developers and business
enterprises developing and using software in desktop, local area network
("LAN"), enterprise and Internet/intranet environments. Borland's business
units are organized around its major product lines, a family of interoperable
development tools, that include versions for desktop users, professional
developers and large business enterprises.
Borland's business strategy centers around its Information Network product
strategy. An Information Network is a network of interconnected resources that
cooperate to transform an organization's data into real-time information that
is customized for, and meaningful to, its users, whether they are employees,
customers or suppliers. Borland's Information Network strategy encompasses all
of Borland products with the objective of providing customers with an
integrated family of component-based development applications and intelligent
middleware that enable customers to develop Information Network applications.
The strategy is designed to allow software developers to scale applications for
both centralized and decentralized information technology ("IT") departments
and to integrate legacy computing systems, new computing systems and emerging
Internet/intranet technologies independent of any underlying network
architecture.
Borland was incorporated in California in 1983 and reincorporated in Delaware
in 1989. Borland's principal offices are located at 100 Borland Way, Scotts
Valley, California 95066, and its telephone number at that location is (408)
431-1000.
Visigenic. Visigenic is a leading independent provider of software tools for
distributed object technologies for the Internet, Intranet and enterprise
computing environments. Visigenic's standards-based products facilitate the
development, deployment and management of distributed business applications by
providing the communication framework for distributed object applications.
Visigenic's distributed object products, consisting of the Common Object
Request Broker Architecture ("CORBA")-compliant object request brokers and
CORBA-based services, provide a communication framework and enable the
development and deployment of reliable, flexible and cost-effective distributed
business applications. Visigenic also markets a cross-platform database access
product, based on the Java Database Connectivity ("JDBC") application
programming interface ("API"), which provides Java developers with database
access to major relational database management systems.
1
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Visigenic was incorporated in Delaware in 1993. Visigenic is located at 951
Mariner's Island Blvd., Suite 120, San Mateo, California 94404, and its
telephone number is (650) 286-1900.
Vixen Acquisition Corporation. Sub, a Delaware corporation, is a corporation
recently organized by Borland for the purpose of effecting the Merger. It has
no material assets and has not engaged in any activities except in connection
with the proposed Merger. Its principal offices are located at 100 Borland Way,
Scotts Valley, California 95066, and its telephone number at that address is
(408) 431-1000.
DATE AND PLACE OF THE SPECIAL MEETINGS
The Borland Special Meeting will be held on February 27, 1998, at the
Stanford Park Hotel, 100 El Camino Real, Menlo Park, California, commencing at
10:00 a.m., Pacific Standard Time. See "The Meetings."
The Visigenic Special Meeting will be held on February 27, 1998, at the
offices of Visigenic, 951 Mariner's Island Boulevard, Suite 120, San Mateo,
California, commencing at 10:00 a.m., Pacific Standard Time. See "The
Meetings."
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Borland Common Stock and Borland Series B
Preferred Stock at the close of business on January 12, 1998 (the "Borland
Record Date") are entitled to notice of and to vote at the Borland Special
Meeting. On the Borland Record Date, there were approximately 38,811,762 shares
of Borland Common Stock and 550 shares of Borland Series B Preferred Stock
outstanding. Holders of Borland Common Stock and Borland Series B Preferred
Stock will vote as a single class with shares of Borland Series B Preferred
Stock voting on an as-converted basis. Each share of Borland Common Stock will
be entitled to one vote and each share of Borland Series B Preferred Stock will
be entitled to 7,207 votes on each matter to be acted upon or which may
properly come before the Borland Special Meeting. See "The Meetings--Voting at
the Meetings; Record Dates."
Holders of record of shares of Visigenic Common Stock at the close of
business on January 12, 1998 (the "Visigenic Record Date") are entitled to
notice of and to vote at the Visigenic Special Meeting. On the Visigenic Record
Date, there were approximately 14,554,748 shares of Visigenic Common Stock
outstanding. Each share of Visigenic Common Stock outstanding on the Visigenic
Record Date will be entitled to one vote on each matter to be acted upon or
which may properly come before the Visigenic Special Meeting. See "The
Meetings--Voting at the Meetings; Record Dates."
PURPOSES OF THE MEETINGS
Borland Special Meeting. The purpose of the Borland Special Meeting is to
consider and vote upon (i) a proposal to approve the issuance of Borland Common
Stock in the Merger, (ii) a proposal to amend Borland's 1997 Stock Option Plan
to increase the aggregate number of shares of Borland Common Stock reserved for
issuance thereunder and to increase the maximum number of shares that may be
subject to individual option grants to Borland employees, (iii) a proposal to
amend Borland's 1997 Employee Stock Purchase Plan to increase the number of
shares of Borland Common Stock reserved for issuance thereunder, and (iv) such
other matters as may properly be brought before the Borland Special Meeting,
including any motion to adjourn the Borland Special Meeting to a later date to
permit further solicitation of proxies if necessary to establish a quorum or to
obtain additional votes, or any adjournment or postponement thereof. See "The
Meetings--Matters to be Considered at the Meetings."
Visigenic Special Meeting. The purpose of the Visigenic Special Meeting is to
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement
and approve the Merger, and (ii) such other matters as may properly be brought
before the Visigenic Special Meeting, including any motion to adjourn the
Visigenic Special Meeting to a later date to permit further solicitation of
proxies if necessary to establish a quorum or to obtain additional votes, or
any adjournment or postponement thereof. See "The Meetings--Matters to be
Considered at the Meetings."
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VOTE REQUIRED; VOTING AGREEMENTS
Borland. The approval of the issuance of Borland Common Stock in the Merger,
the approval of the amendments to the 1997 Stock Option Plan and the approval
of the amendment to the 1997 Employee Stock Purchase Plan will each require the
affirmative vote of a majority of the shares of Borland Common Stock and
Borland Series B Preferred Stock, voting as a single class on an as-converted
basis at the Borland Special Meeting. See "The Meetings--Voting at the
Meetings; Record Dates."
Visigenic. The approval and adoption of the Merger Agreement and the approval
of the Merger will require the affirmative vote of a majority of the
outstanding shares of Visigenic Common Stock entitled to vote at the Visigenic
Special Meeting. See "The Meetings--Voting at the Meetings; Record Dates."
Roger J. Sippl and Jens Christensen, each executive officers and directors of
Visigenic, and their respective spouses, have executed and delivered to Borland
voting agreements and irrevocable proxies (the "Visigenic Voting Agreements")
obligating them, among other things, to vote their shares of Visigenic Common
Stock in favor of approval and adoption of the Merger Agreement and approval of
the Merger. Pursuant to the Visigenic Voting Agreements, all of the outstanding
shares of Visigenic Common Stock beneficially owned by such executive officers
of Visigenic and their spouses on the Visigenic Record Date (representing
approximately 26.4% of the total number of shares of Visigenic Common Stock
outstanding at such date) will be voted for the approval and adoption of the
Merger Agreement and approval of the Merger. See "The Merger--Interests of
Certain Persons in the Merger" and "--Voting Agreements."
THE MERGER
Upon consummation of the Merger pursuant to the Merger Agreement (i) Sub will
be merged with and into Visigenic, which will be the surviving corporation (the
"Surviving Corporation"), and Visigenic will become a wholly-owned subsidiary
of Borland, and (ii) each issued and outstanding share of Visigenic Common
Stock will be converted into the right to receive 0.81988 of a share of Borland
Common Stock (the "Exchange Ratio"). Fractional shares of Borland Common Stock
will not be issued in connection with the Merger. Visigenic stockholders
otherwise entitled to a fractional share will be paid the value of such
fractional share in cash. See "The Merger Agreement--Conversion of Securities."
Based upon the outstanding shares of stock of Visigenic and Borland as of
January 23, 1998, an aggregate of approximately 11,942,707 shares of Borland
Common Stock would be issued in the Merger, representing approximately 23.5% of
the outstanding shares of Borland Common Stock immediately following
consummation of the Merger.
The Merger Agreement does not contain any provisions for adjustment of the
Exchange Ratio or termination of the Merger Agreement based on fluctuations in
the price of Borland Common Stock. Accordingly, the value of the consideration
to be received by the stockholders of Visigenic upon the Merger will depend on
the market price of Borland Common Stock at the Effective Time. From November
17, 1997 (the last full trading day prior to the published announcement of the
signing of the Merger Agreement) through January 23, 1998 (the latest
practicable trading day for which information was available before the printing
of this Joint Proxy Statement/Prospectus), the closing sales price of Borland
Common Stock, as reported on The Nasdaq National Market, has fluctuated between
$6.69 and $12.00 per share. The closing sales price on January 23, 1998 was
$7.03 per share. There can be no assurance that the market price of Borland
Common Stock on and after the Effective Time will not be lower than such price.
See "Market Price Information" and "Risk Factors -- Fixed Exchange Ratio."
3
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The following table sets forth, at various per share prices for the Borland
Common Stock, (i) the equivalent per share prices for Visigenic Common Stock
based on the Borland Common Stock prices multiplied by the Exchange Ratio of
0.81988 and (ii) the value of Borland Common Stock issuable for each 100 shares
of Visigenic Common Stock.
<TABLE>
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VALUE OF BORLAND SHARES
PRICE OF VISIGENIC ISSUABLE FOR EACH
BORLAND COMMON STOCK EQUIVALENT PRICE 100 VISIGENIC SHARES
-------------------- ---------------- -----------------------
<S> <C> <C>
$13.00 $10.66 $1,065.84
12.00 9.84 983.86
11.00 9.02 901.87
10.00 8.20 819.88
9.00 7.38 737.89
8.00 6.56 655.90
7.00 5.74 573.92
6.00 4.92 491.93
</TABLE>
At the Effective Time (as defined below), each then-outstanding option or
right to purchase Visigenic Common Stock, whether vested or unvested (a
"Visigenic Option"), will be assumed by Borland and will be deemed to
constitute an option or right to acquire, on the same terms and conditions as
were applicable under the Visigenic Option, such number of shares of Borland
Common Stock (rounded down to the nearest whole share) as the holder would have
been entitled to receive pursuant to the Merger had such holder exercised such
Visigenic Option in full immediately prior to the consummation of the Merger,
at a price per share (rounded up to the nearest tenth of a cent) equal to the
aggregate exercise price for the shares of Visigenic Common Stock otherwise
purchasable pursuant to such Visigenic Option divided by the number of full
shares of Borland Common Stock (rounded down to the nearest whole share) deemed
purchasable pursuant to such Visigenic Option in accordance with the foregoing.
The purpose and effect of this option assumption formula is to give holders of
Visigenic Options the economic benefit of the Merger. In addition, all then
outstanding options to purchase Visigenic Common Stock issued under the
Visigenic 1996 Outside Directors Stock Option Plan (the "Visigenic Director
Option Plan") will terminate in accordance with the terms of the Visigenic
Director Option Plan. Immediately prior to the Effective Time, all then
outstanding rights to acquire shares of Visigenic Common Stock under the
Visigenic 1996 Employee Stock Purchase Plan (the "Visigenic Stock Purchase
Plan") will be exercised for the purchase of shares of Visigenic Common Stock
and all awards accrued as of the Effective Time under Visigenic's Executive
Performance Incentive Plan (the "Visigenic Incentive Plan") shall be paid in
cash or stock. See "The Merger Agreement--Stock Plans and Options."
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite stockholder approvals have been obtained and
all other conditions to the Merger have been satisfied or waived (the
"Effective Time"). It is anticipated that, assuming all conditions are met, the
Merger will occur during February 1998. If the Merger is not consummated on or
before March 31, 1998, Borland and Visigenic each has the right (subject to
certain limitations) to terminate the Merger Agreement. See "The Merger
Agreement--Termination; Termination Fees and Expenses."
REASONS FOR THE MERGER
The Boards of Directors of Borland and Visigenic have approved the Merger
Agreement because they believe that the terms of the Merger Agreement are fair
to, and in the best interests of, their respective companies and stockholders
and that the Merger will create a stronger combined company with greater
potential than either company would have by itself. The potential benefits of
the Merger include the following: (i) the potential for increased sales which
may result from combining the product lines of the two companies to offer
corporate customers and partners a more integrated solution for developing,
deploying and managing distributed enterprise applications which make up
Information Networks; (ii) the ability to increase the integration of Borland's
object-oriented development environments with Visigenic's VisiBroker ORB
technology; (iii) the opportunity to expand
4
<PAGE>
the worldwide sales and support organization for enterprise customers; (iv) the
opportunity to leverage research and development capabilities of the two
companies and to share technology; and (v) the ability to achieve economies of
scale in sales, marketing, research and development, international operations
and corporate infrastructure. By capitalizing on this opportunity, the combined
company could potentially realize improved long-term operating and financial
results and a stronger competitive position than the respective companies would
realize on a stand-alone basis. See "Risk Factors" and "The Merger--Reasons for
the Merger; Recommendations of the Boards of Directors."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
By the unanimous vote of all directors present and voting, the Board of
Directors of Borland (the "Borland Board") has approved the Merger Agreement
and the issuance of shares of Borland Common Stock in the Merger. The Borland
Board believes that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interests of, Borland and its stockholders. The Borland
Board therefore recommends that the stockholders of Borland vote FOR approval
of the issuance of Borland Common Stock in the Merger. The Borland Board has
also unanimously approved the amendments to Borland's 1997 Stock Option Plan
and Borland's 1997 Employee Stock Purchase Plan and unanimously recommends that
the stockholders of Borland vote FOR approval of the amendments.
The Borland Board has reviewed the decline in the trading price of Borland
Common Stock since the signing of the Merger Agreement, and has also reviewed
the recent volatility in the trading prices of technology companies generally,
and noted that a number of technology companies have experienced declines in
their stock prices over the same period. The Borland Board has also reviewed
the recent financial performance of both companies, the potential long-term
prospects for the combined company, the strategic value and synergies
potentially derived from the Merger, and other factors described in more detail
in the "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors--Borland's Reasons for the Merger." The Borland Board has also
reviewed the opinion of Hambrecht & Quist LLC ("Hambrecht & Quist"), dated as
of November 17, 1997, as to the fairness from a financial point of view of the
consideration to be paid by Borland in the Merger to Borland. Given that the
Hambrecht & Quist opinion was based, in part, on the price per share of Borland
Common Stock as of November 17, 1997, the Borland Board has also reviewed the
potential effect of the recent decline in Borland's trading price on the
Hambrecht & Quist analyses, as summarized under "The Merger--Opinion of
Financial Advisor to Borland." The Borland Board noted that, of these analyses,
the contribution analysis and the pro forma merger analysis are not dependent
upon the trading price of Borland Common Stock. The Borland Board also
continued to find meaningful certain other analyses that were based in part on
the historical trading prices of the Borland Common Stock and Visigenic Common
Stock prior to the announcement of the Merger, insofar as the historical
trading prices prior to the announcement represent the most recent market
valuation of the companies without giving effect of the pending Merger. The
Borland Board noted that, since the announcement of the Merger, the trading
prices of each of the company's common stock have reflected, among other
things, the consideration to be paid by Borland in the Merger and the combined
valuation of the companies. The Borland Board noted that the Hambrecht & Quist
opinion was only one of many factors that it considered in evaluating the
Merger and, in light of the variety of factors supporting the Merger, did not
request an updated fairness opinion from Hambrecht & Quist. After consideration
of all of the foregoing factors, including the reconsideration of the Hambrecht
& Quist opinion, the Borland Board continues to believe that the Merger is in
the best interest of its stockholders and continues to make its recommendations
as herein set forth through the date of this Joint Proxy Statement/Prospectus.
See "The Merger--Background of the Merger," "Reasons for the Merger;
Recommendations of the Boards of Directors--Joint Reasons for the Merger," and
"Borland's Reasons for the Merger."
The Board of Directors of Visigenic (the "Visigenic Board") has unanimously
approved the Merger Agreement and the Merger and believes that the terms of the
Merger Agreement are fair to, and that the Merger is in the best interests of,
Visigenic and its stockholders. The Visigenic Board therefore recommends that
the stockholders of Visigenic vote FOR approval and adoption of the Merger
Agreement and approval of the Merger.
5
<PAGE>
The Visigenic Board has reviewed the decline in the trading price of Borland
Common Stock since the signing of the Merger Agreement, and has also reviewed
the recent volatility in the trading prices of technology companies generally,
and noted that a number of technology companies have experienced declines in
their stock prices over the same period. The Visigenic Board has also reviewed
the recent financial performance of both companies, the potential long-term
prospects for the combined company, the strategic value and synergies
potentially derived from the Merger, and other factors described in more detail
in the "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors--Visigenic's Reasons for the Merger." The Visigenic Board has also
reviewed the opinion of BancAmerica Robertson Stephens, successor in interest
to Robertson, Stephens & Company LLC ("BancAmerica Robertson Stephens"), dated
as of November 17, 1997, as to the fairness from a financial point of view of
the Aggregate Merger Consideration (as defined therein) to the stockholders of
Visigenic. Given that the BancAmerica Robertson Stephens opinion was based, in
part, on the price per share of Borland Common Stock as of November 17, 1997,
the Visigenic Board has also reviewed the potential effect of the recent
decline in Borland's trading price on the BancAmerica Robertson Stephens
analyses, as summarized under "The Merger--Opinion of Financial Advisor to
Visigenic." The Visigenic Board noted that, of these analyses, the contribution
analysis and the pro forma earnings analysis are not dependent upon the trading
prices of Borland Common Stock and Visigenic Common Stock. The Visigenic Board
also continued to find meaningful certain other analyses that were based in
part on the historical trading prices of the Borland Common Stock and Visigenic
Common Stock prior to the announcement of the Merger, insofar as the historical
trading prices prior to the announcement represent the most recent market
valuation of the companies without giving effect to the pending Merger. The
Visigenic Board noted that, since the announcement of the Merger, the trading
prices of each of the company's common stock have reflected, among other
things, the consideration to be paid by Borland in the Merger and the combined
valuation of the companies. The Visigenic Board noted that the BancAmerica
Robertson Stephens opinion was only one of many factors that it considered in
evaluating the Merger and, in light of the variety of factors supporting the
Merger, did not request an updated fairness opinion from BancAmerica Robertson
Stephens. After consideration of all of the foregoing factors, including the
reconsideration of the BancAmerica Robertson Stephens opinion, the Visigenic
Board continues to believe that the Merger is in the best interest of its
stockholders and continues to make its recommendations as herein set forth
through the date of this Joint Proxy Statement/Prospectus. See "The Merger--
Background of the Merger," "Reasons for the Merger; Recommendations of the
Boards of Directors--Joint Reasons for the Merger," and "Visigenic's Reasons
for the Merger."
See "The Meetings--Recommendations of the Boards of Directors" and "The
Merger--Reasons for the Merger; Recommendations of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
Borland. Hambrecht & Quist delivered its oral opinion to the Borland Board on
November 17, 1997, confirmed in writing as of November 17, 1997, to the effect
that, as of the date of such opinion, the Exchange Ratio pursuant to the Merger
Agreement was fair from a financial point of view to Borland. The full text of
the written opinion of Hambrecht & Quist which sets forth, among other things,
assumptions made, procedures followed, matters considered and limitations on
the scope of the review undertaken in connection with the opinion, is attached
hereto as Annex B and is incorporated herein by reference. STOCKHOLDERS OF
BORLAND ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. Hambrecht
& Quist's opinion is directed only to the fairness, from a financial point of
view, of the Exchange Ratio to Borland, does not address any other aspect of
the Merger or related transactions, and does not constitute a recommendation to
any stockholder as to how such stockholder should vote at the Borland Special
Meeting. See "The Merger--Opinion of Financial Advisor to Borland" and Annex B
attached hereto.
Visigenic. BancAmerica Robertson Stephens delivered to the Visigenic Board
its written opinion, dated November 17, 1997, to the effect that, as of such
date, the Aggregate Merger Consideration (as defined therein) was fair from a
financial point of view to the stockholders of Visigenic. The full text of the
written opinion of BancAmerica Robertson Stephens, which sets forth, among
other things, the analyses and assumptions made,
6
<PAGE>
matters considered and limitations on the review undertaken in connection with
its opinion, is attached hereto as Annex C and is incorporated herein by
reference. STOCKHOLDERS OF VISIGENIC ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. BancAmerica Robertson Stephens' opinion is directed
only to the fairness, from a financial point of view, of the Aggregate Merger
Consideration to the stockholders of Visigenic, does not address any other
aspect of the Merger or related transactions, and does not constitute a
recommendation to any stockholder as to how such stockholder should vote at the
Visigenic Special Meeting. See "The Merger--Opinion of Financial Advisor to
Visigenic" and Annex C attached hereto.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of January 11, 1998, directors and executive officers of Borland and their
affiliates may be deemed, under the rules of the Commission, to be beneficial
owners of approximately 3.7% of the outstanding shares of Borland Common Stock,
representing approximately 3.3% of the aggregate voting power of Borland
capital stock. See "Information Concerning Borland--Security Ownership of
Certain Beneficial Owners and Management."
As of January 11, 1998, directors and executive officers of Visigenic and
their affiliates may be deemed, under the rules of the Commission, to be
beneficial owners of approximately 39.7% of the outstanding shares of Visigenic
Common Stock. See "Information Concerning Visigenic--Security Ownership of
Certain Beneficial Owners and Management."
Roger J. Sippl, Chairman of the Board and Chief Executive Officer of
Visigenic, and Jens Christensen, the Chief Technology Officer, Vice President,
Advanced Systems and a director of Visigenic, and their respective spouses are
obligated to vote or direct the vote of all of the outstanding shares of
Visigenic Common Stock over which they have voting control in favor of the
approval and adoption of the Merger Agreement and approval of the Merger. See
"The Merger--Voting Agreements."
Messrs. Sippl and Christensen each will enter into two-year employment
agreements with Borland which will become effective at the Effective Time. Mr.
Sippl will become the Chief Technical Officer of Borland, and Mr. Christensen
will become a Borland Fellow, the highest individual contributor position in
Borland's engineering department. See "The Merger--Employment Agreements."
Messrs. Sippl and Christensen each will enter into non-compete and non-
solicitation agreements with Borland prior to the Effective Time. See "The
Merger--Non-Compete and Non-Solicitation Agreements."
Mark D. Hanson, President and Chief Operating Officer of Visigenic, Kevin C.
Eichler, Vice President, Operations, Chief Financial Officer, Treasurer and
Secretary of Visigenic, Therese Langlais, Vice President Business Development
of Visigenic, and J. Scott Chalmers, Vice President, Worldwide Sales of
Visigenic, each will enter into severance and consulting agreements with
Borland which will become effective at the Effective Time. Each agreement will
amend each such individual's employment letter with Visigenic to provide
certain benefits upon the termination of such individual's employment with
Borland. See "The Merger--Severance and Consulting Agreements."
Visigenic's right to repurchase currently unvested shares of Visigenic Common
Stock owned by executive officers and directors of Visigenic may lapse as a
result of the Merger. Agreements relating to stock options to purchase shares
of Visigenic Common Stock that were granted to certain executive officers of
Visigenic and other Visigenic employees and that will be assumed by Borland in
the Merger, provide that the termination of the optionee's employment under
certain circumstances, or the resignation of the optionee following a
constructive termination, after the Merger, will result in a lapse of
Visigenic's right to repurchase any of the shares acquired prior to the
expiration of the option which are unvested at the time of termination. In
addition, options to purchase shares of Visigenic Common Stock held by
Visigenic's outside directors will vest in full ten days prior to the Effective
Time. See "The Merger--Interests of Certain Persons in the Merger."
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<PAGE>
Pursuant to the Merger Agreement, Borland has agreed to indemnify each person
who is an officer or director of Visigenic against certain liabilities. In
addition, Borland has agreed to maintain, with certain limitations, policies of
directors' and officers' liability insurance comparable to those currently
maintained by Visigenic. See "The Merger Agreement--Indemnification."
As a result of the foregoing transactions and agreements, the directors and
executive officers of Visigenic have personal interests in the Merger which are
not identical to the interests of the other Visigenic stockholders. See "The
Merger--Interests of Certain Persons in the Merger."
Hambrecht & Quist, Borland's financial advisor, has previously provided
investment banking services to Visigenic and was paid fees for such services,
including 84,375 shares of Visigenic Common Stock which it currently owns. See
"The Merger--Opinion of Financial Advisor to Borland." Hambrecht & Quist has
advised Borland that it currently intends to vote such shares in favor of the
Merger and hold such shares through the consummation of the Merger (and thereby
convert such shares into Borland Common Stock). Based on the last reported
sales price of Borland Common Stock of $7.03 on January 23, 1998, the latest
practicable trading day for which information was available prior to the
printing of this Joint Proxy Statement/Prospectus, the aggregate dollar value
of the shares of Borland Common Stock to be received in the Merger by Hambrecht
& Quist and officers and directors of Hambrecht & Quist is approximately
$593,156.
NO SOLICITATION
Except in certain circumstances where it could be contrary to the fiduciary
duties of the Visigenic Board, Visigenic has agreed to refrain from directly or
indirectly (i) soliciting, initiating or encouraging a proposal or offer
competitive with the Merger, (ii) engaging in negotiations or discussions
concerning such a competing offer, (iii) providing any non-public information
to any person or entity relating to such a competing offer, or (iv) agreeing
to, approving or recommending any such competing offer. See "The Merger
Agreement--No Solicitation."
CONDITIONS TO THE MERGER
The respective obligations of Borland and Visigenic to consummate the Merger
are subject to the satisfaction of certain conditions, including, but not
limited to, obtaining requisite stockholder and regulatory approvals, approval
for quotation on The Nasdaq National Market of the Borland Common Stock to be
issued pursuant to the Merger Agreement, the absence of any injunction
prohibiting consummation of the Merger, the accuracy of certain representations
and warranties made in the Merger Agreement on and as of the Effective Time
(subject to certain limitations relating to the materiality thereof), the
receipt of certain legal opinions with respect to tax matters, the confirmation
of certain accountants' letters with respect to qualification of the Merger as
a pooling of interests transaction and the absence of any material adverse
change in the business, operations, financial condition or results of
operations of Borland or Visigenic. See "The Merger--Accounting Treatment," "--
Certain Federal Income Tax Consequences" and "The Merger Agreement--
Conditions."
The consummation of the Merger is subject to certain regulatory matters.
Borland, Visigenic and Roger J. Sippl, the Chairman of the Board and Chief
Executive Officer of Visigenic, each have obtained early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"). See "The Merger--Regulatory Requirements."
TERMINATION
The Merger Agreement is subject to termination by mutual written consent of
Borland and Visigenic, at the option of either Borland or Visigenic, if the
Merger is not consummated before March 31, 1998, and prior to such time upon
the occurrence of certain events. The Merger Agreement does not include any
provision for termination based on fluctuations in the price of Borland Common
Stock. If the Merger Agreement is terminated under certain circumstances,
Visigenic may be required to reimburse Borland for its expenses up to $750,000,
or
8
<PAGE>
Visigenic or Borland may be required to pay the other party a termination fee
of up to $4,000,000. See "The Merger Agreement--Termination; Termination Fees
and Expenses."
SURRENDER OF VISIGENIC STOCK CERTIFICATES
If the Merger is consummated, ChaseMellon Shareholder Services (the "Exchange
Agent") will mail a letter of transmittal with instructions to all holders of
record of Visigenic 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 "The Merger Agreement--Conversion of Securities."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization for federal income tax
purposes so that no gain or loss would generally be recognized by Borland or
Visigenic, and no gain or loss would be recognized by Visigenic stockholders,
except in respect of cash received in lieu of fractional shares. Visigenic
stockholders are urged to consult their own tax advisors as to the specific
federal, state, local and foreign tax consequences of the Merger to the
individual stockholder. It is a condition to the Merger that Borland and
Visigenic shall have each received an opinion of their respective counsel to
the effect 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"). For a further discussion of federal income tax consequences of the
Merger, see "The Merger--Certain Federal Income Tax Consequences." See also
"The Merger Agreement--Conditions."
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 Borland
shall have received a letter from Price Waterhouse LLP, Borland's independent
public accountants, as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16, and
that Visigenic shall have received a letter from Arthur Andersen LLP,
Visigenic's independent public accountants, stating that it believes that
Visigenic could be a combining entity in a transaction accounted for as a
pooling of interests. See "The Merger--Accounting Treatment," "The Merger
Agreement--Conditions" and "Unaudited Pro Forma Combined Financial Statements."
NO APPRAISAL RIGHTS
Visigenic stockholders are not entitled to appraisal rights under the
Delaware General Corporation Law (the "DGCL") in connection with the Merger.
See "The Merger--No Appraisal Rights." Accordingly, Visigenic stockholders who
do not wish to receive Borland Common Stock in exchange for their shares of
Visigenic Common Stock must either liquidate their investment by selling their
Visigenic Common Stock prior to the consummation of the Merger or vote their
shares against the Merger. However, if the Merger Agreement and the Merger
receive the requisite approval by the Visigenic stockholders, Visigenic
stockholders voting against the Merger Agreement and the Merger who retain
their Visigenic Common Stock through the Effective Time, will still receive
Borland Common Stock in exchange for their shares of Visigenic Common Stock.
RESTRICTIONS ON RESALE OF BORLAND COMMON STOCK
The shares of Borland Common Stock issuable to stockholders of Visigenic upon
consummation of the Merger will have been registered under the Securities Act
at the Effective Time. Such shares will be freely transferable without
restriction by those Visigenic stockholders who are not deemed to be
"affiliates" of Borland or Visigenic, as that term is defined in the rules
under the Securities Act.
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<PAGE>
Shares of Borland Common Stock received pursuant to the Merger by
stockholders of Visigenic who are deemed to be affiliates of Visigenic or
Borland may be resold without registration under the Securities Act only as
permitted by Rule 145 under the Securities Act or as otherwise permitted under
the Securities Act. Each affiliate of Visigenic has agreed not to sell, pledge
transfer or otherwise dispose of any shares of Borland Common Stock received
pursuant to the Merger, except in compliance with Rule 145 under the Securities
Act, or in a transaction that is otherwise exempt from the registration
requirements of the Securities Act and in which an opinion of counsel,
satisfactory to Borland, has been provided to Borland to the effect that such
registration is not required in connection with the proposed transaction, or in
an offering that is registered under the Securities Act. In addition, each
affiliate of Borland or Visigenic has agreed to execute and deliver a written
agreement to the effect that such person will not sell, transfer, pledge,
distribute or otherwise dispose of, or reduce such person's interest in or risk
relating to, (i) any shares of Borland Common Stock or Visigenic Common Stock
and (ii) any shares of Borland Common Stock issued to such person in the Merger
or otherwise beneficially owned by such person, except in each case for amounts
of Visigenic Common Stock and Borland Common Stock not more than the de minimis
amount permitted by the rules and releases of the Commission relating to
pooling of interests accounting treatment, during the period beginning 30 days
prior to the Closing Date (as defined in the Merger Agreement) and ending on
the day after Borland has published financial results covering at least 30 days
of post-Merger combined operations of Borland and Visigenic. See "The Merger--
Accounting Treatment" and "--Federal Securities Law Compliance."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Rights of Borland Stockholders and Visigenic Stockholders"
for a summary of the material differences between the rights of holders of
Borland Common Stock and Visigenic Common Stock.
AMENDMENTS TO THE BORLAND 1997 STOCK OPTION PLAN
Borland is submitting to the Borland stockholders a proposal to approve
amendments to Borland's 1997 Stock Option Plan (i) to increase the number of
shares of Borland Common Stock reserved for issuance thereunder from 1,600,000
shares to 3,300,000 shares, (ii) to increase the one-time option grant limit
for newly-hired employees from 1,500,000 shares to 2,000,000 shares and (iii)
to increase the annual option grant limit for continuing employees from 500,000
shares to 1,000,000 shares. The Borland Board believes that approval of the
amendments to the 1997 Stock Option Plan to make available an adequate number
of shares for the future grant of stock options and other awards is in the best
interests of Borland and its stockholders because stock options and other forms
of stock compensation align the long-term interests of stock option holders and
the stockholders. See "Amendments to the Borland 1997 Stock Option Plan."
AMENDMENT TO THE BORLAND 1997 EMPLOYEE STOCK PURCHASE PLAN
Borland is submitting to the Borland stockholders a proposal to approve an
amendment to Borland's 1997 Employee Stock Purchase Plan to increase the number
of shares of Borland Common Stock available for purchase thereunder from
200,000 shares to 400,000 shares. The Borland Board believes that approval of
the amendment to the 1997 Employee Stock Purchase Plan to make available for
future issuances an adequate number of shares of Borland Common Stock
thereunder is in the best interests of Borland and its stockholders because it
provides employees with an opportunity through payroll deductions to purchase
shares of Borland Common Stock. The Borland Board believes such issuances will
be helpful in attracting, retaining and motivating valued employees. See
"Amendment to the Borland 1997 Employee Stock Purchase Plan."
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SELECTED HISTORICAL CONSOLIDATED AND PRO FORMA UNAUDITED COMBINED CONDENSED
FINANCIAL INFORMATION
The following selected historical consolidated financial information of
Borland and Visigenic 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 Joint Proxy Statement/Prospectus. The
selected pro forma unaudited combined condensed financial information of
Borland and Visigenic 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 Joint
Proxy Statement/Prospectus. For pro forma purposes, Borland's and Visigenic's
consolidated financial statements for the fiscal years ended March 31, 1997,
1996 and 1995 and for the six months ended September 30, 1997 and 1996, have
been combined. In July 1997, Borland changed its year end from March 31 to
December 31 and, accordingly, Visigenic's year end will be conformed to
Borland's upon the consummation of the Merger. No dividends have been declared
or paid on either Borland or Visigenic 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. See "Unaudited
Pro Forma Combined Financial Statements."
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------- --------------------------------------------------------
1997 1996(A) 1997 1996(A) 1995(A) 1994(A) 1993(A)(B)
------- -------- --------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS--BORLAND
Net revenues........... $84,470 $ 77,452 $ 151,376 $245,087 $ 272,185 $406,682 $468,100
Operating income
(loss)................ 1,234 (39,757) (112,580) 13,793 (122,402) (63,918) (45,641)
Net income (loss)...... 1,597 (36,119) (107,960) 14,719 (11,827) (69,069) (50,365)
Net income (loss) per
share................. $ .03 $ (1.00) $ (2.96) $ .40 $ (.37) $ (2.23) $ (1.92)
Weighted average shares
and equivalent
shares................ 39,064 36,293 36,512 37,167 32,228 31,042 26,266
<CAPTION>
MARCH 31,
SEPTEMBER 30, --------------------------------------------------------
1997 1997 1996(A) 1995(A) 1994(A) 1993(A)
----------------- --------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET--BORLAND
Total assets........... $223,218 $ 192,702 $292,234 $ 254,472 $302,392 $342,841
Long-term debt and
other................. 22,141 22,508 14,583 21,101 19,943 23,271
Mandatorily redeemable
convertible preferred
stock................. 24,265 -- -- -- -- --
Stockholders' equity... 100,700 89,876 200,295 121,483 121,346 188,467
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------- --------------------------------------------------------
1997(C) 1996(C) 1997(C) 1996(C) 1995 1994(E) 1993
------- -------- --------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS--
VISIGENIC(D)
Net revenues........... $11,774 $ 7,810 $ 19,601 $ 6,734 $ 1,831 $ 575 $ --
Operating loss......... (6,442) (15,948) (20,494) (4,472) (4,619) (2,399) --
Net loss............... (6,222) (15,939) (20,268) (4,408) (4,568) (2,398) --
Net loss per share..... $ (.43) $ (1.30) $ (1.58) $ (.39) -- -- --
Weighted average
shares outstanding.... 14,411 12,254 12,807 11,418 -- -- --
<CAPTION>
MARCH 31,
SEPTEMBER 30, --------------------------------------------------------
1997 1997 1996 1995 1994(E) 1993
----------------- --------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET--
VISIGENIC(D)
Total assets........... $ 27,909 $ 33,043 $ 5,109 $ 2,193 $ 3,621 $ --
Stockholders' equity... 21,440 26,998 2,242 1,221 3,214 --
</TABLE>
12
<PAGE>
SUMMARY PRO FORMA UNAUDITED
COMBINED CONDENSED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------ ---------------------------
1997 1996 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues................ $ 96,244 $ 85,262 $170,977 $251,821 $274,016
Operating income (loss)..... (5,208) (55,705) (133,074) 9,321 (127,021)
Net income (loss)........... (4,625) (52,048) (128,228) 10,311 (16,395)
Net income (loss) per
share...................... $ (.10) $ (1.12) $ (2.73) $ .22 $ (.40)
Weighted average shares and
equivalent shares.......... 49,386 46,340 47,012 46,528 40,804
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
BALANCE SHEET
Total assets.................................................... $249,127
Long-term obligations........................................... 22,141
Mandatorily redeemable convertible preferred stock.............. 24,265
Stockholders' equity............................................ 110,140
</TABLE>
- --------
a) Borland's statement of operations data for the fiscal years ended March 31,
1996, 1995, 1994 and 1993 and for the six months ended September 30, 1996
and the balance sheet data as of March 31, 1996, 1995, 1994 and 1993 have
been restated to reflect Borland's acquisition of Open Environment
Corporation ("OEC") by means of a merger. This merger was consummated in
November 1996 and was accounted for as a pooling of interests. Although the
separate financial statements of OEC and Borland for the fiscal years ended
March 31, 1994 and 1993 were audited, the combined financial statements for
the fiscal years ended March 31, 1994 and 1993 of Borland and OEC were not
audited.
b) OEC began operations in 1992 as a division of Cambridge Technology Group,
Inc. and there were no shares of capital outstanding in OEC's fiscal year
ended December 31, 1992 which is combined with Borland's fiscal year ended
March 31, 1993 for pooling of interests purposes.
c) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for an
explanation of the method used to determine the number of shares used to
compute per share amounts.
d) Visigenic's statement of operations data for the fiscal years ended March
31, 1997, 1996, 1995 and 1994 and for the six months ended September 30,
1997 and 1996 and the balance sheet data as of March 31, 1997, 1996, 1995
and 1994 have been restated to reflect Visigenic's merger with Interactive
Objects Software GmbH ("iO"). This merger was consummated in September 1997
and was accounted for as a pooling of interests. Although the statement of
operations of Visigenic for the fiscal year ended March 31, 1994 and the
balance sheet of Visigenic as of March 31, 1995 and 1994 were audited, the
combined statement of operations for the fiscal year ended March 31, 1994
and the combined balance sheets as of March 31, 1995 and 1994 of Visigenic
and iO were not audited.
e) Visigenic's statement of operations data for the fiscal year ended March 31,
1994 is presented for the period from inception (February 12, 1993) to March
31, 1994.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Borland
and Visigenic 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
0.81988 of a share of Borland Common Stock is issued in exchange for each share
of Visigenic 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 Visigenic
and notes thereto, included elsewhere or incorporated by reference in this
Joint Proxy Statement/Prospectus. 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 operating results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------ ------------------------
1997 1996 1997 1996 1995
----------- ------ -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL--BORLAND
Net income (loss) per share.... $ .03 $(1.00) $ (2.96) $ .40 $ (.37)
Book value per share........... $2.63 (a) $ 2.42 (a) (a)
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------ ------------------------
1997 1996 1997(B) 1996 1995
----------- ------ -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL--VISIGENIC
Net loss per share............. $(.43) $(1.30) $ (1.58) $ (.39) $ --
Book value per share........... $1.48 (a) $ 1.88 (a) (a)
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------ ------------------------
1997 1996 1997 1996 1995
----------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
PRO FORMA AND EQUIVALENT COMBINED
PER BORLAND SHARE:
Net income (loss).............. $(.10) $(1.12) $ (2.73) $ .22 $ (.40)
Book value..................... $2.19 (a) $ 2.41 (a) (a)
EQUIVALENT PRO FORMA PER
VISIGENIC SHARE:
Net income (loss).............. $(.07) $ (.92) $ (2.24) $ .18 $ (.33)
Book value..................... $1.80 (a) 1.97 (a) (a)
</TABLE>
- --------
(a) Not required to be presented.
(b) See Note 2 of Notes to Consolidated Financial Statements of Visigenic for
an explanation of the method used to determine the number of shares used to
compute per share amounts.
14
<PAGE>
MARKET PRICE INFORMATION
Both Borland Common Stock and Visigenic Common Stock are quoted on The Nasdaq
National Market under the symbols "BORL" and "VSGN," respectively.
The table below sets forth, for the calendar quarters indicated, the reported
high and low closing sale prices of Borland Common Stock and Visigenic Common
Stock as reported on The Nasdaq National Market. Visigenic Common Stock began
trading on The Nasdaq National Market on August 8, 1996.
<TABLE>
<CAPTION>
BORLAND VISIGENIC
COMMON STOCK COMMON STOCK
------------- -------------
CALENDAR YEAR HIGH LOW HIGH LOW
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1996
First Quarter............................... $21.25 $13.38 -- --
Second Quarter.............................. 20.00 9.13 -- --
Third Quarter............................... 9.25 6.38 $13.25 $ 9.00
Fourth Quarter.............................. 8.44 4.75 17.75 10.50
1997
First Quarter............................... 8.56 5.69 16.25 8.63
Second Quarter.............................. 7.50 6.75 10.88 7.25
Third Quarter............................... 10.19 6.30 9.75 6.75
Fourth Quarter.............................. 12.00 7.31 8.00 4.13
1998
First Quarter (through January 23, 1998).... 7.69 6.69 6.00 5.16
</TABLE>
The following table sets forth the closing sales prices per share of Borland
Common Stock and Visigenic Common Stock as reported on The Nasdaq National
Market on November 17, 1997, the last full trading day prior to the public
announcement of the signing of the Merger Agreement, and on the last
practicable trading day for which information is available before the printing
of this Joint Proxy Statement/Prospectus; and the equivalent per share prices
for Visigenic Common Stock based on the Borland Common Stock prices multiplied
by the Exchange Ratio of 0.81988:
<TABLE>
<CAPTION>
BORLAND VISIGENIC VISIGENIC
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ----------
<S> <C> <C> <C>
November 17, 1997..................... $12.00 $5.25 $9.84
January 23, 1998...................... $ 7.03 $5.63 $5.76
</TABLE>
As of January 12, 1998, there were approximately 2,595 holders of record of
Borland Common Stock and 22 holders of record of Borland Series B Preferred
Stock, and approximately 283 holders of record of Visigenic Common Stock.
Borland and Visigenic believe that Visigenic Common Stock presently trades on
the basis of the value of the Borland Common Stock expected to be issued in
exchange for such Borland Common Stock in the Merger, discounted for the
uncertainties associated with such transaction.
BORLAND STOCKHOLDERS AND VISIGENIC STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR BORLAND COMMON STOCK AND VISIGENIC COMMON STOCK. No
assurance can be given as to the market prices of Borland Common Stock or
Visigenic Common Stock at any time before the Effective Time or as to the
market price of Borland Common Stock at any time thereafter. Because the
Exchange Ratio is fixed, the Exchange Ratio
15
<PAGE>
will not be adjusted to compensate Visigenic stockholders for decreases in the
market price of Borland Common Stock which could occur before the Merger
becomes effective. In the event the market price for Borland Common Stock
decreases or increases prior to the Effective Time, the value at the Effective
Time of the Borland Common Stock to be received in the Merger in exchange for
Visigenic Common Stock would correspondingly decrease or increase. For
additional information concerning the effect of fluctuations in the market
price of Borland Common Stock on value of the consideration to be received by
Visigenic stockholders in the Merger, see "Summary--The Merger."
Following the Merger, all Visigenic Common Stock will be owned by Borland,
and as a result, Visigenic Common Stock will no longer be listed on The Nasdaq
National Market.
Neither Borland nor Visigenic has paid any cash dividends on its Common Stock
during or after its last five completed fiscal years. Following the Merger,
Borland intends to retain any future earnings for use in its business and does
not anticipate paying cash dividends in the foreseeable future.
16
<PAGE>
RISK FACTORS
The following risk factors should be considered by stockholders of Visigenic
in evaluating whether to approve and adopt the Merger Agreement and approve
the Merger, and thereby become holders of Borland Common Stock, and by
stockholders of Borland in evaluating whether to approve the issuance of
Borland Common Stock pursuant to the Merger Agreement. These factors should be
considered in conjunction with the other information included and incorporated
by reference in this Joint Proxy Statement/Prospectus. In evaluating Borland's
and Visigenic's respective businesses, and the Merger, Visigenic stockholders
and Borland stockholders should carefully consider the following factors in
addition to the other information presented in this Joint Proxy
Statement/Prospectus. For purposes of the discussion below, the post-Merger
Borland resulting from the combination of Borland and Visigenic is sometimes
referred to as the "combined company."
RISKS RELATING TO THE MERGER
Integration of Operations. The success of the Merger will depend, in
substantial part, upon whether the integration of the two companies'
businesses is accomplished in an efficient and effective manner. The
combination of the two companies will require, among other things, integration
of the companies' respective product offerings and technology and the
coordination of their research and development, sales and marketing efforts,
and administrative functions. There can be no assurance that such integration
will be accomplished smoothly or successfully. If significant difficulties are
encountered in the integration of the companies' existing product lines and
technology, resources could be diverted from new product development,
resulting in delays in new product introductions. The integration of the
companies' product lines could also cause confusion or dissatisfaction among
existing customers of Borland and Visigenic. The integration of certain
operations following the Merger will require the dedication of management and
other personnel resources which may distract attention from the day-to-day
business of the combined company. Failure to successfully accomplish the
integration of the two companies' operations could have a material adverse
effect on the combined company's business, operating results or financial
condition.
Failure to Achieve Beneficial Synergies. Borland and Visigenic have entered
into the Merger Agreement with the expectation that the Merger will result in
beneficial synergies. See "The Merger--Reasons for the Merger; Recommendations
of the Boards of Directors." Achieving these anticipated synergies will depend
on a number of factors, including, without limitation, general and industry-
specific economic factors. Even if Borland and Visigenic are able to
successfully integrate their operations and economic conditions remain stable,
there can be no assurance that the anticipated synergies will be achieved. The
failure to achieve such synergies could have a material adverse effect on the
combined company's business, operating results or financial condition.
Distributors, Resellers and Customers. There can be no assurance that
distributors, resellers and present and potential customers of Borland or
Visigenic will continue their current buying patterns without regard to the
announced Merger. In particular, Borland and Visigenic believe that certain
customers may defer purchasing decisions as they evaluate the combined
company's future product strategy. Further, certain customers of Visigenic are
competitors of Borland, and, on that basis, may elect either to defer or
cancel planned purchases from Visigenic or to discontinue their relationship
with the combined company. In the aggregate these customers may represent a
material portion of Visigenic's revenues. Any such deferral, cancellation or
discontinuance could have a material adverse effect upon the combined
company's business, operating results or financial condition.
Fixed Exchange Ratio. Under the terms of the Merger Agreement, each share of
Visigenic Common Stock issued and outstanding at the Effective Time will be
converted into 0.81988 of a share of Borland Common Stock. The Merger
Agreement does not contain any provisions for adjustment of the Exchange Ratio
or termination of the Merger Agreement based on fluctuations in the price of
Borland Common Stock. Accordingly, the value of the consideration to be
received by the stockholders of Visigenic upon the Merger will depend on the
market price of Borland Common Stock at the Effective Time. On January 23,
1998, the latest practicable trading day for which information was available
before the printing of this Joint Proxy Statement/Prospectus, the
17
<PAGE>
closing per share sale price of Borland Common Stock was $7.03. There can be
no assurance that the market price of Borland Common Stock on and after the
Effective Time will not be lower than such price. See "Summary--The Merger,"
"Risk Factors--Risks Relating to Borland, Visigenic and the Combined Company--
Extreme Volatility of Stock Price" and "Market Price Information."
Transaction Charges. Borland expects to incur charges to operations
currently estimated to be between $10 million and $12 million in the quarter
ending March 31, 1998, the quarter in which the Merger is expected to be
consummated, for fees and expenses of financial advisors, legal counsel and
accountants, and other transaction costs, as well as costs associated with
combining the operations of the two companies. This range is a preliminary
estimate and is therefore subject to change. There can be no assurance that
Borland will not incur additional charges to reflect costs associated with the
Merger. See "Risk Factors--Risks Relating to the Merger--Integration of
Operations" and "Selected Historical and Unaudited Combined Pro Forma
Financial Data."
Dilution of Borland Stockholders' Interests. Based on the number of shares
of Borland Common Stock and Visigenic Common Stock outstanding as of January
23, 1998, an aggregate of approximately 11,942,707 shares of Borland Common
Stock will be issued to the shareholders of Visigenic upon consummation of the
Merger and approximately 2,695,585 additional shares of Borland Common Stock
will be reserved for issuance upon the exercise of options to purchase Common
Stock assumed by Borland in connection with the Merger. The issuance of
Borland Common Stock in the Merger and upon the exercise of Visigenic Options
assumed by Borland will dilute the pro rata ownership interests of the current
Borland stockholders. In addition, the issuance of the Borland Stock in the
Merger could cause dilution of Borland's earnings per share which could
negatively impact the price of Borland Common Stock.
Dependence on Retention and Integration of Key Employees. The success of the
combined company is dependent, in part, on the retention and integration of
the key management, sales, marketing, engineering and other technical
employees of Borland and Visigenic. Competition for qualified personnel in the
software industry is very intense, and competitors often use aggressive
tactics to recruit key employees during the period leading up to a merger and
during the integration phase following a merger. Although Borland and
Visigenic are presently engaged in ongoing efforts to retain their key
employees, and although it is anticipated that the combined company will
implement retention arrangements for certain key employees, there can be no
assurance that key employees will remain with the combined company. The loss
of services of any of the key employees of the combined company could
materially and adversely affect the combined company's business, operating
results or financial condition. See "Risks Relating to Borland, Visigenic and
the Combined Company--Dependence on Key Personnel and Changes in Management."
RISKS RELATING TO BORLAND, VISIGENIC AND THE COMBINED COMPANY
Continuing Operating Losses; Limited Visigenic Operating History. Borland
and Visigenic each have incurred significant losses and negative cash flow.
Borland experienced substantial operating losses in each of the four quarters
in fiscal 1997 and a net loss of $108 million for the fiscal year. Borland
also experienced operating losses for the four fiscal years ended March 31,
1995. Visigenic has a limited operating history, particularly with respect to
its business relating to distributed object products, which Visigenic acquired
in May 1996 and which has accounted for the majority of Visigenic's revenues
in recent periods. Since its inception, Visigenic has had cumulative operating
losses of $31.7 million, with net losses of $2.4 million, $4.6 million, $4.4
million and $20.3 million for fiscal 1994, 1995, 1996 and 1997, respectively.
Although Borland recorded a small operating profit for the quarters ended June
30, 1997 and September 30, 1997, the combined company's ability to continue or
increase profitability will be substantially dependent upon its ability to
successfully develop and introduce new products, to successfully implement
restructuring and cost control measures adopted by Borland during fiscal 1997
and to avoid the loss of management and other key personnel. There can be no
assurance that the combined company will be able to successfully accomplish
the foregoing or to continue or increase profitability in future periods.
Borland believes that the existing capital resources of Borland and Visigenic
will enable the combined company to fund its operations through at least the
end of calendar year 1998. In the event that the combined company is unable to
generate adequate cash flow prior to that time, the
18
<PAGE>
combined company may be required to seek additional capital through the
issuance of additional shares of Borland Series B Preferred Stock pursuant to
its existing arrangements with current holders of Borland Series B Preferred
Stock or by seeking other sources of capital, which could result in dilution
to the holders of Borland Common Stock. There can be no assurance that the
combined company will be able to obtain such capital on acceptable terms or at
all. See "Potential Dilutive Effect of Conversion and Additional Issuance of
Borland Series B Preferred Stock", "Information Concerning Borland--
Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Information Concerning Visigenic--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Borland Capital Stock--Preferred Stock."
Restructurings. In response to the significant losses from operations,
Borland implemented restructurings and realignments of its operations in
October 1996 and in February 1997. These restructurings resulted in
significant reductions in workforce and other ongoing costs. Given the extent
of the restructurings which Borland has undertaken, there can be no assurance
that the remaining resources will be sufficient for the combined company to
return to revenue growth or sustain profitability, nor can there be any
assurance that the combined company will realize the cost savings which the
restructurings were designed to produce. See "Information Concerning Borland--
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Key Personnel and Changes in Management. The success of the
combined company depends in large part upon the ability of the combined
company to recruit and retain qualified employees, particularly highly skilled
engineers. The competition for such personnel is intense, and there can be no
assurance that the combined company will be successful in retaining or
recruiting such personnel. During fiscal 1997, certain management, engineers
and other key personnel of Borland were hired away by competitors who offered
very substantial signing bonuses and compensation packages that would have
been very difficult for Borland to match. There can be no assurance that the
combined company will not be subject to further losses of management,
engineers and other key personnel. In addition, Borland has had to, and the
combined company may continue to be required to, substantially increase the
compensation, stock options or other benefits offered to employees in order to
attract and retain management, engineers and other key personnel. The loss of
management, engineering and other key personnel, and the delays which may be
experienced in recruiting and training such personnel, as well as the
additional costs which may be incurred in retaining or attracting new
personnel, may have a material adverse effect on the combined company, its
product releases and its operating results.
Significant Fluctuations in Quarterly Operating Results and
Seasonality. Each of Borland's and Visigenic's quarterly operating results
have varied significantly in the past, and the combined company's results are
likely to vary significantly from time to time in the future. Such variations
may result from, among other factors: the size and timing of significant
orders and their fulfillment; demand for the combined company's products; the
number, timing and significance of product enhancements and new product
announcements by the combined company and its competitors; changes in pricing
policies by the combined company or its competitors; changes in the level of
operating expenses; changes in the combined company's sales incentive plans;
budgeting cycles of its customers; customer order deferrals in anticipation of
enhancements or new products offered by the combined company 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 the combined company's short- and long-term prospects.
As an increasing percentage of the combined company's revenues are expected to
be derived from the licensing of client/server products to enterprise
customers, the combined company 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 the combined company's
operating results, particularly on a quarterly basis. In addition, the
combined company 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 the
combined company's quarterly operating results. See "Information Concerning
Borland--Management's Discussion and Analysis of Financial
19
<PAGE>
Condition and Results of Operations" and "Information Concerning Visigenic--
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for enterprise application development software is rapidly evolving,
and the combined company's sales cycle for enterprise products, from initial
evaluation to purchase and the provision of support services, will be lengthy
and will vary substantially from customer to customer. Because the combined
company will normally ship products within a short time after it receives an
order, it typically will not have any material backlog. As a result, to
achieve its quarterly revenue objectives, the combined company will be
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, the combined company will generally recognize a substantial portion
of its revenues at the end of a quarter. As the combined company's expense
levels will be based in significant part on the combined company's
expectations as to future revenues and are therefore relatively fixed in the
short term, if revenue levels fall below expectations, operating results are
likely to be disproportionately adversely affected. There can be no assurance
that the combined company 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 the combined company's operating results
will be below the expectations of public market analysts and investors. In
such event, the price of the combined company's Common Stock would likely be
materially adversely affected.
New Business Areas. The combined company's strategy will be to focus on
software developers, enterprise customers and the Internet/intranet markets.
Accordingly, revenues derived from the combined company's products,
particularly its distributed object products, will depend in large part upon
the rate of adoption by businesses and end-users of the Internet and intranets
for commerce and communications. Critical issues concerning the Internet and
intranets, including security, reliability, cost, ease of use and access and
quality of service, remain unresolved at this time, inhibiting adoption by
many enterprises and end-users. To the extent the Internet and intranets are
not widely used by businesses and end-users, there would be a corresponding
material adverse effect on the combined company's business, operating results
and financial condition. Borland's and Visigenic's relatively recent entry
into these markets is subject to a number of risks, including among others,
their inexperience in these markets; the new and evolving nature of the
markets themselves; the combined company's need to make choices regarding the
operating systems, database management systems and server software on which to
focus; the ongoing transition of and investment of resources for this segment
by the combined company; the combined company's limited credibility in this
area; and, the presence of several very large and well-established businesses,
as well as a number of smaller very successful companies, already competing in
this market. There can be no assurance that sales in these markets will meet
the combined company's objectives, in which case the combined company's
business, operating results or financial condition could be materially
adversely affected. See "Information Concerning Borland--Business" and
"Information Concerning Visigenic--Business."
Dependence on Java; Risks Associated with Encryption Technology. Certain of
the combined company's products are based on Java, an object-oriented
programming language developed by JavaSoft, a subsidiary of Sun Microsystems.
Java was developed primarily for Internet/intranet applications. Java was only
recently introduced and does not yet have sufficient history to establish its
reliability, thereby inhibiting adoption of Java. To date, there have been
only a very limited number of commercially significant Java-based products,
and it is too early to determine whether Java will become a significant
technology. Alternatives to Java have been announced by several companies,
including Microsoft. To the extent that Java is not adopted or is adopted more
slowly than anticipated, this could have a material adverse effect on the
combined company's business, operating results or financial condition. See
"Information Concerning Borland--Business" and "Information Concerning
Visigenic--Business."
The combined company plans to use encryption technology in certain of its
future products to provide the security required for the exchange of
confidential information. Encryption technologies have been breached in the
past. There can be no assurance that there will not be a compromise or breach
of the security technology
20
<PAGE>
used by the combined company. If any such compromise or breach were to occur,
it could have a material adverse effect on the combined company's business,
results of operations or financial condition. Additionally, the export of
encryption technology is subject to government regulation. The inability to
obtain approval for the export of such technology could have a material
adverse effect on the combined company's business, operating results or
financial condition.
Decline in Revenue from Desktop Database and Database Access Products. Most
of Borland's revenues to date have been attributable to its desktop products.
Revenues derived from desktop products accounted for approximately 58% and
73%, of Borland's total revenues in fiscal 1997 and 1996, respectively.
Revenues derived from 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 desktop software products; the sale by
Borland of its Quattro Pro and Paradox product lines; and continued
competitive pricing pressures that have resulted in lower average sales prices
for desktop products.
Through fiscal 1997, revenues derived from the licensing of its database
connectivity products based upon the Open Database Connectivity ("ODBC")
standard accounted for a significant portion of Visigenic's overall revenues.
During fiscal 1997 and the first six months of fiscal 1998, Visigenic's
revenues from database connectivity products declined each quarter as a
percentage of total revenues. As a result, in October 1997, Visigenic
announced that, in order to focus its efforts on its business relating to
distributed object products, Visigenic would be transitioning out of its
business relating to ODBC database access products and would not be further
enhancing such products, which included its VisiODBC software developer kits,
VisiODBC drivers and VisiChannel for ODBC products. As part of this
transition, Visigenic and Intersolv entered into an agreement in August 1997
under which Visigenic's customers for these products are being offered a plan
to transition to comparable products provided by Intersolv. In the quarter
ended September 30, 1997, Visigenic's revenues derived from licensing of ODBC-
based data connectivity products accounted for less than 10% of revenues, and
Visigenic does not anticipate that it will derive significant revenues from
those products in future periods. Despite its decision to transition out of
its ODBC-product business, Visigenic remains contractually committed under
many of its agreements with customers to provide them with service and
support. Visigenic continues to offer VisiChannel for JDBC, its JDBC-based
database access product.
While the combined company expects the decline in revenues associated with
its desktop database and ODBC-based database access products to continue,
revenues from the sales of Borland's desktop database products currently
continue to represent an important portion of the combined company's revenues.
Although the combined company plans to invest in the development, sales,
marketing and support of such products on a limited basis, there can be no
assurance that revenues from desktop database products will not decline faster
than expected. If revenues from such products decline materially or at a more
rapid rate than currently anticipated, the combined company's business,
operating results and financial condition would be materially adversely
affected. See "Information Concerning Borland--Business," "--Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Information Concerning Visigenic--Business."
Dependence on Third-Party Licenses. Borland and Visigenic are dependent on
licenses from third-party suppliers for certain of its products. In
particular, Borland is dependent upon certain licenses from Microsoft which is
both a licensor to Borland and its most significant competitor. If any such
third-party licenses were terminated or not renewed or if these third parties
fail to develop new products in a timely manner, the combined company could be
required to develop an alternative approach to developing its products which
could require payment of substantial fees to third parties or additional
internal development costs and delays. Furthermore, such products may not be
successful in providing the same level of functionality. Such delays,
increased costs or reduced functionality could materially adversely affect the
combined company's business, operating results and financial condition. See
"Information Concerning Borland--Business," "--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Information
Concerning Visigenic--Business."
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New Product Introductions. The combined company'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 and server platforms and operating environments. There can be no
assurance that sales of such new products and versions will meet the combined
company's expectations as a result of various factors. For example, the
combined company may introduce certain of such products later to market than
expected or later to market than competitors' introductions, or competitors
may introduce competitive products at lower prices. In addition, the
acceptance of the combined company's new products is dependent in part on the
adoption of the Internet as a new computing paradigm and the adoption of the
Java programming language. See "Information Concerning Borland--Business" and
"Information Concerning Visigenic--Business."
From time to time, Borland and Visigenic have made, and the combined company
is expected to make, announcements to its customers with respect to the time
frames within which new products are expected to be shipped. Such
announcements are made for the purpose of providing customers with a general
idea of the expected availability of products for planning purposes, are based
only upon estimates and are not a prediction of the exact availability date
for such products. In the past, certain of the Borland's products shipped
later, and in some cases substantially later, than the timeframe within which
Borland originally anticipated that the products would be available. Visigenic
has in the past also experienced delays in the development of its products and
product enhancements. Some of Visigenic's products are based on technology
from third parties, and Visigenic has limited control over whether and when
these technologies are enhanced. The failure or delay in enhancements of
technology from third parties could have a material adverse effect on the
ability to develop and enhance the combined company's products. Due to the
inherent uncertainties of software development, it is likely that such
situations will occur from time to time in the future as well. Moreover, the
loss of key employees may increase the risk of delays in product availability
from timeframes originally anticipated. Consequently, announcements regarding
the combined company's expectations of when products may ship should not be
considered a prediction by the combined company that the products will ship in
any particular quarter or otherwise be relied upon by investors as a basis for
predicting the combined company's results for any future period. Delays in the
shipment of such products and product enhancements will have a material
adverse impact on the combined company. Without the introduction of such new
products and product enhancements, the combined company's products may become
technologically obsolete, and as a result the combined company's business,
operating results and financial condition could be materially adversely
affected. There can be no assurance that the future development and marketing
efforts by the combined company will be successful.
Evolving Market and Standards. In light of the changing market in which
Borland and Visigenic now compete, it is uncertain whether each company's
historical product life cycle will continue. Borland has, in the past,
experienced declining sales of certain of its products in anticipation of the
release of new products. Furthermore, it cannot be determined whether the
increasing price competition in the industry, the timing of competitors'
product releases or other factors will have an adverse effect upon the product
upgrade revenue that has historically been a significant component of
Borland's revenue or upon the revenues from licensing of distributed object
software products on which Visigenic's overall level of revenues have become
substantially dependent. Finally, a greater portion of the combined company's
revenues are expected to be derived from the licensing of client/server
products to enterprise customers, which transactions are characterized by
longer sales cycles and increased transaction values. As a result, such
revenues may be subject to increased variability over time.
In May 1996, Visigenic began to offer standards-based distributed object
products. Visigenic's current distributed object products are based on several
standards, including CORBA and Internet Inter-ORB Protocol ("IIOP"). These
standards are intended to facilitate the management and communication of
applications created in object-oriented programming languages such as C++ and
Java. These standards are new, are just beginning to gain widespread
acceptance, and compete with proprietary solutions such as Microsoft's ActiveX
and DCOM. The distributed object software market is relatively young, and
there are few proven products. Further, some of Visigenic's distributed object
products are designed specifically for use in applications for the Internet
and intranets. Because critical issues concerning the Internet and intranets,
including security, reliability, cost, ease
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of use and access and quality of service remain unresolved, the growth of
applications targeted at the Internet/Intranets is uncertain and difficult to
predict.
Visigenic's VisiChannel for JDBC datbase access product is based on the JDBC
standard, which was developed to enable applications to access data from JDBC-
compliant data sources. While the JDBC standard is supported by most of the
major database and software vendors, it is a recent standard that has not yet
gained widespread acceptance and currently it co-exists with proprietary
database access solutions from many of these same database and software
vendors.
Because the markets for the combined company's products are new and
evolving, it is difficult to assess or predict with any assurance the size or
growth rate, if any, of these markets. There can be no assurance that the
markets for the combined company's products will develop, or that the combined
company's products will be adopted. If these markets fail to develop, develop
more slowly than expected or attract new competitors, or if the combined
company's products do not achieve market acceptance, the combined company's
business, operating results and financial condition could be materially
adversely affected. Because Visigenic's and Borland's strategy is to develop
standards-based products and these standards are relatively new, not widely
accepted and compete with other emerging standards, to the extent that these
standards are not commercially successful, this will have a material adverse
affect on the combined company's business, operating results and financial
condition. Competing or alternative technologies are being or are likely in
the future to be promoted by current and potential competitors of Borland and
Visigenic, some of which have well-established relationships with current and
potential customers of each company and have extensive knowledge of the
markets served by each company, better name recognition and more extensive
development, sales and marketing resources than either company. See
"Information Concerning Borland--Business," "--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Information
Concerning Visigenic--Business."
Reliance on VARs and ISVs. A significant element of Visigenic's strategy is
to embed its technology in products offered by Visigenic's value-added
reseller ("VAR") and independent software vendor ("ISV") customers, such as
Borland, Cisco, Compuware, Healtheon, Hewlett-Packard, Microsoft, Netscape,
Novell, Oracle, Platinum technology and Sybase. A relatively small number of
VAR and ISV customers have accounted for a significant percentage of
Visigenic's revenues. In fiscal 1996, ten VAR and ISV customers accounted for
approximately 65% of Visigenic's revenues and in fiscal 1997, ten VAR and ISV
customers accounted for approximately 48% of the Visigenic's revenues. The
combined company intends to seek similar distribution arrangements with other
VARs and ISVs to embed Visigenic's technology in their products. To date, the
terms and conditions, including prices and discounts, of Visigenic's
agreements with its VAR and ISV customers have been highly negotiated and vary
significantly among customers; however, substantially all agreements are non-
exclusive and do not require the VAR or ISV to make minimum purchases. Many of
the markets for the VAR and ISV products in which Visigenic's technology are
being embedded are new and evolving and, therefore, will be subject to the
same risks faced by the combined company in the markets for its own products.
Furthermore, certain of the companies with which Visigenic maintains or would
otherwise seek to establish VAR or ISV relationships are competitors of
Borland, and accordingly, the Merger could adversely affect Visigenic's
ability to maintain or secure such relationships. If the combined company is
unsuccessful in maintaining its current relationships and securing license
agreements with additional VARs and ISVs on commercially reasonable terms or
at all, or if the combined company's VAR and ISV customers are unsuccessful in
selling their products, the Company's business, financial condition or results
of operations could be materially adversely affected. See "Information
Concerning Borland--Business" and "Information Concerning Visigenic--
Business."
Extreme Volatility of Stock Price. Like the stock of other high technology
companies, the market prices of Borland Common Stock and Visigenic Common
Stock have been, and the market price of Borland Common Stock may continue to
be extremely volatile. Factors such as quarterly fluctuations in the results
of operations, delays in product development, the announcement of
technological innovations or the introduction of new products by the combined
company 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.
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Extremely Competitive Industry. The software industry is extremely
competitive. Borland competes with a number of other companies, including
Microsoft, Computer Associates, Oracle, Sybase and Symantec. Certain of its
competitors have substantially greater financial, management, marketing and
technical resources than Borland. In the past, competitors have utilized their
greater resources to provide substantial signing bonuses and other inducements
to lure away Borland's management and other key personnel. In addition,
Microsoft is the developer of the Windows operating environments. To the
extent that the combined company is unable to obtain information regarding
existing and future operating systems from the developer of such systems, the
release of the combined company's products for such systems may be delayed.
Visigenic's products are targeted at the emerging markets for standards-based
distributed object software products. The markets for these products are
intensely competitive, subject to rapid change and significantly affected by
new product introductions and other market activities of industry
participants. The combined company's principal competitive factors in these
markets will be product quality, performance and price, vendor and product
reputation, product architecture and quality of support. In the standards-
based distributed object market, Visigenic competes principally against Iona
Technologies, Expersoft and BEA. Visigenic's distributed object products also
compete against existing or proposed distributed object solutions from
hardware vendors such as Hewlett-Packard, ICL, IBM and Sun. In addition,
because there are relatively low barriers to entry in the software market and
because Visigenic's products are based on publicly available standards, the
combined company expects to experience additional competition in the future
from other established and emerging companies if the market for distributed
object software continues to develop and expand. In particular, operating
system vendors such as ICL, Hewlett-Packard, IBM, Microsoft and Sun may offer
standards-based distributed object products bundled with their operating
systems. For instance, Microsoft has introduced DCOM, which could reduce or
eliminate the need for CORBA-compliant ORBs, such as those offered by
Visigenic, for Microsoft operating systems. Many of these current and
potential competitors have well-established relationships with current and
potential customers of Visigenic and the combined company, have extensive
knowledge of the markets serviced by Visigenic, more extensive development,
sales and marketing resources and are capable of offering single vendor
solutions. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any one of
which could materially adversely affect the combined company'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 the combined company's current and 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. Certain competitors have been known to license
software for free to gain competitive advantage. Such competition could
materially adversely affect the combined company's ability to sell additional
licenses and maintenance and support renewals on terms favorable to the
combined company. Further, competitive pressures could require the combined
company to reduce the price of its products and related services, which could
materially adversely affect the combined company's business, operating results
and financial condition. There can be no assurance that the combined company
will be able to compete successfully against current and future competition,
and the failure to do so would have a material adverse effect upon the
combined company's business, operating results and financial condition. See
"Information Concerning Borland--Business," "--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Information
Concerning Visigenic--Business."
Risks Associated with International Operations and Sales. Revenues derived
from international operations accounted for approximately 59%, 45% and 43% of
total revenues for Borland in fiscal 1997, 1996 and 1995, respectively.
Visigenic's international sales accounted for approximately 23% and 26% of its
total revenue in fiscal 1997 and fiscal 1996, respectively. In September 1997,
Visigenic acquired iO, a leading independent German consulting company that
specializes in distributed object computing. There are a number of risks
inherent in the assimilation of iO's consulting business in the combined
company's international sales channels, including the expense related to such
assimilation. 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, changes in foreign
economic conditions, fluctuations in
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<PAGE>
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
the combined company's international operations. The combined company's
foreign subsidiaries plan to operate primarily in local currencies, and their
results would be translated into US dollars. If the value of the US dollar
increases relative to foreign currencies, the combined company's operating
results could be materially adversely affected. In particular, revenue from
sales in the Pacific Rim could be adversely affected by declines in the value
of such currencies against the dollar. In addition, the overall weakness of
these economies could adversely affect revenue from the Pacific Rim. Although
Borland has not experienced these affects to date, there can be no assurance
that it will not experience them in the future. There can be no assurance that
one or more of such factors will not have a material adverse effect on the
combined company's future international operations and, consequently, on its
business, operating results and financial condition.
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 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. See "Description of
Borland Capital Stock--Borland Rights Agreement."
Software Defects and Liability Claims. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released and there can be no assurance that, despite testing
by Borland, Visigenic and the combined company 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 product introduction or market acceptance or
unexpected reprogramming costs, any of which could have a material adverse
effect upon the combined company's business, operating results and financial
condition.
Borland's and Visigenic's license agreements with their customers typically
contain provisions designed to limit the combined company's exposure to
potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in these 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 the combined company could have a material
adverse effect upon the combined company's business, operating results and
financial condition.
Intellectual Property Rights. Borland and Visigenic rely on a combination of
patent, copyright, trademark and trade secret laws, non-disclosure agreements
and other intellectual property protection methods to protect their
proprietary technology. Despite these efforts to protect their proprietary
rights, unauthorized parties may copy aspects of their products or obtain and
use information that each company regards as proprietary. Policing
unauthorized use of their products is difficult, and while it is difficult 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 each company's proprietary rights as
fully as do the laws of the United States. There can be no assurance that the
combined company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competitors will not independently
develop similar technology.
Other than the Western Imaging matter discussed below in "Information
Concerning Visigenic--Legal Proceedings," there are no pending material
lawsuits against Borland or Visigenic regarding infringement of any existing
patents or other intellectual property rights or any material notices that
either company is infringing the intellectual property rights of others.
However, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. See "Risk Factors--Legal
Proceedings." If any such claims are asserted and determined to be valid,
there can be no assurance that the combined company will be able to obtain
licenses of the intellectual property rights in question on reasonable terms.
The combined company's involvement in any
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<PAGE>
patent dispute or other intellectual property dispute or action to protect
proprietary rights may have a material adverse effect on the combined
company's business, operating results and financial condition. Adverse
determinations in any litigation may subject the combined company to
significant liabilities to third parties, require the combined company to seek
licenses from third parties and prevent the combined company from
manufacturing and selling its products. Any of these situations can have a
material adverse effect on the combined company's business, operating results
and financial condition.
Superior Rights and Preferences of Borland Series B Preferred Stock. Borland
has authorized the issuance of up to 1,470 shares of its Series B Preferred
Stock, of which 550 shares are currently outstanding. The Borland Series B
Preferred Stock has certain rights and preferences which are superior to those
of the Borland Common Stock. In particular, each share of Borland Series B
Preferred Stock is entitled to vote the number of shares of Common Stock into
which such share of Borland Series B Preferred Stock is convertible, or 7,207
votes for each currently outstanding share of Borland Series B Preferred
Stock, on matters on which all stockholders of Borland are entitled to vote as
compared to one vote per share of Borland Common Stock. In addition, upon any
liquidation, dissolution or winding up of Borland, each share of Borland
Series B Preferred Stock is entitled to be paid the original purchase price
per share, or $50,000, from the assets of Borland prior to any payments to the
holders of Borland Common Stock. The Borland Board, without stockholder
approval, is authorized to issue up 1,000,000 shares of Borland Preferred
Stock (including the 1,470 authorized shares of Borland Series B Preferred
Stock) with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of Borland Common Stock or the
market price of the Borland Common Stock. See "--Potential Dilutive Effect of
Conversion and Additional issue of Borland Series B Preferred Stock" and
"Description of Capital Stock--Preferred Stock."
Potential Dilutive Effect of Conversion and Additional Issuance of Borland
Series B Preferred Stock. The number of shares of Borland Common Stock which
may be issued upon conversion of the Borland Series B Preferred Stock is
dependent upon the trading price of Borland Common Stock at the time of
conversion. To the extent that the trading price of Borland Common Stock is
lower than $6.94 per share at the time of any conversion of the currently
outstanding shares of Borland Series B Preferred Stock, the number of shares
of Borland Common Stock issuable upon such conversion will increase. From
October 1, 1997 until March 31, 1998, Borland has the option, subject to
certain conditions, to require all existing holders of Borland Series B
Preferred Stock to purchase in the aggregate up to 500 additional shares of
Borland Series B Preferred Stock. In the event Borland exercises this option
and additional shares of Borland Series B Preferred Stock are issued, existing
holders of Borland Common Stock could be subject to dilution. Commencing June
30, 1998 and extending through June 30, 2000, holders of Borland Series B
Preferred Stock have the option to purchase in the aggregate of up to an
additional 198 shares of Borland Series B Preferred Stock. In the event some
or all existing holders of Borland Series B Preferred Stock exercise this
option and additional shares of Borland Series B Preferred Stock are issued,
existing Borland stockholders would be subject to dilution at that time. See
"Description of Borland Capital Stock--Preferred Stock."
Risks Associated with Potential Acquisitions. As a part of the combined
company's business strategy, the parties expect that the combined company will
review acquisition prospects that would complement Borland's and Visigenic's
existing product offerings, augment the combined company's market coverage or
enhance its technological capabilities, or that may otherwise offer growth
opportunities. Although neither Borland nor Visigenic have current agreements
or negotiations underway with respect to any such acquisitions, the combined
company may make acquisitions of businesses, products or technologies in the
future. Future acquisitions by the combined company could result in
potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities and amortization expenses related to goodwill and
other intangible assets, any of which could materially adversely affect the
combined company's operating results and/or the market price of the Borland's
Common Stock. Acquisitions entail numerous risks, including difficulties in
the assimilation of acquired operations, technologies and products, diversion
of management's attention to other business concerns, risks of entering
markets in which Borland and Visigenic have no or limited prior experience and
potential loss of key employees of acquired organizations. No assurance can be
given as to the ability of the combined
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company to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the
combined company to do so could have a material adverse effect on the combined
company's business, financial condition and operating results.
Legal Proceedings. Borland is a party to two lawsuits alleging certain
securities law violations by Borland and certain of its officers and directors
prior to 1995. Both lawsuits purport to represent a class of investors who
purchased or otherwise acquired Borland's Common Stock. Three lawsuits were
filed in 1996 and 1997 against Borland's subsidiary, OEC, and certain former
officers and directors of OEC, alleging violations of federal securities laws
prior to the Company's acquisition of OEC. Visigenic is a co-defendant with
Corel in a lawsuit in which the plaintiff, Western Imaging, Inc. ("Western
Imaging") alleges breach of contract, copyright infringement and other related
claims arising out of the sale of certain Visigenic products to Western
Imaging in May 1994. Visigenic has agreed to defend Corel pursuant to its
indemnification obligations in its license agreement with Visigenic. There can
be no assurance of the ultimate outcome of any of these matters or that the
combined company's business, financial condition or operating results will not
be materially adversely affected as a result of such lawsuits.
Borland and Visigenic are involved in various other legal actions or claims
arising in the normal course of business. Due to the inherent uncertainties of
litigation, the outcome of any of these actions could be unfavorable, and the
combined company may choose to make payments, or enter into other
arrangements, to settle such actions or may be required to pay damages or
other expenses. Such an outcome in certain of these matters could have a
material adverse effect on the combined company's operating results or
financial condition. The computer industry has been subject to a substantial
amount of intra-industry litigation in recent years regarding, among other
matters, the extent of patent, copyright and intellectual property protection
available for software products. Such actions can require the expenditure of
substantial management time and financial resources and can adversely affect
the business, financial condition or operating results of the company
involved. There can be no assurance that the combined company will not be a
party to other such litigation in the future. See "Information Concerning
Borland--Business," and "Information Concerning Visigenic--Legal Proceedings."
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THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Visigenic Common Stock in connection with the solicitation of proxies by the
Visigenic Board for use at the Visigenic Special Meeting to be held at the
offices of Visigenic, 951 Mariner's Island Boulevard, Suite 120, San Mateo,
California, on February 27, 1998, commencing at 10:00 a.m., Pacific Standard
Time, and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Borland Common Stock and Borland Series B Preferred Stock in connection with
the solicitation of proxies by the Borland Board for use at the Borland
Special Meeting to be held at the Stanford Park Hotel, 100 El Camino Real,
Menlo Park, California, on February 27, 1998, commencing at 10:00 a.m.,
Pacific Standard Time, and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxies
are first being mailed to stockholders of Borland and Visigenic on or about
January 28, 1998.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Borland Special Meeting. At the Borland Special Meeting, holders of Borland
Common Stock and Borland Series B Preferred Stock will consider and vote upon
(i) a proposal to approve the issuance of Borland Common Stock in the Merger,
(ii) a proposal to amend Borland's 1997 Stock Option Plan to (a) increase the
number of shares of Borland Common Stock authorized for issuance thereunder
from 1,600,000 shares to 3,300,000 shares, (b) increase the one-time option
grant limit for newly-hired employees from 1,500,000 shares to 2,000,000
shares and (c) increase the annual option grant limit for continuing employees
from 500,000 shares to 1,000,000 shares, (iii) a proposal to amend Borland's
1997 Employee Stock Purchase Plan to increase the number of shares of Borland
Common Stock available for purchase thereunder from 200,000 shares to 400,000
shares, and (iv) such other matters as may properly be brought before the
Borland Special Meeting, including any motion to adjourn the Borland Special
Meeting to a later date to permit further solicitation of proxies if necessary
to establish a quorum or to obtain additional votes, or any adjournment or
postponement thereof.
Visigenic Special Meeting. At the Visigenic Special Meeting, holders of
Visigenic Common Stock will consider and vote upon (i) a proposal to approve
and adopt the Merger Agreement and approve the Merger, and (ii) such other
matters as may properly be brought before the Visigenic Special Meeting,
including any motion to adjourn the Visigenic Special Meeting to a later date
to permit further solicitation of proxies if necessary to establish a quorum
or to obtain additional votes, or any adjournment or postponement thereof.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Borland. The Borland Board, by the unanimous vote of all directors present
and voting at a special meeting, has approved the Merger Agreement and the
issuance of shares of Borland Common Stock in the Merger. The Borland Board
believes that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interests of, Borland and its stockholders. The Borland
Board therefore recommends that the stockholders of Borland vote FOR approval
of the issuance of Borland Common Stock in the Merger. The Borland Board has
also unanimously approved the amendments to Borland's 1997 Stock Option Plan
and the amendment to Borland's 1997 Employee Stock Purchase Plan and
unanimously recommends that the stockholders of Borland vote FOR approval of
all of the amendments.
Visigenic. The Visigenic Board has unanimously approved the Merger Agreement
and the Merger and believes that the terms of the Merger Agreement are fair
to, and that the Merger is in the best interests of, Visigenic and its
stockholders. The Visigenic Board therefore recommends that the holders of
Visigenic Common Stock vote FOR approval and adoption of the Merger Agreement
and approval of the Merger. See "The Merger--Interests of Certain Persons in
the Merger."
See "The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors."
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VOTING AT THE MEETINGS; RECORD DATES
Borland. Holders of record of Borland Common Stock and Borland Series B
Preferred Stock on the Borland Record Date are entitled to notice of and to
vote at the Borland Special Meeting. On the Borland Record Date, there were
38,811,762 shares of Borland Common Stock outstanding and entitled to vote,
which shares were held by approximately 2,595 holders of record, and 550
shares of Borland Series B Preferred Stock outstanding and entitled to vote,
which shares were held by 22 holders of record. Each holder of record of
Borland Common Stock outstanding on the Borland Record Date is entitled to
cast one vote per share, and each holder of record of Borland Series B
Preferred Stock outstanding on the Borland Record Date is entitled to cast
7,207 votes per share (representing the number of shares of Borland Common
Stock into which each share of Borland Series B Preferred Stock was then
convertable), in person or by a properly executed proxy, on each proposal
submitted for the vote of the Borland stockholders at the Borland Special
Meeting. The presence, in person or by a properly executed proxy, of a
majority of the outstanding shares of Borland Common Stock and Borland Series
B Preferred Stock entitled to vote at the Borland Special Meeting is necessary
to constitute a quorum at the Borland Special Meeting.
The approval of the issuance of Borland Common Stock in the Merger requires
the affirmative vote of a majority of the shares of Borland Common Stock and
Borland Series B Preferred Stock, voting as a single class on an as-converted
basis on the proposal either in person or by proxy at the Borland Special
Meeting. The amendments to Borland's 1997 Stock Option Plan and the amendment
to Borland's 1997 Employee Stock Purchase Plan each also require the
affirmative vote of a majority of the shares of Borland Common Stock and
Borland Series B Preferred Stock, voting as a single class on an as-converted
basis on the proposals either in person or by proxy at the Borland Special
Meeting.
Visigenic. Holders of record of Visigenic Common Stock on the Visigenic
Record Date are entitled to notice of and to vote at the Visigenic Special
Meeting. On the Visigenic Record Date, there were 14,554,748 shares of
Visigenic Common Stock outstanding and entitled to vote, which shares were
held by approximately 283 holders of record. Each holder of record of
Visigenic Common Stock on the Visigenic Record Date is entitled to cast one
vote per share, in person or by a properly executed proxy, on each proposal
submitted for the vote of the Visigenic stockholders at the Visigenic Special
Meeting. The presence, in person or by a properly executed proxy, of a
majority of the outstanding shares of Visigenic Common Stock entitled to vote
at the Visigenic Special Meeting is necessary to constitute a quorum at the
Visigenic Special Meeting.
The approval and adoption of the Merger Agreement and the approval of the
Merger by Visigenic stockholders will require the affirmative vote of a
majority of the outstanding shares of Visigenic Common Stock entitled to vote
at the Visigenic Special Meeting.
Roger J. Sippl, Chief Executive Officer and a director of Visigenic, Jens
Christensen, Chief Technology Officer, Vice President, Advanced Systems and a
director of Visigenic, and each of their respective spouses, have executed and
delivered the Visigenic Voting Agreements obligating them, among other things,
to vote their shares of Visigenic Common Stock in favor of approval and
adoption of the Merger Agreement and approval of the Merger. Pursuant to the
Visigenic Voting Agreements, all of the outstanding shares of Visigenic Common
Stock beneficially owned by Messrs. Sippl and Christensen and their respective
spouses on the Visigenic Record Date (representing approximately 26.4% of the
total number of shares of Visigenic Common Stock outstanding as of such date)
will be voted for the approval and adoption of the Merger Agreement and
approval of the Merger. See "The Merger--Interests of Certain Persons in the
Merger" and "--Voting Agreements."
Effects of Abstentions and "Broker Non-Votes." At the Visigenic Special
Meeting, in determining whether the proposal to approve and adopt the Merger
Agreement and approve the Merger has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect
as a vote against such proposal. At the Borland Special Meeting, abstentions
and broker non-votes will have no effect either for or against the votes with
respect to the issuance of Borland Common Stock in the Merger, the amendments
to Borland's 1997 Stock Option Plan and the amendment to Borland's 1997
Employee Stock
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Purchase Plan. At both the Borland Special Meeting and the Visigenic Special
Meeting, abstentions and broker non-votes will be counted for purposes of
determining the presence of a quorum. A "broker non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a proposal
because, for such proposal, the nominee does not have discretionary voting
power and has not received instructions from such beneficial owner.
ADJOURNMENT OF THE BORLAND SPECIAL MEETING OR THE VISIGENIC SPECIAL MEETING
In the event that there are not sufficient votes to approve the issuance of
Borland Common Stock in the Merger at the time of the Borland Special Meeting,
such proposal may not be approved unless the Borland Special Meeting is
adjourned to permit further solicitation of proxies from Borland stockholders.
Proxies that are being solicited by the Borland Board grant the discretionary
authority to vote for any such adjournment. If it is necessary to adjourn the
Borland Special Meeting, and such adjournment is for a period of less than 30
days, no notice of the time and place of the adjourned meeting is required to
be given to Borland stockholders other than the announcement of such time and
place at the Borland Special Meeting. A majority of the voting power
represented and voting at the Borland Special Meeting is required to approve
such adjournment whether or not a quorum is present at the Borland Special
Meeting.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement and approve the Merger at the time of the Visigenic Special
Meeting, such proposal may not be approved unless the Visigenic Special
Meeting is adjourned in order to permit further solicitation of proxies from
Visigenic stockholders. Proxies that are being solicited by the Visigenic
Board grant the discretionary authority to vote for any such adjournment. If
it is necessary to adjourn the Visigenic Special Meeting, and such adjournment
is for a period of less than 30 days, no notice of the time and place of the
adjourned meeting is required to be given to Visigenic stockholders other than
an announcement of such time and place at the Visigenic Special Meeting. A
majority of the voting power represented and voting at the Visigenic Special
Meeting is required to approve any such adjournment whether or not a quorum is
present at the Visigenic Special Meeting.
An adjournment of either the Borland Special Meeting or the Visigenic
Special Meeting, or both, may be necessary because the limited time between
the mailing of the Joint Proxy Statement/Prospectus and the special meetings
may result in the lack of a quorum at either or both special meetings. In
addition, the approval of a majority of all outstanding shares of Visigenic
Common Stock is required to approve and adopt the Merger Agreement and approve
the Merger, and not merely a majority of the shares present and voting in
person or by proxy. To obtain the requisite vote, it may be necessary to
adjourn the Visigenic Special Meeting to solicit additional proxies.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Borland
stockholders and Visigenic stockholders in connection with the solicitation of
proxies by and on behalf of the Borland Board and the Visigenic Board for use
at the Borland Special Meeting and the Visigenic Special Meeting,
respectively.
All shares of Borland Common Stock and Borland Series B Preferred Stock and
all shares of Visigenic Common Stock which are entitled to vote and are
represented at the Borland Special Meeting and the Visigenic Special Meeting,
respectively, by properly executed proxies received prior to or at the
relevant special meeting and before the occurrence of the vote, and not
revoked, will be voted at such special meeting in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
proxies will be voted:
(i) in the case of the Borland Special Meeting, FOR (a) approval of the
issuance of Borland Common Stock in the Merger, (b) approval of the
amendments to Borland's 1997 Stock Option Plan, and (c) approval of the
amendment to Borland's 1997 Employee Stock Purchase Plan; and
(ii) in the case of the Visigenic Special Meeting, FOR approval and
adoption of the Merger Agreement and approval of the Merger.
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If any other matters are properly presented for consideration at either of
the special meetings, including, among other things, consideration of a motion
to adjourn a special meeting (including, without limitation, for purposes of
soliciting additional proxies) to another time and/or place, the persons named
in the enclosed form of proxy and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment.
The persons named as proxies in the respective proxies are officers of
Borland or Visigenic. Any proxy given pursuant to this Joint Proxy
Statement/Prospectus may be revoked by the person giving it at any time before
it is voted. Proxies may be revoked by (i) filing with the Secretary of
Borland or Visigenic, as the case may be, at or before the taking of the vote
at the Borland Special Meeting or the Visigenic Special Meeting, respectively,
a written notice of revocation bearing a later date than the proxy, (ii) duly
executing a later dated proxy relating to the same shares and delivering it to
the Secretary of Borland or Visigenic, as the case may be, before the taking
of the vote at the relevant special meeting or (iii) attending the Borland
Special Meeting or the Visigenic Special Meeting, respectively, and voting in
person (although attendance at a special meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent, in the case of Borland stockholders, to
Borland International, Inc., 100 Borland Way, Scotts Valley, California 95066,
Attention: Secretary, and, in the case of Visigenic stockholders, to Visigenic
Software, Inc., 951 Mariner's Island Boulevard, Suite 120, San Mateo,
California 94404, Attention: Secretary, or hand delivered to the Secretary of
Borland or Visigenic, as the case may be, at or before the taking of the vote
at the relevant special meeting.
All expenses relating to this Joint Proxy Statement/Prospectus, including
the cost of preparing and mailing this Joint Proxy Statement/Prospectus, will
be borne by Borland and Visigenic. In addition to solicitation by use of the
mails, proxies may be solicited by directors, officers and employees of
Borland and Visigenic, respectively, in person or by telephone, telegram or
other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-
pocket expenses in connection with such solicitation. Borland has retained
Georgeson & Company, Inc., a proxy solicitation firm, for assistance in
connection with the solicitation of proxies for the Borland Special Meeting at
a cost of approximately $8,500 plus reasonable out-of-pocket expenses.
Visigenic also has retained Georgeson & Company, Inc. for assistance in
connection with the solicitation of proxies for the Visigenic Special Meeting
at a cost of approximately $6,500 plus reasonable out-of-pocket expenses.
Arrangements also will be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and Borland and
Visigenic, respectively, will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
VISIGENIC STOCKHOLDERS AND BORLAND STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
Since 1996, both Borland and Visigenic have modified their product and
marketing strategies to focus on enterprise customers and have since targeted
many of the same customers with complementary product offerings. During the
summer of 1996, Borland and Visigenic first explored the possibility of an OEM
agreement whereby Borland would bundle Visigenic's Visibroker ORB with its own
JBuilder Client/Server Suite. Initial contacts between senior management of
Borland and Visigenic occurred at meetings in October 1996 between Paul Gross,
formerly, Senior Vice President, Research and Development of Borland, and Mark
D. Hanson, President and Chief Operating Officer of Visigenic, at Borland's
offices in Scotts Valley, California. The substance of this meeting was to
explore commercial possibilities of an OEM relationship. The parties did not
discuss a possible strategic combination between Borland and Visigenic at this
time.
Following the initial meeting, representatives of Borland and Visigenic held
discussions relating to the negotiation of an OEM relationship, and the
parties entered into an OEM agreement on December 30, 1996. Sales of the
bundled product commenced in November 1997. Since Borland and Visigenic
entered into the OEM agreement, employees of the two companies have contacted
each other on a regular basis in writing, by telephone and in person to
discuss a variety of commercial issues that have arisen in connection with the
OEM agreement.
In the Spring of 1997, Visigenic engaged Hambrecht & Quist, at the time a
financial advisor to Visigenic, to review Visigenic's strategic alternatives,
including possible business combinations.
On August 28, 1997, Borland engaged Hambrecht & Quist to act as its
financial advisor in connection with the potential acquisition of other
companies. Thereafter, Hambrecht & Quist provided no financial advisory
services to Visigenic in connection with the business combination between the
two companies.
On October 10, 1997, Delbert W. Yocam, Chairman and Chief Executive Officer
of Borland, met at Visigenic's offices in San Mateo, California with Roger J.
Sippl, Chairman and Chief Executive Officer of Visigenic. A representative of
Hambrecht & Quist, Borland's financial advisor, was also present at the
meeting. At the meeting, the parties discussed, on a preliminary basis, a
possible business combination between Borland and Visigenic. At the conclusion
of the meeting, the parties agreed that a possible transaction of this type
merited further consideration, that information concerning the two companies
should be exchanged and that another meeting should be scheduled.
On October 16, 1997, Mr. Sippl met with Mr. Yocam, Richard A. LeFaivre,
Borland's Vice President of Research and Development and Chief Technology
Officer, and Zack Urlocker, Borland's Vice President, Product Marketing, at
Borland's offices to discuss Visigenic's and Borland's products, technologies
and strategies and to learn more about each other's organizational structure.
On October 20, 1997, Kathleen M. Fisher, Borland's Chief Financial Officer,
met with Mr. Hanson and Kevin C. Eichler, Visigenic's Vice President, Finance
and Operations, and Chief Financial Officer, at Visigenic's offices to discuss
Visigenic's business model, its financial performance to date and its
strategic direction. Representatives from Hambrecht & Quist were also present
at the meeting.
On October 21, 1997, at a meeting of the Visigenic Board, at Visigenic's
offices, Mr. Sippl and other Visigenic executive officers briefed the
Visigenic Board on the status of discussions with Borland.
On October 21, 1997 as part of a regularly scheduled meeting of the Borland
Board, the potential business combination between Borland and Visigenic was
discussed by the Borland Board, members of Borland management and
representatives of Hambrecht & Quist. At the meeting a special committee of
the Borland Board, composed of Mr. Yocam and directors David Heller and
Stephen J. Lewis (the "Borland Special Committee"), was appointed to evaluate
the potential transaction.
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On October 22, 1997, Borland and Visigenic entered into confidentiality
agreements in connection with the exchange of confidential information.
On October 22, 1997, Mr. Yocam, Ms. Fisher, Mr. LeFaivre, Mr. Urlocker, and
John Floisand, Vice President, Worldwide Sales of Borland, met with Mr. Sippl,
Mr. Hanson, Mr. Eichler, J. Scott Chalmers, Vice President, Worldwide Sales,
Robert J. Macdonald, Vice President, Marketing, Robert Perreault, Vice
President, Professional Services, and Therese Langlais, Vice President,
Business Development of Visigenic at the Hyatt Regency in Burlingame,
California. Representatives from Hambrecht & Quist were also present at the
meeting. At the meeting the Borland officers described Borland's products and
technology and its strategic direction. There followed a discussion of the
potential risks and benefits of a combination of the two companies.
On October 23, 1997, Mr. Yocam of Borland and Mr. Sippl of Visigenic had a
telephone conversation regarding the proposed Merger.
On October 24, 1997, the Borland Special Committee met by telephone
conference with representatives of Hambrecht & Quist to review and discuss
additional information concerning Visigenic and the proposed transaction.
On October 27, 1997, the Visigenic Board met by conference call to review
the proposed transaction with Borland.
On October 28, 1997, Borland and Visigenic entered into an agreement (the
"No Shop Agreement") prohibiting Visigenic from taking certain actions to
solicit, initiate or encourage a competing offer or proposal from a third
party regarding the acquisition of Visigenic. Among other things, the No Shop
Agreement required the parties not to disclose the pending discussions between
them concerning a potential business combination, prohibited either party from
soliciting certain employees of the other for a period of one year, and
prohibited Borland from taking certain actions aimed at exercising control or
influence over Visigenic in the absence of an agreement between Borland and
Visigenic.
On October 28, 1997, Mr. Sippl and Dr. Jens Christensen, Chief Technology
Officer and Vice President, Advanced Systems, of Visigenic, spoke with with
Mr. Urlocker of Borland regarding the respective technologies of the
companies.
On October 29, 1997, Mr. Eichler of Visigenic met with Ms. Fisher of Borland
at Borland's offices to discuss the process for the proposed Merger.
On October 29, 1997, Mr. Hanson, Mr. Eichler, Mr. Macdonald, Ms. Langlais,
and Susan Guscott, Director of Human Resources of Visigenic, met with Ms.
Fisher, Mr. Floisand, and Mr. Urlocker of Borland at Borland's offices to
discuss the timing and process for the proposed Merger.
On October 31, 1997, Mr. Sippl and Dr. Christensen of Visigenic met with Mr.
Urlocker and Mr. LeFaivre of Borland, at Borland's offices to discuss the
respective technologies of the companies.
On November 3, 1997, a meeting took place at the offices of Gray Cary Ware
and Friedenrich, A Professional Corporation ("GCW&F"), counsel to Borland, in
Palo Alto, California, to discuss a timeline for the proposed transaction, the
status of the financial, legal and business due diligence processes, and
further exchanges of information that would be required. Present at the
meeting were senior executives from Visigenic and Borland as well as
representatives of BancAmerica Robertson Stephens, Hambrecht & Quist, Price
Waterhouse LLP, Arthur Andersen LLP, GCW&F, and Cooley Godward LLP, special
counsel to Visigenic ("CG").
On November 4, 1997, a due diligence conference call was held between senior
executives of Visigenic and Borland in connection with Visigenic's and
BancAmerica Robertson Stephens' due diligence process. Topics
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discussed included Borland's recent corporate history, the key milestones in
its turn-around program and its current and future corporate strategy and
technology focus.
On November 4, 1997, Mr. Sippl of Visigenic had a telephone conversation
with Mr. Urlocker of Borland regarding the respective technologies of the
companies.
On November 5, 1997, Mr. Chalmers of Visigenic met with Mr. Floisand of
Borland at Borland's offices to discuss an overview of Borland's and
Visigenic's worldwide sales organization and strategies.
On November 5, 1997, Mr. Perreault of Visigenic met with Mr. Floisand of
Borland at Borland's offices to discuss an overview of Borland's and
Visigenic's worldwide services strategy and organizations, including training,
consulting and technical support.
On November 5, 1997, GCW&F delivered a draft of a proposed Merger Agreement
to Visigenic and CG.
Between November 6, 1997 and November 17, 1997, representatives of Borland
and GCW&F held various telephonic conversations with representatives of
Visigenic and CG to negotiate the terms of the proposed Merger Agreement and
various ancillary documents.
On November 6, 1997, Visigenic engaged BancAmerica Robertson Stephens to
render an opinion to Visigenic as to the fairness of the consideration to be
received by the Visigenic stockholders in the Merger.
On November 10, 1997, senior executives of Borland and Visigenic held a
meeting at the Westin Hotel in Santa Clara, California to conduct mutual due
diligence. Representatives of Hambrecht & Quist and BancAmerica Robertson
Stephens were also present at the meeting. The Borland representatives
delivered a presentation on Borland's sales, marketing, and research and
development operations. The Visigenic representatives then delivered a
presentation on Visigenic's sales and marketing, research and development,
financial and IT management, and services and consulting operations.
During the morning of November 17, 1997, Borland's and Visigenic's
management and their respective counsel negotiated the resolution of several
remaining terms of the Merger Agreement and ancillary documents.
On November 17, 1997, at 1:00 p.m., Pacific Standard Time, the Borland Board
held a special meeting at Borland's offices in Scotts Valley, California. All
of Borland's directors were present (in person or by telephone), except for
Dr. Miller, who was out of the country. Representatives of Hambrecht & Quist
and GCW&F also participated in the meeting. Mr. Yocam presented an overview of
the proposed Merger, and the strategic rationale for its undertaking.
Thereafter, representatives of Hambrecht & Quist reviewed their financial
analyses with respect to the proposed Merger and delivered an oral opinion
(subsequently confirmed in writing) that the Exchange Ratio was fair to
Borland from a financial point of view. Certain other members of Borland's
management then made presentations regarding the integration of Visigenic's
operations with their respective areas of responsibility. There followed a
general discussion concerning the potential benefits of the proposed Merger as
well as the risks involved. The Borland Board concluded, by the unanimous vote
of the directors present at the meeting, that the Merger was fair to, and in
the best interests of, Borland and its stockholders and approved the Merger
Agreement, the issuance of shares of Borland Common Stock in the Merger, and
related matters and authorized Borland's management to proceed with the
Merger.
On November 17, 1997, at 1:00 p.m., Pacific Standard Time, the Visigenic
Board held a special meeting at Visigenic's offices in San Mateo, California,
at which all of Visigenic's directors and its legal and financial advisors
were present (in person or by telephone). During the meeting, representatives
of BancAmerica Robertson Stephens made a presentation to the Visigenic Board
regarding the proposed transaction, including a summary of the analyses and
factors described below in "Opinion of Financial Advisor to Visigenic," and
delivered its oral opinion (subsequently confirmed in writing) that the
Aggregate Merger Consideration (as defined in such opinion) was fair to the
stockholders of Visigenic from a financial point of view. Thereafter,
following due consideration, the Visigenic Board unanimously approved the
Merger Agreement.
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On November 17, 1997, after the closing of trading on The Nasdaq National
Market and following the approval of the Merger Agreement by both Boards,
representatives of both companies met at the Hyatt Hotel in Burlingame,
California to execute and deliver the Merger Agreement.
On November 18, 1997, prior to the opening of trading on The Nasdaq National
Market, Borland and Visigenic issued a joint press release announcing the
execution of the Merger Agreement and the proposed Merger.
On January 15, 1998, the Visigenic Board held a special meeting at which it
reviewed the proposed Merger, the recent financial results for the two
companies, the recent trading prices for the Borland Common Stock and the
Visigenic Common Stock, as well as technology companies generally, and the
factors discussed under "--Reasons for the Merger; Recommendations of the
Boards of Directors" and unanimously determined that, based on this review,
the Merger continues to be fair to, and in the best interests of, Visigenic
and its stockholders.
On January 19, 1998, the Borland Board held a special meeting at which it
reviewed the proposed Merger, the recent financial results for the two
companies, the recent trading prices for the Borland Common Stock and the
Visigenic Common Stock, as well as technology companies generally, and the
factors discussed under "--Reasons for the Merger; Recommendations of the
Boards of Directors" and unanimously determined that, based on this review,
the Merger continues to be fair to, and in the best interests of, Borland and
its stockholders.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The following discussion of the parties' reasons for the Merger contains a
number of forward-looking statements which reflect the current views of
Borland and/or Visigenic with respect to future events that may have an effect
on their future financial performance. These forward-looking statements
include statements regarding the markets for Borland's, Visigenic's and the
combined company's products, their planned response to the demands of these
markets, their product and sales strategies, and certain potential
technological and operating synergies intended to be achieved by the Merger.
These forward-looking statements are subject to various risks and
uncertainties that could cause actual results of Borland, Visigenic and the
combined company to differ materially from those currently anticipated,
including the ability of Borland and Visigenic to successfully integrate their
operations and achieve expected synergies; the risk that customers may defer
purchasing decisions following the announcement of the Merger; the ability of
Borland and Visigenic to retain key employees following announcement of the
Merger; the impact of transaction and restructuring charges to be incurred by
Borland as a result of the Merger; changes in business conditions and growth
trends affecting Borland's and Visigenic's products and markets, the software
industry and the economy in general; technological advancements and new
product offerings by Borland's and Visigenic's competitors; Borland's and
Visigenic's ability to successfully introduce new products and upgrades to
existing products; a variety of other competitive factors such as price
reductions by Borland, Visigenic or their competitors; and changes in
enterprise purchasing practices. These and other factors which could cause
actual results to differ materially are described under "Risk Factors" and
elsewhere in this Joint Proxy Statement/Prospectus.
Joint Reasons for the Merger
Borland and Visigenic have identified several potential benefits of the
Merger that they believe will contribute to the success of the combined
company. These potential benefits include:
. The potential for increased sales which may result from combining the
product lines of the two companies to offer corporate customers and
partners a more integrated solution for developing, deploying and
managing distributed enterprise applications which make up Information
Networks.
. The ability to increase the integration of Borland's object-oriented
development environments with Visigenic's VisiBroker ORB technology.
. The opportunity to expand the worldwide sales and support organization
for enterprise customers.
. The opportunity to leverage research and development capabilities of the
two companies and to share technology.
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. The ability to achieve economies of scale in sales, marketing, research
and development, international operations and corporate infrastructure.
Between the announcement of the proposed Merger on November 18, 1997 and
January 23, 1998, the closing sales price of Borland Common Stock has been as
high as $12.00 per share and as low as $6.69 per share. On January 23, 1998,
the most recent practicable trading day prior to the printing of this Joint
Proxy Statement/Prospectus, the closing sales price of Borland Common Stock
was $7.03 per share. Furthermore, between November 18, 1997 and January 23,
1998, the closing sales price of Visigenic Common Stock has been as high as
$7.88 per share and as low as $5.16 per share. On January 23, 1998, the most
recent practicable trading day prior to the printing of this Joint Proxy
Statement/Prospectus, the closing sales price of Visigenic Common Stock was
$5.63 per share. Each of the Borland and Visigenic Boards noted that the
Merger involves significant potential synergies and strategic benefits that
are long-term in nature and that are not likely to be affected by short-term
fluctuations in the trading prices of the companies' common stock.
Nonetheless, the Borland Board met on January 19, 1998 and the Visigenic Board
met on January 15, 1998 to evaluate the impact, if any, of the recent decline
in the trading price of Borland Common Stock on their respective
recommendations of approval of the proposed Merger. At such meetings, the
Borland and Visigenic Boards each reviewed the recent financial results of the
companies, the recent trading prices for the Borland Common Stock and
Visigenic Common Stock, as well as the recent volatility of technology
companies generally, the potential synergies between the two companies and the
potential benefits of the Merger described in its immediately preceding
paragraph. In addition, the Borland Board reviewed the reasons set forth under
"Borland's Reasons for the Merger" and the Hambrecht & Quist fairness opinion
dated November 17, 1997, and the Visigenic Board reviewed the reasons set
forth under " Visigenic's Reasons for the Merger" and the BancAmerica
Robertson Stephens fairness opinion.
In addition, the Borland Board and the Visigenic Board each considered the
effect of the recent decline in the trading price of Borland Common Stock on
the analyses of its respective financial advisor as to the fairness from a
financial point of view of the consideration to be paid by Borland. The
Borland Board noted that the Hambrecht & Quist opinion is based on a number of
analyses, summarized under "Opinion of Financial Advisor to Borland," and that
the contribution analysis and pro forma merger analysis are not dependent upon
the trading prices of Borland Common Stock and Visigenic Common Stock. The
Visigenic Board noted that the BancAmerica Robertson Stephens opinion is based
on a number of analyses, summarized under "Opinion of Financial Advisor to
Visigenic," and that the contribution analysis and pro forma earnings analysis
are not dependent upon the trading prices of Borland Common Stock and
Visigenic Common Stock. The Borland Board and the Visigenic Board also
continued to find meaningful certain other analyses of their respective
financial advisors that were based in part on the historical trading prices of
the Borland Common Stock and Visigenic Common Stock prior to the announcement
of the Merger, insofar as the historical trading prices prior to the
announcement represent the most recent market valuation of the companies
without giving effect to the pending Merger. The Boards of Borland and
Visigenic noted that, since the announcement of the Merger, the trading prices
of each of the company's common stock have reflected, among other things, the
consideration to be paid by Borland in the Merger and the combined valuation
of the companies. Each Board noted that the fairness opinion that it had
received was only one of several factors that it considered in evaluating the
Merger and, in light of the variety of factors supporting the Merger, did not
request an updated fairness opinion from its financial advisor.
After reconsideration of all of the foregoing factors, the Borland Board
continues to believe that the Merger is fair to, and in the best interests of,
the Borland stockholders and continues to unanimously recommend, as of the
date of this Joint Proxy Statement/Prospectus, that the Borland stockholders
vote for each of the proposals to be voted on at the Borland Meeting. After
reconsideration of all of the foregoing factors, the Visigenic Board continues
to believe that the Merger is fair to, and in the best interests of, the
Visigenic stockholders and continues to unanimously recommend, as of the date
of this Joint Proxy Statement/Prospectus, that the Visigenic stockholders vote
for approval and adoption of the Merger Agreement and approval of the Merger.
Borland and Visigenic each has identified additional reasons for the Merger.
Nevertheless, each Board of Directors has recognized that the potential
benefits of the Merger may not be realized. See "Risk Factors--Risks Relating
to the Merger."
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Borland's Reasons for the Merger
The Borland Board considered the proposed Merger at meetings on October 21,
1997 and November 17, 1997, and the Borland Special Committee considered the
proposed Merger at a meeting on October 24, 1997. On November 17, 1997, by the
unanimous vote of the directors present, the Borland Board approved the Merger
Agreement and the transactions contemplated thereby and determined that the
Merger is fair to, and in the best interests of, Borland and its stockholders.
As noted above, the Borland Board has reconsidered its evaluation of the
Merger in light of certain developments subsequent to November 17, 1997 and
continues to believe that the Merger is fair to, and in the best interests of,
Borland and its stockholders.
In addition to the anticipated joint benefits described above, the Borland
Board believes that the Merger will provide the following potential benefits
to Borland and its stockholders:
. The ability to enhance the opportunity to pursue Borland's strategic
objective of being a leading platform-independent vendor of development
tools for enterprise distributed applications.
. The opportunity to offer customers additional and enhanced consulting
services through use of Visigenic's professional services organization.
. The opportunity to improve revenue prospects with the addition of new
products and technology and the ability to obtain increased revenue from
existing customers.
In assessing the proposed Merger, the Borland Board considered a number of
factors, including, but not limited to: (i) the potential strategic benefits
of the Merger; (ii) historical information concerning Borland's and
Visigenic's respective businesses, prospects, financial performance and
condition, operations, technology, management and competitive position,
including public reports concerning results of operations during the most
recent fiscal year and fiscal quarter for each company filed with the SEC;
(iii) current financial market conditions and historical market prices,
volatility and trading information with respect to Borland Common Stock and
Visigenic Common Stock; (iv) the consideration to be received by Visigenic
stockholders in the Merger and the relationship between the market value of
Borland Common Stock to be issued in exchange for each share of Visigenic
Common Stock and a comparison of comparable merger transactions; (v) the terms
of the Merger Agreement, including the parties' representations, warranties
and covenants, and the conditions to their respective obligations; (vi) the
potential for other third parties to enter into strategic relationships with
or to acquire Visigenic; (vii) the impact of the Merger on Borland's customers
and employees; and (viii) reports from management, legal, financial and
accounting advisors as to the results of the due diligence investigation of
Visigenic concerning the business, technology, products, operations,
properties, assets, financial condition, operating results and prospects of
Visigenic. In addition, the Borland Board noted that the Merger is expected to
be accounted for as a pooling of interests and that no goodwill is expected to
be created on the books of the combined company as a result thereof. The
Borland Board also considered financial presentations by Hambrecht & Quist,
including the opinion of Hambrecht & Quist that as of November 17, 1997, and
subject to the assumptions set forth therein, the Exchange Ratio pursuant to
the Merger Agreement was fair from a financial point of view to Borland.
The Borland Board also identified and considered a number of uncertainties
and potentially negative factors in its deliberations concerning the Merger,
including, but not limited to: (i) the risk that the potential benefits sought
in the Merger might not be fully realized; (ii) the risk that the issuance of
Borland Common Stock in the Merger could be dilutive to Borland stockholders
if anticipated synergies are not realized; (iii) the possibility that the
Merger would not be consummated; (iv) the effect of public announcement of the
Merger on (a) Borland's operating results, (b) Borland's ability to attract
and retain key management, marketing and technical personnel and (c) progress
of certain development projects; (v) the significant risks related to
integrating the two companies, including risks related to duplicative
facilities and personnel; (vi) the substantial charges to be incurred in
connection with the Merger, including the costs of integrating the businesses
and transaction expenses arising from the Merger; (vii) the risk that despite
the efforts of the combined company, key technical, sales, support and
management personnel might not remain employed by the combined company; and
(viii) the other risks associated with the businesses of Borland, Visigenic
and the combined company and the Merger described under "Risk Factors."
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The Borland Board believed that certain of the risks were unlikely to occur
or unlikely to have a material impact on the combined company, while others
could be avoided or mitigated by Borland or by the combined company, and that,
overall, the risks associated with the Merger were outweighed by the potential
benefits of the Merger.
The foregoing discussion of the information and factors considered by the
Borland Board is not intended to be exhaustive but is believed to include all
material factors considered by the Borland Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the
Borland Board did not find it practicable to, and did not, quantify or
otherwise assign relative weight to the specific factors considered in
reaching its determination. In addition, individual members of the Borland
Board may have given different weight to different factors.
Visigenic's Reasons for the Merger
The Visigenic Board considered the proposed Merger at meetings on October
21, 1997, October 27, 1997 and November 17, 1997, and by unanimous vote at its
special meeting on November 17, 1997, approved the Merger Agreement and the
transactions contemplated thereby and determined that the Merger is fair to,
and in the best interests of, Visigenic and its stockholders. As noted above,
the Visigenic Board has reconsidered its evaluation of the Merger in light of
certain developments subsequent to November 17, 1997 and continues to believe
that the Merger is fair to, and in the best interests of, Visigenic and its
stockholders.
In addition to the anticipated joint benefits described above, the Visigenic
Board believes that the Merger will provide the following benefits to
Visigenic and its stockholders:
. The opportunity to accelerate Visigenic's product strategy through the
use of Borland's financial and technical resources.
. The opportunity to increase the revenues for Visigenic products and
services by leveraging the worldwide sales and support organization of
the combined company and by marketing to an expanded customer base.
. The greater liquidity and diversification of risk offered to the
shareholders of Visigenic by an investment in the combined company
instead of Visigenic alone.
In assessing the proposed Merger, the Visigenic Board considered a number of
factors, including, but not limited to, the following: (i) the potential
strategic benefits of the Merger; (ii) historical information concerning
Visigenic's and Borland's respective businesses, prospects, financial
performance and condition, operations, technology, management and competitive
position, including public reports concerning results of operations during the
most recent fiscal year and fiscal quarter for each company filed with the
SEC; (iii) current financial market conditions and historical market prices,
volatility and trading information with respect to Visigenic Common Stock and
Borland Common Stock; (iv) the consideration to be received by Visigenic
stockholders in the Merger and the relationship between the market value of
Borland Common Stock to be issued in exchange for each share of Visigenic
Common Stock and a comparison of comparable merger transactions; (v) the terms
of the Merger Agreement, including the parties' representations, warranties
and covenants, and the conditions to their respective obligations; (vi) the
implications for continued independent operation of Visigenic in light of
market and competitive conditions; (vii) alternative acquisition transactions
in which Visigenic might engage; (viii) the impact of the Merger on
Visigenic's customers and employees; and (viii) reports from management,
legal, financial and accounting advisors as to the results of the due
diligence investigation of Borland concerning the business, technology,
products, operations, properties, assets, financial condition, operating
results and prospects of Borland. In addition, the Visigenic Board noted that
the Merger is expected to be accounted for as a pooling of interests and that
no goodwill is expected to be created on the books of the combined company as
a result thereof. The Visigenic Board also considered financial presentations
by BancAmerica Robertson Stephens, including the opinion of BancAmerica
Robertson Stephens that as of November 17, 1997, and subject to the
assumptions set forth therein, the Aggregate Merger Consideration (as defined
in such opinion) is fair to the stockholders of Visigenic from a financial
point of view.
The Visigenic Board also identified and considered a number of uncertainties
and potentially negative factors in its deliberations concerning the Merger,
including, but not limited to: (i) the risk that the potential benefits sought
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in the Merger might not be fully realized; (ii) the possibility that the
Merger would not be consummated; (iii) the effect of the public announcement
of the Merger on (a) Visigenic's sales, customer relations and operating
results and (b) Visigenic's ability to attract and retain key management,
marketing and technical personnel; (iv) the risk that despite the efforts of
the combined company, key technical, marketing and management personnel might
not choose to remain employed by the combined company; (v) the risk of market
confusion and potential delay or reduction in product orders; (vi) the risk of
loss of current product brand awareness before the combined company gains
market acceptance; and (vii) the other risks associated with the businesses of
Borland, Visigenic and the combined company and the Merger described under
"Risk Factors" herein.
The Visigenic Board believed that certain of these risks were unlikely to
occur or unlikely to have a material impact on the combined company, while
others could be avoided or mitigated by Visigenic or by the combined company,
and that, overall, the risks associated with the Merger were outweighed by the
potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the
Visigenic Board is not intended to be exhaustive but is believed to include
all material factors considered by the Visigenic Board. In view of the variety
of factors considered in connection with its evaluation of the Merger, the
Visigenic Board did not find it practicable to and did not quantify or
otherwise assign relative weight to the specific factors considered in
reaching its determination. In addition, individual members of the Visigenic
Board may have given different weight to different factors.
OPINION OF FINANCIAL ADVISOR TO BORLAND
Pursuant to a letter agreement dated August 28, 1997, Borland confirmed its
engagement of Hambrecht & Quist to act as its financial advisor in connection
with the potential acquisition of companies, including the rendering of an
opinion as to the fairness from a financial point of view to Borland of the
consideration to be paid by Borland in connection with any such acquisition.
Hambrecht & Quist was selected by the Borland Board based on Hambrecht &
Quist's qualifications, expertise and reputation. Hambrecht & Quist rendered
its oral opinion (subsequently confirmed in writing) on November 17, 1997 to
the Borland Board that, as of such date, the consideration to be paid by
Borland pursuant to the Merger Agreement was fair to Borland from a financial
point of view. A COPY OF HAMBRECHT & QUIST'S WRITTEN OPINION DATED NOVEMBER
17, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE
AND LIMITATIONS OF THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY
HAMBRECHT & QUIST IS ATTACHED AS ANNEX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. BORLAND STOCKHOLDERS ARE ADVISED TO READ THE OPINION IN
ITS ENTIRETY. NO LIMITATIONS WERE PLACED ON HAMBRECHT & QUIST BY THE BORLAND
BOARD WITH RESPECT TO THE INVESTIGATION MADE OR THE PROCEDURES FOLLOWED IN
PREPARING AND RENDERING ITS OPINION.
In its review of the Merger, and in arriving at its opinion, Hambrecht &
Quist, among other things: (i) reviewed the publicly available financial
statements of Borland for recent years and interim periods to date and certain
other relevant financial and operating data of Borland made available to
Hambrecht & Quist from published sources and from the internal records of
Borland; (ii) reviewed certain internal financial and operating information
including certain projections relating to Borland prepared by management of
Borland; (iii) discussed the business, financial condition and prospects of
Borland with certain of its officers; (iv) reviewed the publicly available
financial statements of Visigenic for recent years and interim periods to date
and certain other relevant financial and operating data of Visigenic made
available to Hambrecht & Quist from published sources and from the internal
records of Visigenic; (v) reviewed certain financial and operating information
including certain projections relating to Visigenic prepared by analysts and
certain information relating to Visigenic prepared by the management of
Visigenic; (vi) discussed the business, financial condition and prospects of
Visigenic with certain of its officers; (vii) reviewed the recent reported
prices and trading activity for the common stocks of Borland and Visigenic and
compared such information and certain financial information for Borland and
Visigenic with similar information for certain other companies engaged in
businesses Hambrecht & Quist considered comparable; (viii) reviewed the
financial terms, to the extent publicly available, of certain comparable
merger and acquisition transactions; (ix) reviewed the Merger Agreement; (x)
discussed the tax and accounting
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treatment of the Merger with Borland's and Visigenic's legal counsel and
accountants; and (xi) performed such other analyses and examinations and
considered such other information, financial studies, analyses and
investigations and financial, economic and market data as Hambrecht & Quist
deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Borland or Visigenic considered in connection with its review of
the Merger and, for purposes of its opinion, Hambrecht & Quist assumed and
relied upon the accuracy and completeness of all such information. In
connection with its opinion, Hambrecht & Quist did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of
Borland or Visigenic, nor did it conduct a physical inspection of the
properties and facilities of Borland or Visigenic. In connection with its
analysis, Hambrecht & Quist utilized certain financial forecasts published by
securities research analysts in the investment community. Hambrecht & Quist
assumed that such financial forecasts reflected the best publicly available
estimates and judgments of the expected future financial performance of
Visigenic and Borland. Hambrecht & Quist also assumed that neither Borland nor
Visigenic was a party to any pending transactions, including external
financings, recapitalizations or merger discussions, other than the Merger and
those in the ordinary course of conducting their respective businesses. For
purposes of its opinion, Hambrecht & Quist assumed that the Merger would
qualify as a tax-free reorganization under the Code for the stockholders of
Borland and that the Merger will be accounted for as a pooling of interests.
Hambrecht & Quist's opinion is based upon market, economic, financial and
other conditions as they existed and can be evaluated as of the date of the
opinion and any subsequent change in such conditions would require a
reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
summary of the Hambrecht & Quist analyses set forth below does not purport to
be a complete description of the presentation by Hambrecht & Quist to the
Borland Board. In arriving at its opinion, Hambrecht & Quist did not attribute
any particular weight to any analyses or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Hambrecht & Quist believes that its analyses
and the summary set forth below must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or of
the following summary, without considering all factors and analyses, could
create an incomplete view of the processes underlying the analyses set forth
in the Hambrecht & Quist presentation to the Borland Board and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Borland and Visigenic.
The analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its oral and written opinion to
the Borland Board on November 17, 1997:
Contribution Analysis. Hambrecht & Quist analyzed the contribution of each
of Borland and Visigenic to certain financial statement categories of the pro
forma combined company, assuming no revenue or expense adjustments to the
company including revenue, gross profit, operating income and net income. This
contribution analysis was then compared to the respective pro forma ownership
percentages of Borland and Visigenic stockholders in the pro forma post-Merger
combined company. Hambrecht & Quist examined the expected contributions to the
combined company's revenues, gross profit, operating income (loss), and pro
forma net income (loss) by Borland for calendar years 1998 and 1999 (i.e., the
four quarters ending December 31), derived from Wall Street's consensus
estimates, and by Visigenic for calendar years 1998 and 1999 (i.e., the four
quarters ending December 31), derived from Wall Street's consensus estimates.
Hambrecht & Quist observed that, calculated on a fully-diluted basis based on
the treasury stock method, Borland stockholders are expected to own
approximately 78% of the combined company equity at the close of the Merger
and Visigenic stockholders are expected to own approximately 22% of the
combined company equity at the close of the Merger. In calendar 1998, assuming
no revenue or expense adjustment to the combined company, it was
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estimated that Borland and Visigenic would have contributed approximately 83%
and 17%, respectively, of the combined revenues; approximately 84% and 16%,
respectively, of the combined gross profit; approximately 100% and 0%,
respectively, of the combined operating loss; and approximately 100% and 0%,
respectively, of the combined pro forma net income. With respect to calendar
1999 financial performance, assuming no revenue or expense adjustment to the
combined company, it was estimated that Borland and Visigenic would have
contributed approximately 78% and 22%, respectively, of the combined revenues;
approximately 78% and 22%, respectively, of the combined gross profit;
approximately 83% and 17%, respectively, of the combined operating income; and
approximately 87% and 13%, respectively, of the combined pro forma net income.
Pro Forma Merger Analysis. Hambrecht & Quist analyzed the pro forma impact
of the Merger. Hambrecht & Quist prepared financial projections for Borland
based on equity analysts' published consensus estimates of EPS in fiscal 1998,
1999 as well as Borland management estimates for calendar 1998 and 1999.
Hambrecht & Quist used Hambrecht & Quist analyst estimates for Visigenic's EPS
in fiscal 1998 and 1999 as well as other information provided by Visigenic's
management for calendar 1998 and 1999. The analysis indicated that pro forma
EPS of the combined company would be substantially the same for calendar 1998,
and potentially higher for calendar 1999, than Borland as a standalone company
when taking into account certain expected synergies for the combined company.
Without expected synergies from rationalization initiatives, the analysis
indicated that the acquisition would dilute Borland EPS in calendar 1998 and
in calendar 1999. There can be no assurances that such assumptions can be
realized and the actual results and savings achieved by the combined company
resulting from the Merger may vary from the projected results and such
variations may be material.
Premium Analysis. Hambrecht & Quist compared the implied price per share of
the Borland Common Stock to be issued in the Merger as of November 14, 1997,
to the last sale price of Visigenic Common Stock on both November 13, 1997 and
October 15, 1997 (the thirtieth trading day preceding the announcement of the
Merger) to similar premiums for certain technology transactions announced
since April 1993. Hambrecht & Quist analyzed over 30 such public company
transactions in the software sectors. Hambrecht & Quist observed that the
average one-day premium and four week premiums paid in the selected public
company technology transactions were 37% and 50%, respectively. This compared
with the proposed Merger in, which the one-day premium offered was 80% and the
four-week premium offered was 60% based on Borland's closing sales price of
$11.25 on November 14, 1997.
Discounted Cash Flow Analysis. Hambrecht & Quist analyzed the theoretical
valuation of Visigenic based on the unleveraged discounted cash flow of the
projected financial performance estimates as to Visigenic. However, because of
the nature of Visigenic's business and current market valuations for software
companies, Hambrecht & Quist determined that this analysis did not provide
meaningful information in the context of analyzing the fairness from a
financial point of view of the Merger.
Analysis of Publicly Traded Comparable Companies. Hambrecht & Quist compared
selected historical and projected financial information of Visigenic to
publicly traded companies that Hambrecht & Quist deemed to be comparable to
Visigenic. Such data and ratios included the ratio of market value to
historical net income, price per share to historical and projected earnings
per share, market value to historical book value, and earnings per share
growth rates. Hambrecht & Quist also examined the ratio of the enterprise
value (market value plus debt less cash and marketable securities) to the
earnings before interest and taxes and earnings before interest, taxes,
depreciation and amortization. Selected high growth companies which were used
as comparables included selected high growth software companies including BEA
Systems, Borland, Citrix Systems, Cognos, Cyber Media, Dr. Solomon's, Forte
Software, Intersolv, Iona Technologies, Logic Works, Mercury Interactive,
Progress Software, Rational Software, Rogue Wave Software, and Select
Software. The foregoing multiples were applied to historical financial results
of Visigenic for the twelve-month period ended September 30, 1997 and
projected financial results of Visigenic derived from equity analysts'
published consensus estimates, as adjusted by Hambrecht & Quist. Hambrecht &
Quist determined that the average multiple of the last twelve months revenue
for these companies was 5.0. Hambrecht & Quist determined that the average
multiple of book value for these
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companies over that period was 5.9. Hambrecht & Quist determined that the
average multiple of earnings for these companies over that period was 45.1.
Hambrecht & Quist determined that for the expected results for calendar year
1998, the average multiple of earnings per share for these companies was 25.4.
Based on the analysis of publicly traded comparable companies, Visigenic's
implied equity value ranged from approximately $112 million to approximately
$131 million. This compared with an implied equity value of $144 million of
Visigenic in the Merger, based on the closing price of Borland Common Stock on
November 14, 1997.
Analysis of Selected Merger and Acquisition Transactions. Hambrecht & Quist
compared the proposed Merger with selected comparable merger and acquisition
transactions. This analysis included over 50 comparable public and private
company software transactions since August 1993. In examining these
transactions, Hambrecht & Quist analyzed certain income statement and balance
sheet parameters of the acquired company relative to the consideration
offered. The foregoing multiples were applied to historical financial results
of Visigenic for the twelve-month period ended September 30, 1997. Multiples
analyzed included consideration offered to historical revenue, to historical
cash flow from operations, to historical earnings before depreciation,
interest and taxes, to historical earnings before interest and taxes, to
historical cash flow from operations, to historical earnings, to historical
book value, and to historical net operating assets. Selected software
transactions analyzed included, among others, Baan/Aurum (May 1997), Rational
Software/SQA (November 1996), Rational/Pure Atria Software (April 1997),
Computer Associates/Cheyenne Software (October 1996), Atria Software/Pure
Software (June 1996), Sybase/Powersoft (November 1994), and
Microsoft/SoftImage (February 1994). The consideration offered in all the
transactions reviewed was an average multiple of 5.0 times revenue, 31.3 times
earnings before depreciation, interest and taxes, 37.2 times earnings before
interest and taxes, 55.4 times earnings, 7.5 times book value and 52.3 times
cash flow from operations. Based on the analysis of selected merger and
acquisition transactions. Visigenic's implied equity value ranged from
approximately $112 million to $162 million. This compared with an implied
value of $144 million of Visigenic in the Merger, based on the closing price
of Borland Common Stock on November 14, 1997.
No company or transaction used in the above analyses is identical to
Visigenic or Borland or the Merger. Accordingly, an analysis of the results of
the foregoing is not purely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading values of the companies or company to which they are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex B to this Joint Proxy Statement/Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. In the past, Hambrecht & Quist has provided financial advisory
services to PostModern Computing Technologies Inc. in its merger with
Visigenic and received fees for rendering these services including 84,375
shares of Visigenic Common Stock which it currently owns. Hambrecht & Quist
acted as the lead underwriter in both Visigenic's initial pubic offering of
Visigenic Common Stock in August 1996 and its subsequent follow-on offering in
February 1997. In the ordinary course of business, Hambrecht & Quist has acted
as a market maker and broker in the publicly traded securities of Visigenic
and has received customary compensation in connection therewith. Hambrecht &
Quist has also provided research coverage on Visigenic. Christina Morgan,
Managing Director and Co-Head of Investment Banking at Hambrecht & Quist was a
member of Visigenic's Board of Directors between March 1993 and July 1997. As
of November 14, 1997, William Timken, Vice Chairman of Hambrecht & Quist,
owned 81,250 shares of Visigenic Common Stock.
In accordance with its engagement agreement dated August 28, 1997, Borland
will pay Hambrecht & Quist a fee (the "Transaction Fee") equal to 1.5% of the
first $100 million of aggregate consideration paid plus 1% of any additional
consideration paid. For purposes of calculating the Transaction Fee, aggregate
consideration shall
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be valued at the closing of the transaction (or as close thereto as is
reasonable practicable) and deemed to include the sum of (i) the cash (without
reduction for any cash to be acquired), market value of marketable equity
securities or interests, and fair market value of marketable equity securities
or interests, and fair market value of unmarketable equity securities or
interests paid, including the full value of the securities underlying any
options (whether vested or unvested) granted to stockholders or employees of
the acquired company and (ii) the fair market value of straight and
convertible debt instruments or obligations paid. Such Transaction Fee, with
the exception of $350,000 payable to Hambrecht & Quist at the time of the
delivery of its fairness opinion, which sum will be credited against the
Transaction Fee, is payable upon consummation of the transaction. Borland also
has agreed to reimburse Hambrecht & Quist for its reasonable out-of-pocket
expenses and to indemnify Hambrecht & Quist against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of Hambrecht & Quist's engagement as financial advisor.
OPINION OF FINANCIAL ADVISOR TO VISIGENIC
On November 6, 1997, Visigenic and BancAmerica Robertson Stephens executed
an engagement letter (the "Engagement Letter") pursuant to which BancAmerica
Robertson Stephens was engaged to render an opinion as to the fairness of the
Aggregate Merger Consideration (as defined therein), from a financial point of
view, to the stockholders of Visigenic. See "The Merger--Background of the
Merger."
On November 17, 1997, at a meeting of the Visigenic Board held to evaluate
the proposed Merger, BancAmerica Robertson Stephens delivered to the Visigenic
Board its oral opinion which was subsequently confirmed as a written opinion
dated November 17, 1997 (the "BancAmerica Robertson Stephens Opinion") that as
of November 17, 1997 and based on the matters described therein, the Aggregate
Merger Consideration (as defined therein) was fair, from a financial point of
view, to the stockholders of Visigenic. No limitations were imposed by the
Visigenic Board on BancAmerica Robertson Stephens with respect to the
investigations made or procedures followed by it in furnishing its opinion.
The Aggregate Merger Consideration was determined through negotiations between
the managements of Visigenic and Borland. Although BancAmerica Robertson
Stephens did assist the management of Visigenic in those negotiations, it was
not asked by, and did not recommend to, Visigenic that any specific
consideration constituted the appropriate consideration for the Merger.
BancAmerica Robertson Stephens also assisted Visigenic's management in the
negotiations leading to an agreement on principal structural terms of the
transaction. BancAmerica Robertson Stephens expresses no opinion as to tax
consequences of the Merger, and BancAmerica Robertson Stephens' opinion as to
the fairness of the Aggregate Merger Consideration does not take into account
the particular tax status or position of any stockholder of Visigenic. In
furnishing its opinion, BancAmerica Robertson Stephens was not engaged as an
agent or fiduciary of Visigenic's stockholders or any other third party.
THE FULL TEXT OF THE BANCAMERICA ROBERTSON STEPHENS OPINION, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX C AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF VISIGENIC ARE URGED TO READ
THE BANCAMERICA ROBERTSON STEPHENS OPINION IN ITS ENTIRETY. THE BANCAMERICA
ROBERTSON STEPHENS OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE
VISIGENIC BOARD IN ITS CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO STOCKHOLDERS OF VISIGENIC AS TO HOW THEY SHOULD VOTE AT THE
VISIGENIC SPECIAL MEETING IN CONNECTION WITH THE MERGER. THE BANCAMERICA
ROBERTSON STEPHENS OPINION DOES NOT ADDRESS THE RELATIVE MERITS OF THE MERGER
AND ANY OTHER TRANSACTIONS OR BUSINESS STRATEGIES DISCUSSED BY THE VISIGENIC
BOARD AS ALTERNATIVES TO THE MERGER AGREEMENT OR THE UNDERLYING BUSINESS
DECISION OF THE VISIGENIC BOARD TO PROCEED WITH OR EFFECT THE MERGER. THE
SUMMARY OF THE BANCAMERICA ROBERTSON STEPHENS OPINION SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE BANCAMERICA ROBERTSON STEPHENS OPINION.
In connection with the preparation of the BancAmerica Robertson Stephens
Opinion, BancAmerica Robertson Stephens, among other things, (i) reviewed
financial information relating to Visigenic and Borland furnished to it by
each company, including financial forecasts and data which were provided to or
otherwise discussed with it by the respective managements of Visigenic and
Borland; (ii) reviewed publicly available
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information concerning Visigenic, including Visigenic's Annual Report on Form
10-K for the fiscal year ended March 31, 1997, Visigenic's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1997, Visigenic's earnings
announcement for the fiscal quarter ended September 30, 1997, Visigenic's 1997
Proxy Statement and Annual Report to Stockholders, various earnings and other
public announcements made by Visigenic and various published industry and
market analysts reports concerning Visigenic and Visigenic Common Stock; (iii)
reviewed publicly available information concerning Borland, including
Borland's Annual Report on Form 10-K for the fiscal year ended March 31, 1997,
Borland's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997, Borland's earnings announcement for the fiscal quarter ended September
30, 1997, Borland's 1997 Proxy Statement and Annual Report to Stockholders,
various earnings and other public announcements made by Visigenic and various
published industry and market analysts reports concerning Borland and Borland
Common Stock; (iv) held discussions with the respective managements of
Visigenic and Borland concerning the businesses, past and current business
operations, financial condition and future prospects of Visigenic and Borland,
independently and combined; (v) reviewed the terms of a draft of the Merger
Agreement; (vi) reviewed the stock price and trading history of each of
Visigenic and Borland; (vii) analyzed the potential pro forma earnings per
share of the combined company; (viii) reviewed the valuations of publicly
traded companies which were deemed comparable to Visigenic; (ix) compared the
financial terms of the Merger with other transactions which were deemed
relevant; (x) prepared a discounted cash flow analysis of Visigenic; (xi) held
discussions with the managements of Visigenic and Borland concerning the
future prospects of a combined company comprised of Visigenic and Borland; and
(xii) made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In conducting its review and arriving at its opinion, BancAmerica Robertson
Stephens assumed and relied upon, without independent verification, the
accuracy, completeness and fairness of the information furnished to or
otherwise reviewed by or discussed with it for purposes of rendering its
opinion. BancAmerica Robertson Stephens received estimates of Visigenic's
projected financial performance that were prepared by the management of
Visigenic. BancAmerica Robertson Stephens also reviewed publicly-available
projections of analysts regarding the financial performance of Borland,
reviewed information provided by Borland management and discussed this
information with Borland management. With the consent of the Visigenic Board,
this information was used by BancAmerica Robertson Stephens in comparable
company, precedent transaction, historical consideration analysis and premium
contribution, discounted cash flow and pro forma earnings analyses summarized
below. With respect to financial and operating forecasts of Visigenic and
information regarding Borland provided to BancAmerica Robertson Stephens,
BancAmerica Robertson Stephens assumed that such forecasts were reasonably
prepared in good faith on the basis of reasonable assumptions, reflecting the
best available estimates and judgments of the respective managements of
Visigenic and Borland. BancAmerica Robertson Stephens assumed that the Merger
would be accounted for as a "pooling-of-interests" under generally accepted
accounting principles. BancAmerica Robertson Stephens did not make any
independent evaluation or appraisal of the properties or assets of Visigenic
or Borland, nor has BancAmerica Robertson Stephens been furnished with any
such evaluations or appraisals. The BancAmerica Robertson Stephens Opinion is
based on the closing trading price of Borland Common Stock as of November 17,
1997 and on market, economic and other conditions as they existed or were
disclosed to BancAmerica Robertson Stephens and could be evaluated as of the
date of the BancAmerica Robertson Stephens Opinion and made available to
BancAmerica Robertson Stephens on such date. In rendering the BancAmerica
Robertson Stephens Opinion, BancAmerica Robertson Stephens assumed that the
Merger would be consummated substantially on the terms described in the Merger
Agreement, without any waiver of any material terms or conditions by any party
thereto. Although developments following the date of the BancAmerica Robertson
Stephens Opinion may affect the opinion, BancAmerica Robertson Stephens
assumed no obligation to update, revise or reaffirm its opinion.
The following is a summary of the material financial analyses performed by
BancAmerica Robertson Stephens in connection with rendering the BancAmerica
Robertson Stephens Opinion:
Comparable Company Analysis. Using publicly available information,
BancAmerica Robertson Stephens analyzed, among other things, the market values
plus net debt (the "Total Capitalization") and trading multiples
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of Visigenic and selected publicly traded companies in the application tools
software industry (the "Application Tools Software Industry"), including: BEA
Systems, Iona, New Era of Networks, and TSI International Software
(collectively, the "Comparable Companies"). BancAmerica Robertson Stephens
compared Total Capitalization values as multiples of, among other things,
estimated calendar 1997 and 1998 revenues. BancAmerica Robertson Stephens also
compared the profit margins, and projected earnings per share growth of
Visigenic and the Comparable Companies. All multiples were based on closing
stock prices as of November 13, 1997. Applying a range of multiples for the
Comparable Companies of estimated calendar years 1998 and 1997 revenues of
2.5x to 3.3x and 3.5x to 5.1x, respectively, to corresponding financial data
for Visigenic resulted in an equity reference range for Visigenic of
approximately $6.77 to $9.60 per share (without giving effect to a change in
control premium), as compared to the equity value implied by the Aggregate
Merger Consideration of approximately $9.07 per share based on the closing
stock price of Visigenic Common Stock on November 13, 1997.
Precedent Transaction Analysis. Using publicly available information,
BancAmerica Robertson Stephens analyzed the consideration offered plus net
debt assumed (the "Total Consideration") and implied transaction value
multiples paid or proposed to be paid in selected transactions in the
Application Tools Software Industry, including: VMARK Software, Inc./Unidata,
Inc. (October 7, 1997), Apptivity/Progress Software (June 30, 1997), Rational
Software/Pure Atria (April 7, 1997), SQA/Rational Software (November 12,
1996), Cheyenne Software/Computer Associates (October 7, 1996), Client-Server
Technologies Oy/BEA Systems (June 27, 1996), Enigma Logic/Secure Computing
(June 26, 1996), Atria Software/Pure Software (June 6, 1996), OEC/Borland (May
13, 1996), Cheyenne Software/McAfee Associates (April 15, 1996), Tivoli
Systems/IBM (January 31, 1996), Collabra Software/Netscape Communications
(September 21, 1995), Wavefront Technologies/Silicon Graphics (February 7,
1995), Powersoft/Sybase (November 14, 1994), Ocean Isle Software/Stac
Electronics (October 31, 1994), and SOFTIMAGE/Microsoft (February 14, 1994)
(collectively, the "Comparable Transactions"). BancAmerica Robertson Stephens
compared, among other things, the total consideration in such transaction as a
multiple of latest 12 months revenues, and also compared the premium paid in
the Comparable Transactions over the public equity closing sale price one day
and one month prior to the announcement of the transactions. Applying a range
of multiples for the Comparable Transactions of latest 12 months revenues of
2.5x to 6.0x to corresponding financial data for Visigenic, resulted in an
equity reference range for Visigenic of approximately $5.05 to $10.47 per
share, as compared to the equity value implied by the Aggregate Merger
Consideration of approximately $9.07 per share based on the closing stock
price of Visigenic Common Stock on November 13, 1997. Applying a range of
multiples for the Comparable Transactions of premium ranges for one day and
one month prior to announcement of the transactions, of 0.0% to 45.0% and
20.0% to 60.0%, respectively, resulted in an equity reference range for
Visigenic of approximately $5.31 to $8.50 per share, as compared to the equity
value implied by the Aggregate Merger Consideration of approximately $9.07 per
share based on the closing price of Borland Common Stock on November 13, 1997.
All multiples for the Comparable Transactions were based on public information
available at the time of the announcement, or one day or one month prior to
the announcement, as the case may be, of such transactions, without taking
into account differing market and other conditions during the period in which
the Comparable Transactions occurred.
No company, transaction or business used in Comparable Company Analysis or
Precedent Transaction Analysis as a comparison is identical to Visigenic,
Borland or the Merger. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the Comparable Companies, Comparable Transactions
or the business segment, company or transactions to which they are being
compared.
Historical Consideration Analysis and Premium Analysis. BancAmerica
Robertson Stephens reviewed and analyzed the historical ratio of the daily per
share market closing prices of Visigenic Common Stock and Borland Common Stock
over several time periods, each ending on November 13, 1997. BancAmerica
Robertson Stephens noted that the Aggregate Merger Consideration represents a
premium of 13.9% to the average price ratio for the two companies for the last
three months, a premium of 49.9% to the average price ratio for the trailing
30 trading days, a premium of 61.7% to the average price ratio for the
trailing 20 trading days, a premium of 61.6% to the
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average price ratio for the trailing 10 trading days, a premium of 47.2% to
the average price ratio for the four weeks prior to November 13, 1997, and a
premium of 70.8% to the average price ratio on November 13, 1997.
Contribution Analysis. BancAmerica Robertson Stephens analyzed the
respective contributions of Visigenic and Borland to the estimated revenues
and gross profit for the years ended December 31, 1996, 1997 and 1998, and
earnings before interest and taxes ("EBIT") and net income of the combined
company for the year ended December 31, 1998. This analysis indicated that (i)
in calendar year 1996, Visigenic would have contributed approximately 7.6% of
revenue and approximately 7.2% of gross profit, and Borland would have
contributed approximately 92.4% of revenue and approximately 92.8% of gross
profit, of the combined company, (ii) in calendar year 1997, Visigenic would
contribute approximately 13.0% of revenue and approximately 11.0% of gross
profit, and Borland would contribute approximately 87.0% of revenue and
approximately 89.0% of gross profit, of the combined company, and (iii) in
calendar year 1998, Visigenic would contribute approximately 16.6% of revenue,
approximately 16.0% of gross profit, approximately 10.6% of EBIT and
approximately 10.1% of net income, and Borland would contribute approximately
83.4% of revenue, approximately 84.0% of gross profit, approximately 89.4% of
EBIT and approximately 89.9% of net income, of the combined company. Based on
capitalizations of Visigenic and Borland as of November 13, 1997, stockholders
of Visigenic and Borland would own approximately 22.8% and 77.2%,
respectively, of the combined company upon consummation of the Merger.
Discounted Cash Flow Analysis. BancAmerica Robertson Stephens performed a
discounted cash flow analysis of the unlevered (before interest expense)
after-tax cash flows of Visigenic using the Visigenic estimates for the fiscal
years 1998 through 2003. BancAmerica Robertson Stephens first discounted the
projected, unlevered after-tax cash flows through March 31, 2003 using a range
of discount rates from 15% to 20%. Visigenic unlevered after-tax cash-flows
were calculated as the after-tax operating earnings of Visigenic adjusted to
add back non-cash expenses and deduct uses of cash not reflected in the income
statement. BancAmerica Robertson Stephens then added to the present value of
the cash flows the terminal value of Visigenic in the fiscal year ending March
31, 2003, discounted back at the same discount rate. The terminal value was
computed by multiplying Borland's projected EBIT in fiscal 2003 by terminal
multiples ranging from 13x to 17x. The range of terminal multiples selected
reflect BancAmerica Robertson Stephens's judgment as to an appropriate range
of multiples at the end of the referenced period. The discounted cash flow
valuation resulted in an equity reference range of approximately $7.33 to
$11.21 per share, as compared to the equity value implied by the Aggregate
Merger Consideration of approximately $9.07 per share based on the closing
price of Visigenic Common Stock on November 13, 1997.
Pro Forma Earnings Analysis. BancAmerica Robertson Stephens analyzed certain
pro forma effects resulting from the Merger, including, among other things,
the impact of the Merger on the projected earnings per share ("EPS") of the
combined company for the calendar years 1998 and 1999 after taking into
account certain cost savings that the combined company may realize in its
operations following consummation of the Merger. Without taking into account
certain cost savings that the combined company may realize in its operations,
the results of the pro forma earnings analysis suggested that the Merger could
be dilutive to the combined company's EPS in the calendar year 1998 on a pro
forma basis and dilutive to the combined company's EPS in the calendar year
1999. After taking into account certain cost savings that the combined company
may realize in its operations in calendar years 1998 and 1999, the results of
the pro forma earnings analysis suggested that the Merger could be non-
dilutive to the combined company's EPS in each of calendar years 1998 and
1999. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion,
BancAmerica Robertson Stephens considered certain other factors and conducted
certain other comparative analyses, including, among other things, a review of
(i) the history of trading prices and volume for each of Visigenic Common
Stock and Borland Common Stock for the period November 13, 1996 to November
13, 1997; (ii) selected published analysts' reports on each of Visigenic and
Borland, including analysts' estimates as to the earnings growth potential of
Visigenic and Borland; and (iii) a cost of capital analysis for each of
Visigenic and Borland.
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While the foregoing summary describes certain analyses and factors that
BancAmerica Robertson Stephens deemed material in its presentation to the
Visigenic Board of Directors, it is not a comprehensive description of all
analyses and factors considered by BancAmerica Robertson Stephens. The
preparation of a fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. BancAmerica Robertson Stephens believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying the BancAmerica
Robertson Stephens Opinion. Several analytical methodologies were employed and
no one method of analysis should be regarded as critical to the overall
conclusion reached by BancAmerica Robertson Stephens. Each analytical
technique has inherent strengths and weaknesses, and the nature of the
available information may further affect the value of particular techniques.
The conclusions reached by BancAmerica Robertson Stephens are based on all
analyses and factors taken as a whole and also on application of BancAmerica
Robertson Stephens' own experience and judgment. Such conclusions may involve
significant elements of subjective judgment and qualitative analysis.
BancAmerica Robertson Stephens therefore gives no opinion as to the value or
merit standing alone of any one or more parts of the analysis it performed. In
performing its analyses, BancAmerica Robertson Stephens considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of Visigenic and Borland. The analyses performed by
BancAmerica Robertson Stephens are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
those suggested by such analyses. Accordingly, analyses relating to the value
of a business do not purport to be appraisals or to reflect the prices at
which the business actually may be purchased. Furthermore, no opinion is being
expressed as to the prices at which shares of Visigenic Common Stock may trade
at any future time.
Visigenic engaged BancAmerica Robertson Stephens pursuant to the Engagement
Letter on November 6, 1997. The Engagement Letter provides that, for its
services, BancAmerica Robertson Stephens is entitled to receive, contingent
upon consummation of the Merger, a transaction fee of $500,000. An initial fee
of $150,000 was due and payable to BancAmerica Robertson Stephens on November
18, 1997, a payment of $175,000 became due and payable to BancAmerica
Robertson Stephens upon delivery of its fairness opinion to the Visigenic
Board, and the remainder of the transaction fee is due and payable upon
consummation of the Merger. Visigenic has also agreed to reimburse BancAmerica
Robertson Stephens for its out-of-pocket expenses and to indemnify and hold
harmless BancAmerica Robertson Stephens and its affiliates and any person,
director, employee or agent of BancAmerica Robertson Stephens or any of its
affiliates, or any person controlling BancAmerica Robertson Stephens or its
affiliates for certain losses, claims, damages, expenses and liabilities
relating to or arising out of services provided by BancAmerica Robertson
Stephens as financial advisor to Visigenic. The terms of the fee arrangement
with BancAmerica Robertson Stephens, which Visigenic and BancAmerica Robertson
Stephens believe are customary in transactions of this nature, were negotiated
at arm's length between Visigenic and BancAmerica Robertson Stephens, and the
Visigenic Board was aware of such fee arrangements.
BancAmerica Robertson Stephens was retained based on BancAmerica Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancAmerica
Robertson Stephens investment banking relationship and familiarity with
Visigenic. BancAmerica Robertson Stephens has provided financial advisory and
investment banking services to Visigenic from time to time, including acting
as co-underwriter for its initial public offering.
BancAmerica Robertson Stephens is a nationally recognized investment banking
firm. As part of its investment banking business, BancAmerica Robertson
Stephens is frequently engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes. BancAmerica Robertson Stephens may actively trade the equity
securities of Visigenic and Borland for its own account and for the account of
its customers and, accordingly, may at any time hold a long or short position
in such securities. BancAmerica Robertson Stephens
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maintains a market in the Visigenic Common Stock and regularly publishes
research reports regarding the software industry and the business and
securities of Visigenic and other publicly traded companies in the software
industry.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Visigenic Record Date, directors and executive officers of
Visigenic and their affiliates beneficially owned an aggregate of 6,104,069
shares of Visigenic Common Stock (including 807,243 shares of Visigenic Common
Stock subject to Visigenic Options). Based upon the last reported sales price
of Borland Common Stock on January 23, 1998 of $7.03 the aggregate dollar
value of the shares of Borland Common Stock to be received in the Merger by
the executive officers and directors of Visigenic is approximately $30.5
million.
Messrs. Sippl and Christensen, and their respective spouses, who hold in the
aggregate approximately 26.4% of the shares of Visigenic outstanding as of the
Visigenic Record Date, have entered into Voting Agreements with Borland
pursuant to which each has agreed to vote in favor of the Merger. See "The
Merger--Voting Agreements."
Messrs. Sippl and Christensen each will enter into two-year employment
agreements which will become effective upon the Effective Time. Mr. Sippl will
become the Chief Technology Officer of Borland and Mr. Christensen will become
a Borland Fellow, the highest individual contributor position in Borland's
engineering department, and report to Mr. Sippl. See "The Merger--Employment
Agreements."
Certain current officers of Visigenic will enter into severance and
consulting agreements with Borland which will become effective upon the
Effective Time. Each agreement will amend the respective officer's employment
letter with Visigenic to provide certain benefits upon the termination of such
officer's employment with Borland. See "The Merger--Severance and Consulting
Agreements."
Certain Visigenic stock purchase agreements with employees entered into
between 1993 and 1995 ("Visigenic SPAs") permit the purchase by the employees
of shares prior to their vesting, subject to a right of repurchase by
Visigenic as set forth therein. These Visigenic SPAs provide that Visigenic's
unvested share purchase option shall lapse in full if the service of the
employee is terminated (either actually or constructively) under certain
circumstances on or after the Merger. Visigenic's right to repurchase unvested
shares subject to options granted under the Visigenic 1995 Stock Option Plan
(the "Visigenic Option Plan") and assumed by Borland (including unvested
shares sold, but still subject to such options) shall lapse if the
optionee/stockholder's service is terminated (either actually or
constructively) under certain circumstances on or after the Merger. On the
tenth day prior to the Merger, options granted under the Visigenic Director
Option Plan will vest in full. Purchases of stock through the current offering
under Visigenic's Employee Stock Purchase Plan will be moved up from the
regular purchase date thereof to immediately prior to the Effective Time. The
Visigenic Incentive Plan provides that on a transfer of control, such as the
Merger, awards will be deemed to have been achieved on a pro-rata basis
immediately prior to the consummation of the change of control instead of at
the time originally designated, if at all. Certain officer and employee offer
letters provide for acceleration of vesting or lapse of a right to repurchase
unvested shares upon a change of control. See "The Merger--Non-Compete and
Non-Solicitation Agreements."
Pursuant to the Merger Agreement, Borland has agreed to indemnify each
person who was an officer or director of Visigenic against certain
liabilities. In addition, Borland has agreed to maintain, with certain
limitations, policies of directors' and officers' liability insurance ("D&O
Insurance") comparable to those currently maintained by Visigenic, for six
years following the Effective Time. In no event will Borland be required to
expend in any one year an amount greater than 150% of the annual premiums
currently being paid by Visigenic for D&O Insurance. See "The Merger
Agreement--Certain Covenants and Agreements."
As a result of the foregoing transactions and agreements, the directors and
executive officers of Visigenic have personal interests in the Merger which
are not identical to the interests of the other Visigenic stockholders.
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Hambrecht & Quist, Borland's financial advisor, has previously provided
investment banking services to Visigenic and was paid fees for such services,
including 84,375 shares of Visigenic Common Stock which it currently owns. See
"The Merger--Opinion of Financial Advisor to Borland." Hambrecht & Quist has
advised Borland that it currently intends to vote such shares in favor of the
Merger and hold such shares through the consummation of the Merger (and
thereby convert such shares into Borland Common Stock). Based on the last
reported sales price of Borland Common Stock on January 23, 1998 of $7.03, the
aggregate dollar value of the shares of Borland Common Stock to be received in
the Merger by Hambrecht & Quist and officers and directors of Hambrecht &
Quist is approximately $593,156.
VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, Roger J. Sippl,
Chairman of the Board and Chief Executive Officer of Visigenic, and Jens
Christensen, Chief Technology Officer, Vice President, Advanced Systems and a
director of Visigenic and their respective spouses, who, as of the Visigenic
Record Date, together beneficially owned approximately 26.4% of the
outstanding shares of Visigenic Common Stock, entered into the Visigenic
Voting Agreements pursuant to which such persons agreed, among other things,
to vote their shares of Visigenic Common Stock in favor of approval and
adoption of the Merger Agreement and approval of the Merger. Concurrently with
the execution of each Visigenic Voting Agreement, each such stockholder
delivered to Borland an irrevocable proxy pursuant to which such stockholder
has appointed the Borland Board as such stockholder's proxy to vote all shares
of Visigenic Common Stock owned by such stockholder in a manner consistent
with the Visigenic Voting Agreement.
EMPLOYMENT AGREEMENTS
Messrs. Sippl and Christensen each will enter into two-year employment
agreements which will become effective upon the Effective Time. Under these
agreements, either Borland or the employees may terminate their employment
during or after the two-year term. Mr. Sippl will become the Chief Technical
Officer of Borland and will receive an annual salary of $250,000, an annual
performance bonus of up to $100,000 and a stock option exercisable for up to
250,000 shares of Borland Common Stock. Under his agreement, Mr. Sippl may
continue to participate in certain other business activities. Mr. Christensen
will become a Borland Fellow, the highest individual contributor position in
Borland's engineering department, and will receive an annual salary of
$160,000 per year, an annual performance bonus of up to $30,000 and a stock
option exercisable for up to 125,000 shares of Borland Common Stock. In
addition, upon termination other than "for cause," Mr. Sippl or Mr.
Christensen, as the case may be, would receive severance payments at their
base salary rate for a period of one year.
NON-COMPETE AND NON-SOLICITATION AGREEMENTS
Messrs. Sippl and Christensen each will enter into non-compete and non-
solicitation agreements with Borland prior to the Closing which will provide
that for a period equal to the lesser of two years from the Effective Time or
one year from the termination of such officer's employment with Borland, he
will not directly or indirectly engage or participate in the ownership,
management, operation, sales, control or other activities of any business
competitive with the business of Borland except, in the case of Mr. Sippl, to
the extent permitted by his employment agreement. In addition, the non-compete
and non-solicitation agreements provide that, for a period of one year from
the termination of such officer's employment with Borland, he will not
directly or indirectly recruit, induce or attempt to persuade any person who
is an employee, sales representative or consultant of Borland to terminate his
or her relationship with Borland.
SEVERANCE AND CONSULTING AGREEMENTS
Messrs. Hanson, Eichler and Chalmers and Ms. Langlais have each entered into
severance and consulting agreements with Borland which will become effective
as of the Effective Time. The agreements will amend each such individual's
employment letter with Visigenic to provide that, if, after the Effective
Time, the individual's employment is terminated by Borland without cause or
through a constructive termination, the individual will receive a severance
payment in an amount equal to the individual's then applicable annual base
salary, plus reimbursement for continued medical insurance coverage payments.
The agreements provide that, upon any such termination, the individual will
remain available to serve as a consultant to Borland on a full-time basis
until up
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to the ninetieth day following the Effective Time, at Borland's option, and on
a part-time basis thereafter until the second anniversary of the Effective
Time. Each such individual's consulting fee would be an amount equal to such
individual's salary rate at the time of termination for full-time consulting
service and $1,000 per day for part-time consulting service.
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 Borland
shall have received a letter from Price Waterhouse LLP, Borland's independent
public accountants, stating their concurrence with management, as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, and that Visigenic shall have
received a letter from Arthur Andersen LLP, Visigenic's independent public
accountants, stating that it believes that Visigenic could be a combining
entity in a transaction accounted for as a pooling of interests. Under pooling
of interests accounting, the recorded assets and liabilities of Borland and
Visigenic will be carried forward to the combined company at their recorded
amounts, income of the combined company will include income of Borland and
Visigenic for the entire fiscal year in which the combination occurs and the
reported income of the separate companies for prior periods will be combined
and restated as income of the combined company. Consummation of the Merger is
conditioned upon the written confirmation of such letters at the Effective
Time. See "The Merger Agreement--Conditions" and "Unaudited Pro Forma Combined
Financial Statements."
Each of the respective affiliates of Borland and Visigenic has agreed to
execute and deliver a written agreement to the effect that such person will
not transfer shares of Common Stock of either Borland or Visigenic during the
period beginning 30 days preceding the Effective Time and ending on the date
that Borland publishes financial statements which reflect 30 days of combined
post-Merger operations of Borland and Visigenic, subject to certain de minimus
exceptions. These agreements are intended to preserve Borland's ability to
account for the Merger as a pooling of interests.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses certain material federal income tax
considerations of the Merger that are generally applicable to holders of
Visigenic Common Stock. Visigenic stockholders should be aware that the
following discussion does not deal with all federal income tax considerations
that may be relevant to particular Visigenic stockholders in light of their
particular circumstances, such as stockholders who are dealers in securities,
who are foreign persons, who acquired their shares in connection with previous
mergers involving Visigenic or an affiliate or who acquired their Visigenic
Common Stock through stock option or stock purchase programs or in other
compensatory transactions or who hold their shares as part of a straddle,
hedge or other risk reduction strategy. In addition, the following discussion
does not address the tax consequences of transactions effectuated prior to or
after the Merger (whether or not such transactions are in connection with the
Merger) including, without limitation, the exercise of options or warrants to
purchase Visigenic Common Stock in anticipation of the Merger. Finally, no
foreign, state or local tax considerations are addressed herein. ACCORDINGLY,
VISIGENIC STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND RELATED TRANSACTIONS,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER AND SUCH RELATED TRANSACTIONS.
The following discussion is based upon the Internal Revenue Code of 1986, as
amended (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
such changes or
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interpretations could be applied retroactively and could affect the tax
consequences of the Merger to Borland, Visigenic and/or their respective
stockholders.
Neither Borland nor Visigenic has requested a ruling from the IRS in
connection with the Merger. However, it is a condition of the respective
obligations of Borland and Visigenic to consummate the Merger that Borland and
Visigenic receive confirming tax opinions from their respective legal counsel
to the effect that for federal income tax purposes, the Merger will constitute
a Reorganization (as defined below). These closing opinions, 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, exceptions and qualifications and will be
based on the truth and accuracy of certain representations of Borland,
Visigenic, Sub and certain Visigenic stockholders, including representations
contained in certain certificates of the respective managements of Borland,
Visigenic and Sub. In particular, Borland, Sub and Visigenic will represent
that they have no knowledge of any plan or intention on the part of
Visigenic's stockholders to engage in a sale, exchange, transfer,
distribution, pledge, distribution or any other transaction which results in a
reduction in the risk of ownership or direct or indirect disposition of
Borland Common Stock to be issued in the Merger, which shares would have an
aggregate fair market value in excess of 50% of the aggregate fair market
value, immediately prior to the Merger, of all outstanding shares of Visigenic
Common Stock; and the Tax Opinions will assume that there is in fact no such
plan or intention. If that assumption were incorrect, the Tax Opinions might
be adversely affected and could not be relied upon.
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code (a "Reorganization"). Subject to the limitations
and qualifications referred to herein, and as a result of the Merger
qualifying as a Reorganization, the following tax consequences should
generally result:
(a) No gain or loss will be recognized by the holders of Visigenic Common
Stock upon the receipt of Borland Common Stock solely in exchange for
Visigenic Common Stock in the Merger (except to the extent of cash received
in lieu of fractional shares);
(b) The aggregate tax basis of the Borland Common Stock to be received by
the Visigenic stockholders in the Merger (including any fractional share of
Borland Common Stock not actually received) will be the same as the
aggregate tax basis of the Visigenic Common Stock surrendered in exchange
therefor;
(c) The holding period of the Borland Common Stock received by each
Visigenic stockholder in the Merger will include the period during which
the Visigenic Common Stock surrendered in exchange therefor was held,
provided that the Visigenic Common Stock so surrendered is held as a
capital asset at the Effective Time;
(d) Cash payments received by Visigenic stockholders in lieu of receipt
of a fractional share of Borland Common Stock will be treated as if such
fractional share had been issued in the Merger and then redeemed by Borland
for cash with the recipient generally recognizing capital gain or loss
equal to the difference between the cash payment received and the Visigenic
stockholders' basis in such fractional share; and
(e) None of Borland, Sub or Visigenic will recognize gain or loss solely
as a result of the Merger.
A successful IRS challenge to the Reorganization status of the Merger would
result in a Visigenic stockholder recognizing gain or loss with respect to
each share of Visigenic 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 exchange therefor.
In such event, a stockholder's aggregate basis in the Borland Common Stock so
received would equal its fair market value, and the stockholder's 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 income or gain to the extent that such
shares were considered to be received in exchange for services or property
(other than solely for Visigenic Common Stock). All or a portion of such gain
may be taxable as ordinary income. Gain would also be recognized to the extent
that a Visigenic stockholder was treated as
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receiving (directly or indirectly) consideration other than Borland Common
Stock in exchange for the stockholder's Visigenic Common Stock.
Visigenic stockholders will be required to attach a statement to their tax
returns for the year of the Merger that contains the information listed in
Treasury Regulations Section 1.368-3(b). Such statement must include the
stockholder's tax basis in the stockholder's Visigenic Common Stock and a
description of the Borland Common Stock received.
NO APPRAISAL RIGHTS
Section 262 of the DGCL provides appraisal rights (sometimes referred to as
"dissenters' rights") to stockholders of Delaware corporations in certain
situations. However, Section 262 appraisal rights are not available to
stockholders of a corporation, such as Visigenic, (a) whose securities are
listed on a national securities exchange or are designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. ("NASD") and (b) whose stockholders
are not required to accept in exchange for their stock anything other than
stock of another corporation listed on a national securities exchange or an
interdealer quotation system by the NASD and cash in lieu of fractional
shares. Because Visigenic Common Stock is traded on such a system, The Nasdaq
National Market, and because the Visigenic stockholders are being issued
Borland Common Stock, which is also traded on The Nasdaq National Market,
stockholders of Visigenic will not have appraisal rights with respect to the
Merger. The DGCL does not provide appraisal rights to stockholders of a
corporation, such as Borland, which issues shares in connection with a merger
but is not itself a constituent corporation in the Merger.
REGULATORY REQUIREMENTS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. Borland, Visigenic
and Mr. Sippl filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division and each have been granted early termination of
the applicable 30-day waiting period. At any time before or after the
Effective Time, notwithstanding the early termination of the HSR Act waiting
period, the Antitrust Division or the FTC could take such action under the
antitrust laws or other grounds as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Borland or Visigenic. At any time
before or after the Effective Time of the Merger, and notwithstanding that
early termination of the HSR Act waiting period has been granted, any state
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of Visigenic or
businesses of Borland or Visigenic. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
Based on information available to them, Borland and Visigenic believe that
the Merger can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation
of the Merger on antitrust grounds will not be made or that, if such a
challenge were made, Borland and Visigenic would prevail or would not be
required to accept certain conditions, including certain divestitures, in
order to consummate the Merger.
FEDERAL SECURITIES LAW COMPLIANCE
All shares of Borland Common Stock received by Visigenic stockholders in the
Merger will be freely transferable, except that shares of Borland Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
for purposes of Rule 145 under the Securities Act) of Visigenic prior to the
Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in
the case of such persons who become affiliates of Borland) or as
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otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Visigenic or Borland generally include individuals or entities
that control, are controlled by, or are under common control with, such party
and may include certain officers and directors of such party as well as
principal stockholders or stockholders of such party. The Merger Agreement
requires Visigenic to use its best efforts to cause each of its affiliates to
execute a written agreement (an "Affiliate's Agreement") to the effect that
such person will not offer or sell or otherwise dispose of any of the shares
of Borland Common Stock issued to such person in or pursuant to the Merger in
violation of the Securities Act or the rules and regulations promulgated by
the Commission thereunder.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the Merger that the shares of Borland Common Stock to
be issued pursuant to the Merger Agreement and required to be reserved for
issuance in connection with the Merger be approved for quotation on The Nasdaq
National Market. Borland has begun preparation of a notification for listing
of such shares of Borland Common Stock on The Nasdaq National Market.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. This summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders
of Visigenic are urged to read the Merger Agreement in its entirety for a more
complete description of the Merger and related matters.
THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement and the approval of the Merger by the stockholders of
Visigenic, the approval of the issuance of Borland Common Stock pursuant to
the Merger Agreement by the stockholders of Borland, and the satisfaction or
waiver of the other conditions to the Merger, Sub will be merged with and into
Visigenic, with Visigenic continuing as the surviving corporation (the
"Surviving Corporation"), which shall be a wholly-owned subsidiary of Borland.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing of a Certificate of Merger with the
Secretary of State of Delaware and the Recorder of the County in which the
registered office of Visigenic is located (the "Effective Time").
CONVERSION OF SECURITIES
Upon consummation of the Merger pursuant to the Merger Agreement, each
issued and outstanding share of Visigenic Common Stock (other than shares
owned by Borland, Sub or any other wholly-owned subsidiary of Borland, all of
which will be canceled) will be converted into the right to receive 0.81988 of
a share of Borland Common Stock. Based upon the capitalization of Visigenic
and Borland as of January 23, 1998, the stockholders of Visigenic immediately
prior to the consummation of the Merger will own approximately 23.5% of the
outstanding shares of Borland Common Stock immediately following consummation
of the Merger. If any holder of shares of Visigenic Common Stock would be
entitled to receive a number of shares of Borland Common Stock that includes a
fraction, then, in lieu of a fractional share, such holder will be entitled to
receive cash in an amount equal to such fractional part of a share of Borland
Common Stock multiplied by the last reported sale price of Borland Common
Stock, as reported on The Nasdaq National Market, on the trading day
immediately preceding the date of the Effective Time. Each share of Sub Common
Stock issued and outstanding immediately prior to the Effective Time will be
converted into one share of Common Stock of the Surviving Corporation.
Promptly after the Effective Time, the Exchange Agent will mail transmittal
forms and exchange instructions to, each holder of record of Visigenic Common
Stock to be used to surrender and exchange certificates evidencing shares of
Visigenic Common Stock for certificates evidencing the shares of Borland
Common Stock (and cash in lieu of any fractional share) to which such holder
has become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing Visigenic Common Stock will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the number of whole
shares of Borland Common Stock to which such holder is entitled and any cash,
which may be payable in lieu of a fractional share of Borland Common Stock.
Such transmittal forms will be accompanied by instructions specifying other
details of the exchange. VISIGENIC STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND OTHER TRANSMITTAL
FORMS.
After the Effective Time, each certificate evidencing Visigenic Common
Stock, until so surrendered and exchanged, will be deemed, for all purposes,
to evidence only the right to receive the number of whole shares of Borland
Common Stock which the holder of such certificate is entitled to receive and
the right to receive any cash payment in lieu of a fractional share of Borland
Common Stock. The holder of such unexchanged certificate will not be entitled
to receive any dividends or other distributions payable by Borland until the
certificate has been exchanged. Subject to applicable laws, such dividends and
distributions, together with any cash payment in lieu of a fractional share of
Borland Common Stock, will be paid without interest.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) the due organization, valid
existence and good standing of each of Borland, Visigenic and their respective
subsidiaries and certain similar corporate matters; (b) the capital structure
of each of Borland and Visigenic; (c) the authorization, execution, delivery
and enforceability of the Merger Agreement; (d) the absence of conflicts under
charters or by-laws, required consents or approvals and violations of any
instruments or law; (e) documents and financial statements filed by each of
Borland and Visigenic with the Commission and the accuracy of information
contained therein; (f) the absence of undisclosed liabilities which in the
aggregate would be material; (g) the absence of certain material adverse
changes or events; (h) taxes, tax returns and audits; (i) properties; (j)
intellectual property; (k) agreements, contracts and commitments; (l)
litigation; (m) environmental matters including hazardous materials and
hazardous materials activities; (n) employee benefit plans; (o) insurance
maintained by Visigenic; (p) matters affecting the availability of pooling of
interests accounting; (q) interested party transactions; (r) the accuracy of
information supplied by each of Borland and Visigenic in connection with the
Registration Statement and this Joint Proxy Statement/Prospectus; (s) opinions
of financial advisors; (t) the absence of pending discussions by Visigenic
with other parties; (u) the interim operations of Sub; and (v) the valid
issuance of Borland Common Stock.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, Visigenic has agreed that, during the
period from the date of the Merger Agreement until the Effective Time, except
as otherwise consented to in writing by Borland or as contemplated by the
Merger Agreement, Visigenic and its subsidiaries will: (a) carry on its
business in the ordinary course in substantially the same manner as previously
conducted; (b) pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, and pay or perform its other obligations when due;
(c) use all reasonable efforts to preserve intact its present business
organization; (d) not accelerate, amend or change the period of exercisability
of options granted under any employee stock plan, except as required pursuant
to such plans or any related agreements; (e) not transfer or license or
otherwise extend, amend or modify any rights to its intellectual property
rights, other than in the ordinary course of business consistent with past
practices; (f) not declare or pay any dividends on or make other distributions
in respect of any of its capital stock, or effect certain other changes in its
capitalization; (g) not purchase, redeem or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with the termination of service; (h) not
issue, or authorize or propose the issuance of, any shares of its capital
stock or securities convertible into shares of its capital stock, or any
subscriptions, rights, warrants, or options to acquire, or other agreements
obligating it to issue any such shares or other convertible securities,
subject to certain exceptions including but not limited to the grant of
options for up to 150,000 additional shares of Visigenic Common Stock to
employees or consultants (excluding officers and directors); (i) not engage in
material acquisitions; (j) subject to certain exceptions, not sell, lease,
license or otherwise dispose of material properties or assets; (k) not
increase the compensation payable to its officers or employees (except for
increases consistent with past practices), grant additional severance or
termination pay or enter into employment agreements with officers or any non-
officer employee except in accordance with past practices enter into any
collective bargaining agreement or establish, adopt, enter into or amend any
plan for the benefit of its directors, officers, or employees, subject to
certain exceptions; (l) not revalue any of its assets, including writing down
the value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business; (m) not incur any material indebtedness
for money borrowed (or guarantees thereof) other than indebtedness incurred
under existing lines of credit; (n) not amend its Certificate of Incorporation
or Bylaws, except as contemplated by the Merger Agreement; (o) not incur
capital expenditures in excess of $200,000 per calendar month; (p) not enter
into or amend any agreements pursuant to which any third party is granted
exclusive marketing or manufacturing rights with respect to any Visigenic
product, subject to certain exceptions; (q) not amend or terminate any
material contract, agreement or license to which it is a party except in the
ordinary course of business; (r) not waive or release any material right or
claim, except in the ordinary course of business; (s) not initiate any
litigation or arbitration proceeding, subject to certain exceptions; (t) not
take any action that is reasonably likely to make any of its representations
and warranties
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inaccurate in any material respect as of the date made or, in certain
instances, as of the Effective Time; (u) promptly notify Borland of any event
or occurrence not in the ordinary course of business where such event or
occurrence would result in a breach of any covenant of Visigenic or cause any
representation or warranty of Visigenic to be inaccurate in any material
respect; and (v) confer on a regular basis with Borland on operational matters
of materiality.
Pursuant to the Merger Agreement, Borland has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by Visigenic or as contemplated by the
Merger Agreement, Borland and its subsidiaries will: (a) carry on its business
in the ordinary course in substantially the same manner as previously
conducted; (b) pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, and pay or perform its other obligations when due;
(c) use all reasonable efforts to preserve intact its present business
organization; (d) not declare or pay any dividends on or make any other
distributions in respect of any of its capital stock, or effect certain other
changes in its capitalization; (e) not purchase, redeem or otherwise acquire
directly or indirectly any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing
for the repurchase of shares in connection with any termination of service;
(f) not issue, deliver or sell to any of its directors, officers, employees or
consultants any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the issuance,
delivery and/or sale of shares or rights to purchase shares of Borland Common
Stock pursuant to its existing employee equity plans; (g) not issue, deliver
or sell or authorize any shares of its capital stock or securities by means of
any public offering registered under the Securities Act, or in any transaction
exempt from such registration where the gross proceeds from such transaction
are reasonably expected to exceed $50,000,000, unless Borland has advised
Visigenic in advance of its intention to effect such offering or enter into
such transaction and, if Visigenic so requests, consulted with Visigenic
regarding the advisability of such offering or transaction; (h) not acquire or
agree to acquire by merging or consolidating with, or by any other manner, any
business where the consideration to be paid by Borland therefor consists of
voting securities, cash and/or other assets having an aggregate value of more
than $125,000,000 unless Borland has advised Visigenic in advance of its
intention to effect such acquisition and, if Visigenic so requests, consulted
with Visigenic regarding the advisability of such proposed acquisition; (i)
not sell, lease, license or otherwise dispose of (by merger, consolidation,
sale of assets or otherwise) any of its properties or assets which are
material, individually or in the aggregate, to the business of Borland and its
subsidiaries, taken as a whole, except for licenses and sales in the ordinary
course of business; (j) not amend or propose to amend its Certificate of
Incorporation or Bylaws, except as contemplated by the Merger Agreement; (k)
not take any action that is reasonably likely to make any of its
representations or warranties inaccurate in any material respect as of the
date made or, in certain instances, as of the Effective Time; (l) promptly
notify Visigenic of any event or occurrence not in the ordinary course of
business where such event or occurrence would result in a breach of any
covenant of Borland or cause any representation or warranty of Borland to be
inaccurate in any material respect; and (m) confer on a regular basis with
Visigenic on operational matters of materiality.
NO SOLICITATION
The Merger Agreement provides that Visigenic will not, directly or
indirectly, through any officer, director, employee, representative or agent
of Visigenic, (i) solicit, initiate, seek, entertain or knowingly encourage or
support any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, sale of
any material portion of assets, sale of shares of capital stock of Visigenic
(including without limitation by way of a tender offer) constituting more than
10% of the total outstanding voting securities of Visigenic, other than the
transactions contemplated by the Merger Agreement (any of the foregoing
inquiries or proposals being referred to in the Merger Agreement as an
"Acquisition Proposal"), (ii) engage or participate in negotiations or
discussions concerning, or provide any nonpublic information to any person or
entity relating to, any Acquisition Proposal, or (iii) agree to, approve or
recommend any Acquisition Proposal; provided, however, that nothing contained
in the Merger Agreement shall prevent Visigenic or the Visigenic Board from
(A) providing non-public information to, or engaging or participating in
discussions or negotiations
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with, any person or entity in connection with an unsolicited bona fide written
Acquisition Proposal by such person or entity (including a new and unsolicited
Acquisition Proposal received by Visigenic after the execution of the Merger
Agreement from a person or entity whose initial contact with Visigenic may
have been solicited by Visigenic prior to the execution of the Merger
Agreement) or recommending such an unsolicited bona fide written Acquisition
Proposal to the stockholders of Visigenic, if and only to the extent that (1)
the Visigenic Board determines in good faith (after consultation with its
financial advisor) that such Acquisition Proposal would, if consummated,
result in a transaction more favorable to Visigenic's stockholders from a
financial point of view than the transaction contemplated by the Merger
Agreement (any such more favorable Acquisition Proposal being referred to as a
"Superior Proposal") and that the party making such Superior Proposal has the
financial means, or the ability to obtain the necessary financing, to conclude
such transaction, (2) the Visigenic Board determines in good faith (after
consultation with its outside legal counsel) that the failure to take such
action would create a substantial risk of liability for breach of its
fiduciary duties to Visigenic's stockholders under applicable law and (3)
prior to furnishing such non-public information to such person or entity, the
Visigenic Board receives from such person or entity an executed
confidentiality agreement with terms no more favorable to such party than
those contained in the non-disclosure agreements between Borland and
Visigenic; or (B) complying with Rule 14d-9 or Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal or making any
disclosure of Visigenic stockholders if, in the good faith judgment of the
Visigenic Board (after consultation with its outside legal counsel) failure to
do so would be inconsistent with any law, rule, regulation or duty applicable
to Visigenic or the Visigenic Board.
Visigenic is required to notify Borland (orally and in writing) within 24
hours after receipt of any Acquisition Proposal or request for non-public
information or access to its properties, books or records in connection with
an Acquisition Proposal.
INDEMNIFICATION
The Merger Agreement provides that from and after the Effective Time,
Borland shall indemnify, defend and hold harmless each person who was as of
the date of the Merger Agreement or had been at any time prior to the date
thereof, or who becomes prior to the Effective Time, an officer or director of
Visigenic or any of its subsidiaries against all losses, claims, damages,
costs, fines, penalties, expenses, fees (including reasonable attorneys'
fees), liabilities or judgment or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, the fact that such person is or was a director or officer of Visigenic or
any subsidiary, whether pertaining to any matter existing or occurring prior
to or after the Effective Time and whether asserted or claimed prior to, or at
or after, the Effective Time ("Indemnified Liabilities"). After the Effective
Time, Borland and the Surviving Corporation will fulfill and honor in all
respects the obligations of Visigenic pursuant to the Certificate of
Incorporation and Bylaws of Visigenic and any indemnification agreements with
Visigenic directors and officers existing as of the date of the Merger
Agreement.
In addition, Borland has agreed to maintain, or cause the Surviving
Corporation to maintain, in effect a policy or policies of directors and
officers liability insurance with coverage substantially comparable to
policies in force as of November 17, 1997 covering the present and former
directors and officers of Visigenic for a period of not less than six years
following the Effective Time; provided, however, that in no event shall
Borland or the Surviving Corporation be required to expend in any one year an
amount in excess of 150% of the annual premiums currently paid by Visigenic
for such insurance; and, provided, however, that if during such period the
annual premiums for such comparable insurance coverage exceed such amount,
Borland or the Surviving Corporation shall be obligated to obtain a policy
which, in the reasonable judgment of Borland, provides the best coverage
available for a cost not exceeding such amount.
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CONDITIONS
The respective obligations of Borland and Visigenic to effect the Merger are
subject to the following conditions, among others: (a) the Merger Agreement
shall have been approved and adopted by the stockholders of Visigenic and the
issuance of Borland Common Stock pursuant to the Merger Agreement shall have
been approved by the Borland stockholders; (b) the waiting period applicable
to the consummation of the Merger under the HSR Act shall have expired or been
terminated; (c) all material governmental authorizations, consents, orders or
approvals shall have been obtained; (d) the Registration Statement shall have
become effective and shall not be the subject of a stop order or proceedings
seeking a stop order; (e) no temporary restraining order, preliminary or
permanent injunction or other order shall be in effect nor shall there be any
proceeding seeking any of the foregoing that prevents, or seeks to prevent,
the consummation of the Merger; (f) no action shall be taken, nor any statute,
rule, regulation, or order enacted, entered, enforced or deemed applicable to
the Merger which makes the consummation of the Merger illegal in any
jurisdiction in the United States; (g) Borland and Visigenic shall have
received letters from Price Waterhouse LLP and Arthur Andersen LLP,
respectively, dated and confirmed in writing at the Effective Time, stating
that they know of nothing that would prohibit the business combination from
qualifying as a pooling of interests transaction under generally accepted
accounting principles (see "The Merger--Accounting Treatment"); (h) the shares
of Borland Common Stock to be issued in the Merger shall have been approved
for quotation on The Nasdaq National Market; (i) Borland shall have received a
written opinion from GCW&F, counsel to Borland, and Visigenic shall have
received an opinion of CG, special counsel to Visigenic, both to the effect
that the Merger will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code (see "The
Merger--Certain Federal Income Tax Consequences"); (j) the execution of
employment agreements and non-competition agreements by certain employees of
Visigenic with and in favor of Borland; (k) subject to certain exceptions, the
accuracy of the representations and warranties of the other party set forth in
the Merger Agreement; (l) subject to certain exceptions, the performance of
all obligations of the other party required to be performed under the Merger
Agreement; and (m) subject to certain exceptions, no material adverse change
shall have occurred in the business, operations, financial condition or
results of operations of Borland or Visigenic (changes relating to general
business and economic conditions, pendency of the Merger or actions
contemplated by the Merger Agreement shall be disregarded). Borland and
Visigenic agreed that a material and adverse deviation in the financial
performance of a party from the consensus of published financial analyst
estimates as of the date of the Merger Agreement for the fiscal quarter ending
December 31, 1997 may be deemed a material adverse change with respect to such
party. Any of the conditions in the Merger Agreement may be waived by the
party benefited thereby, except those conditions imposed by law.
STOCK PLANS AND OPTIONS
At the Effective Time, each outstanding option to purchase shares of
Visigenic Common Stock under the Visigenic Option Plan and the individual
options assumed by Visigenic pursuant to prior Visigenic acquisitions
("Visigenic Options") shall be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such Visigenic Option,
the number of shares of Borland Common Stock (rounded down to the nearest
whole number) as the holder of such Visigenic Option would have been entitled
to receive pursuant to the Merger had such holder exercised such option in
full immediately prior to the Effective Time, at a price per share (rounded up
to the nearest tenth of a cent) equal to (i) the aggregate exercise price for
the shares of Visigenic Common Stock otherwise purchasable pursuant to such
Visigenic Option divided by (ii) the number of whole shares of Borland Common
Stock deemed purchasable pursuant to such Visigenic Option as determined above
as of the Effective Time. As of January 23, 1998, Visigenic Options to acquire
an aggregate of 3,287,780 shares of Visigenic Common Stock were outstanding.
Borland has agreed to reserve for issuance a sufficient number of shares of
Borland Common Stock for delivery upon exercise of the Visigenic Options
assumed as described above. On the first business day after the date of the
Effective Time, Borland shall file a registration statement on Form S-8 with
respect to the shares of Borland Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statement(s) and the current status of the prospectus(es) contained therein
for so long as such
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options remain outstanding. With respect to individuals, if any, who will be
subject to the reporting requirements under Section 16(a) of the Exchange Act
after the Merger, Borland has agreed to administer the options under the
Visigenic Employee Option Plan assumed in the Merger in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act.
Visigenic has agreed to take such action as is necessary to cause the ending
date of the then current offering period of the Visigenic Stock Purchase Plan
to be the last trading day on which the Visigenic Common Stock is traded on
The Nasdaq National Market immediately prior to the Effective Time (the "Final
Visigenic Purchase Date"); provided, that, such change in the current offering
period shall be conditioned upon the consummation of the Merger. On the Final
Visigenic Purchase Date, Visigenic shall apply the funds credited as of such
date under the Visigenic Stock Purchase Plan within each participant's payroll
withholding account to the purchase of whole shares of Visigenic Common Stock
in accordance with the terms of the Visigenic Stock Purchase Plan.
Employees of Visigenic as of the Effective Time shall be permitted to
participate in the Borland 1997 Employee Stock Purchase Plan commencing on the
first enrollment date following the Effective Time, subject to compliance with
the eligibility provisions of the plan. Employees of Visigenic will each
receive credit, for purposes of such eligibility provisions, for prior service
with Visigenic or Borland.
Under Visigenic's Incentive Plan, Visigenic's Compensation Committee has
awarded performance units that vest and become payable if one or more
preestablished performance goals are attained during a specified performance
period and the participant remains an employee of Visigenic during such
performance period. In accordance with the change of control provisions of the
Visigenic Incentive Plan, at the Effective Time participants will be paid the
value of their performance units for the performance period then in effect
that would have vested had the performance goals been attained at the target
level, pro rated for the portion of the performance period elapsed prior to
the Effective Time. Participants will be entitled to elect to receive payments
in cash or Visigenic Common Stock.
Under the Visigenic Director Option Plan, all then outstanding options to
purchase Visigenic Common Stock issued under such plan will terminate in
accordance with the terms of the Visigenic Director Option Plan.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Visigenic or Borland:
(a) by the mutual written consent of Borland and Visigenic;
(b) by either Borland or Visigenic if the Merger shall not have been
consummated by March 31, 1998 (provided that, with certain exceptions, the
right to terminate the Merger Agreement under this clause shall 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
Merger to occur on or before such date);
(c) by either Borland or Visigenic if a court of competent jurisdiction
or other Governmental Entity (as defined in the Merger Agreement) shall
have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except, if the party relying
on such order, decree or ruling or other action has failed to comply in any
material respect with its obligations under Section 6.7 (Legal Conditions
to Merger) of the Merger Agreement;
(d) by either Borland or Visigenic, if at the Visigenic Special Meeting
or the Borland Special Meeting (including any adjournment or postponement)
the final vote of the stockholders shall have been taken and, in respect of
Visigenic and Borland, the requisite vote to approve the Merger shall not
have been obtained (provided, however, that the right to terminate the
Agreement in this instance shall not be available to any party which has
failed to comply in any material respect with its obligations under
Sections 6.2 (Proxy Statement; Registration Statement) and 6.6 (Stockholder
Meetings) of the Agreement);
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(e) by Borland, if (i) the Visigenic Board shall have withdrawn or
modified its recommendation of the Merger Agreement or the Merger in a
manner adverse to Borland or shall have resolved or publicly announced its
intention to do so; (ii) an Alternative Transaction (as defined in the
Merger Agreement) shall have been consummated or the Visigenic Board shall
have recommended to the stockholders of Visigenic an Alternative
Transaction or shall have resolved or publicly announced its intention to
recommend or engage in such an Alternative Transaction; or (iii) a tender
offer or exchange offer for 50% or more of the outstanding shares of
Visigenic Common Stock is commenced (other than by Borland or an affiliate
of Borland) and the Visigenic Board shall have (A) recommended (or resolved
or publicly announced its intention to recommend) that the stockholders of
Visigenic tender their shares in such tender or exchange offer or (B)
resolved or publicly announced its intention to take no position with
respect to such tender or exchange offer;
(f) by Visigenic, if the Visigenic Board shall have determined (i) to
recommend an Acquisition Proposal to its stockholders after determining,
pursuant to the Agreement, that such Acquisition Proposal constitutes a
Superior Proposal or (ii) to withdraw its recommendation of the Merger
Agreement or the Merger in accordance with the provisions of Section 6.2
(Proxy Statement; Registration Statement) of the Agreement; or
(g) by Borland or Visigenic, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, which breach (i) causes the
conditions set forth in Sections 7.2(a) or (b) (in the case of termination
by Borland) or 7.3(a) or (b) (in the case of termination by Visigenic) of
the Merger Agreement (relating to the accuracy of representations and
warranties of the other party and performance by the other party of certain
obligations) not to be satisfied and (ii) shall not have been cured within
20 business days following receipt by the breaching party of written notice
of such breach from the other party.
The Merger Agreement does not include any provision for termination based on
fluctuations in the price of Borland Common Stock.
In the event of any termination of the Merger Agreement by either Borland or
Visigenic as provided above, there will be no liability or obligation on the
part of Borland, Visigenic, Sub or their respective officers, directors,
stockholders or affiliates, except to the extent that such termination results
from the willful breach by a party of any of its representations, warranties,
covenants or agreements set forth in the Merger Agreement, provided that the
provisions described below relating to the payment of fees and expenses shall
survive any such termination.
Except as described below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring
such expenses, except that all fees and expenses, other than attorneys' fees,
incurred in connection with the printing and filing of this Joint Proxy
Statement/Prospectus shall be shared equally by Borland and Visigenic.
If the Merger Agreement is terminated by Borland or by Visigenic pursuant to
paragraph (d) above as a result of the failure to receive the requisite vote
by the stockholders of Visigenic to approve the Merger, or by Visigenic
pursuant to paragraph (f) above, the Merger Agreement provides that Visigenic
shall reimburse Borland for all of its reasonable and documented legal,
accounting and financial advisory fees and all other reasonable and documented
out-of-pocket expenses incurred by Borland in connection with the Merger
Agreement and the transactions contemplated thereby, in an aggregate amount
not to exceed $750,000.
If (i) the Merger Agreement is terminated by Borland pursuant to paragraph
(e) above or by Visigenic pursuant to paragraph (f) above, and (ii) within six
months after such termination, an Alternative Transaction (as defined in the
Merger Agreement) is consummated, Visigenic shall pay to Borland a termination
fee of $4,000,000 in cash, less any amount previously paid by Visigenic in
reimbursement of Borland's expenses, at or prior to the consummation of such
Alternative Transaction.
If the Merger Agreement is terminated by Borland or Visigenic pursuant to
paragraph (d) above as a result of the failure to receive the requisite vote
by the stockholders of Borland to approve the issuance of Borland
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Common Stock in the Merger, Borland shall pay to Visigenic a termination fee
of $4,000,000 in cash within one business day after such termination.
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of Borland and Visigenic, but
after approval by the stockholders of Visigenic of the matters presented in
connection with the Merger to them, no amendment shall be made which by law
requires further approval by such stockholders, without such further approval.
Borland and Visigenic, by action taken or authorized by their respective
Boards of Directors, may extend the time for performance of the obligations or
other acts of the other parties to the Merger Agreement, may waive
inaccuracies in the representations or warranties contained in the Merger
Agreement or may waive compliance with any agreements or conditions for the
benefit of each party contained in the Merger Agreement.
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INFORMATION CONCERNING BORLAND
The following Business section contains forward-looking statements which
involve risks and uncertainties. Borland's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those factors set forth under "Risk
Factors" and elsewhere in this Proxy Statement/Prospectus.
BUSINESS
Borland develops, markets and supports software development tools,
intelligent middleware, database management systems, and application
management systems for business enterprises and independent software
developers. Borland has several product lines and additional complementary
products and services that are designed to meet the needs of software
developers and business enterprises developing and using software in desktop,
local area network ("LAN"), client/server, enterprise and Internet/intranet
environments.
Borland is organized around its major products, a family of interoperable
development tools, that include versions for desktop users, professional
developers and large business enterprises.
Borland's business strategy centers around its Information Network product
strategy. An Information Network is a network of interconnected resources that
cooperate to transform an organization's data into real-time information that
is customized for, and meaningful to, its users, whether they be employees,
customers or suppliers. Borland's Information Network strategy encompasses all
of Borland products with the objective of providing customers with an
integrated family of component-based development applications and intelligent
middleware that enable customers to develop Information Network applications.
The strategy is designed to allow software developers to scale applications
for both centralized and decentralized information technology ("IT")
departments and to integrate legacy computing systems, new computing systems
and emerging Internet/intranet technologies independent of any underlying
network architecture.
Borland markets and distributes its products worldwide primarily through
independent distributors, dealers, value-added resellers ("VARs") and
independent software vendors ("ISVs"). Borland also markets and sells to
corporations, governments, educational institutions and end-user customers
through direct sales and through the Internet.
PRODUCTS
Borland develops, markets and supports computer software, primarily
programming and database management tools for building small and large scale
business software system. Borland's family of interoperable tools allow
software developers to create software applications for single desktop
computers, larger networked client/server database systems, corporate
intranets, the Internet and enterprise-wide computing environments.
Borland's product offerings can be divided into four categories: Programming
tools, Internet/intranet products, Intelligent middleware and Databases.
Programming Tools
Borland's Windows programming tools include Borland C++, Borland C++Builder
and Delphi. These tools are based on programming languages to enable
developers to write software applications that can be executed by a computer
running Microsoft Windows 3.1, Windows 95 or Windows NT operating systems.
Borland's language tools are known for their high performance, ease of use
and reliability of generated code. These products are primarily designed for
professional software developers.
Borland C++ and Borland C++Builder are Borland's software development tools
and compilers in the C and C++ computer languages. C is a programming language
often used by programmers to write operating
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systems, systems software and software application programs. C++ is an
enhanced version of the C language that has object-oriented extensions. The
newest addition to the product line is Borland C++Builder. This product
provides software developers with the power of the C++ programming language
combined with the ease-of-use of rapid application development ("RAD")
environment which was pioneered by Borland's Delphi product described below.
Borland's Delphi product is a high-performance rapid application software
development tool based on the Pascal computer language. The Delphi product
combines visual productivity tools and a high-performance compiler so that
software developers can build high-speed desktop and advanced database systems
in less time than would be possible with conventional programming tools. There
are four separate versions of Delphi each of which is designed for a separate
market, of these, the Delphi Client/Server Suite is an advanced developer tool
for building large-scale, high-performance enterprise applications that can
access relational database management system ("RDBMS") servers. The Delphi
product line also includes a client/server edition for the IBM AS/400 hardware
platform.
Internet/Intranet Products
Borland has developed new products that facilitate software development for
the emerging Internet and intranet environments. In September 1997, Borland
released JBuilder which is a family of visual development tools for creating
high-performance, platform-independent applications using the Java programming
language. JBuilder's scalable, component-based environment is designed for all
levels of Information Network development projects ranging from applets and
applications that require desktop connectivity, to client/server and
enterprise-wide, distributed multi-tier systems. JBuilder also provides
developers with a flexible open architecture to incorporate third-party tools,
add-ins and JavaBean components. Borland's DataGateway product provides Java
developers with a multi-tier, database connectivity solution adhering to
industry standard JDBC. Borland DataGateway provides native database
connectivity to Oracle, Sybase, DB2, Microsoft SQL Server, Informix, Borland
InterBase, Paradox, Access, dBASE, and FoxPro. Borland's IntraBuilder product
combines visual development tools with a scalable application server to build
Web applications for enterprise-wide data sharing.
Intelligent Middleware
Through the acquisition of Open Environment Corporation ("OEC") in fiscal
1997, Borland added Entera and OLEnterprise to its family of development
tools. These products are described in the computer software industry as
intelligent middleware. These products are designed to allow software
developers to build, manage and deploy large-scale and robust enterprise
applications in a multi-tier computing environment. Entera provides an
enterprise operating environment for building flexible integrated information
systems. All of Borland's tools, such as Delphi and Borland C++, can be
combined with the Entera middleware technology to deliver scaleable, multi-
tier applications for business enterprises. This provides customers with a
reliable software development environment that spans from desktop and two-tier
client/server computing environments to multi-tier, enterprise-wide and
Internet/intranet computing environments. OLEnterprise is designed to provide
stability and reliability in a distributed, multi-tier computing environment
so that integral business systems will operate continuously.
Databases
Borland's database management tool, Visual dBASE, is based on the dBASE
programming language. This product enables users to create, save, retrieve and
manipulate databases, as well as to create both standard and customized
reports. The latest version of Visual dBASE includes a set of utilities that
allows dBASE developers to create interactive database applications for the
Internet and intranets.
InterBase is a relational database management system that operates on
personal computers, minicomputers and workstations. InterBase provides unique
solutions for creating new software applications or converting existing
software applications to take advantage of expanding Internet/intranet
technology.
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PRODUCT DEVELOPMENT
Borland is known for consistently providing high-quality and innovative
software tools for customers seeking greater productivity. Borland's research
and development programs are designed to develop new products and improve
existing products so as to maintain and improve Borland's competitive position
in the software development and application management tools business.
Borland's research and development efforts also support its Information
Network strategy which is designed to provide software tools that bridge
between enterprise and Internet/intranet architectures, decentralized and
centralized IT departments and that provide interoperability between competing
technology standards. In addition to internal development, Borland from time
to time acquires new products and enhancements through acquisitions or
licensing from third parties.
Borland believes that its ability to develop innovative and successful
products depends in large part upon successfully executing product planning
strategies and research and development activities and upon its ability to
attract, hire and retain highly qualified engineers.
Although Borland believes that its product planning strategy and development
processes will result in the successful development of technology innovations
in the future, due to the inherent uncertainties of software development,
there can be no assurance that Borland will be successful, or if successful,
such innovations will result in increased revenues or profits.
MARKETING AND DISTRIBUTION
Borland's products are sold to a broad customer base, which includes
businesses, educational institutions, government bodies and individual
software developers. Borland distributes its products domestically and
internationally, primarily through distributors, dealers, ISVs and VARs.
Borland also sells through a direct sales force and via the Internet. Because
Borland generally ships products upon receipt of orders, backlog is neither
significant nor an important measure of revenue for any future period.
Borland offers a number of marketing programs to assist its distributors,
retailers and resellers in their sales efforts. These programs include
corporate marketing and advertising and special sales incentives to retailers.
In addition, Borland permits its distributors to balance their inventories by
periodically returning contractually limited amounts of products in exchange
for other Borland products. Borland includes an estimate for returns in its
reserves for the amount of product which may be exchanged in accordance with
this policy.
Borland is investing in communicating with its customers by electronic
means, and Borland has established a presence on the Internet through its web-
site, Borland Online. Through Borland Online, customers may access information
regarding Borland's products, participate in online discussion forums,
download trial versions of certain products and purchase some of Borland's
products.
PRODUCT SUPPORT
Borland offers free installation support to the purchasers of its products,
including access to its technical support personnel through a special
telephone support line, through national electronic bulletin board services
and through the Internet. End-users also receive further support and
information from Borland and dealers through their local end-user groups.
Support requirements have increased in recent years as product offerings have
become more complicated. Borland has sought to address increasing support
requirements in numerous ways, including making its products easier to install
and offering multiple kinds of support programs, including paid-for support
programs.
INTERNATIONAL SALES AND OPERATIONS
International net revenues (including exports from the U.S.) accounted for
approximately 62%, 51% and 45% of net revenues in fiscal 1997, 1996 and 1995,
respectively.
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Borland believes that its international diversification not only increases
revenues but also provides stability to its business and reduces the impact on
Borland of adverse economic changes in any single country. Borland's
international business is subject to risks customarily encountered in foreign
operations, including fluctuations in monetary exchange rates, import and
export controls and the economic, political, tax and regulatory laws and
policies of foreign governments. Furthermore, Borland can provide no assurance
that its diversification strategy will be successful.
COMPETITION
Borland is in an extremely competitive industry which has been subject to
continual and rapid change. Certain of Borland's competitors have
substantially greater financial, management, marketing and technical resources
than Borland. In particular, Microsoft is a major competitor in development
tools and applications programs. Other competitors include Computer
Associates, Forte, Oracle, Sybase and Symantec. Current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of Borland's prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge in the future. 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.
Borland believes that the principal competitive factors in its industry are
technology, distribution and marketing capability, pricing, product
performance (including scalability and interoperability) and customer support.
To remain competitive, Borland must continually introduce new technologically
advanced products and update of existing products. As a result of rapid and
continual advances in the technology and the marketplace there can be no
assurance that Borland will be able to deliver such products and updates.
MANUFACTURING
Borland out-sources its manufacturing support. Borland's products are
principally sold in CD ROM format together with user manuals. Borland believes
that there are adequate supplies of and sources for the raw materials for its
products and that there are multiple sources available for CD ROM replication
and printing of manuals.
Borland has final quality control tests performed on its products which
Borland believes effectively accomplish its product quality assurance goals.
There can be no assurance that Borland's quality control efforts will always
be successful.
PATENTS, COPYRIGHT AND TRADEMARKS
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 copy
aspects of Borland's products or obtain and use information that Borland
regards as proprietary. Policing unauthorized use of Borland's products is
difficult, and 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 the steps taken by the company to protect its proprietary
rights in the United States or abroad will be adequate.
Although there are no pending material lawsuits against Borland regarding
infringement of any existing patents or other intellectual property rights,
there can be no assurance that infringement claims will not be asserted by
third parties in the future. If any such claims are asserted, there can be no
assurance that Borland will be able to obtain licenses of the intellectual
property rights in question on reasonable terms. Borland's involvement in any
patent dispute or other intellectual property dispute or action to protect
trade secrets and proprietary information may have a material adverse effect
on Borland. Adverse determinations in any litigation may subject Borland to
significant liabilities to third parties, require Borland to seek licenses
from third parties
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and prevent Borland from manufacturing and selling its products. Any of these
situations can have a material adverse effect on Borland's business, results
of operations or financial condition.
LITIGATION
Borland is a party to a lawsuit, Kaplan, et al vs. Kahn, et al, originally
filed in the United States District Court for the Northern District of
California in January 1993. This lawsuit alleges certain securities law
violations by Borland and certain of its officers and directors. The
complaint, as amended, purports to be brought as a class action on behalf of
investors who purchased or otherwise acquired Borland Common Stock between
March 5, 1991 and December 9, 1992. Borland and certain of its officers and
directors were named as defendants in a second lawsuit, Crook, et al vs. Kahn,
et al, filed in the U.S. District Court for the Northern District of
California on February 28, 1995. The complaint alleges certain violations of
the federal securities laws and purports to be brought as a class action on
behalf of all persons other than the defendants, who purchased or otherwise
acquired Borland Common Stock between June 6, 1994 and October 19, 1994. As of
February 29, 1996, the parties had entered into a stipulation to settle both
lawsuits. This stipulation was submitted for court approval and monies were
deposited in escrow to fund the settlement. At the time, Borland recorded a
charge in the amount of its contribution to the settlement to be paid by
Borland. On May 29, 1997, the Court entered an order declining to approve the
present plan of allocation proposed by counsel for the class representatives,
but that order now has been vacated and the parties have submitted additional
material in support of the plan for distributing the settlement proceeds.
Another hearing on the plan was held on November 12, 1997. At this time, there
can be no assurance whether the plan will be approved, either in present or a
modified form. If these lawsuits are not settled and the cases are litigated,
an adverse decision in either case could have a material adverse effect on
Borland's financial condition and results of operations.
On January 16, 1996, in the case of Lotus Development Corp. vs. Borland
International, Inc., the U.S. Supreme Court affirmed the judgment of the U.S.
Court of Appeals for the First Circuit that Borland did not infringe the
copyright of Lotus's spreadsheet product, Lotus 1-2-3. Borland initiated
proceedings in the U.S. District Court in Massachusetts for a determination of
what attorneys fees and costs, if any, Borland may recover. On February 26,
1997, the U.S. District Court in Massachusetts denied Borland's request for
attorneys fees but awarded costs to Borland in a small amount. Borland has
appealed the U.S. District Court's denial of attorneys fees and payment of
full costs and a hearing was held on January 9, 1998 in the U.S. Court of
Appeals for the First Circuit. The appeal is under submission.
Three securities class action lawsuits have been filed against Borland's OEC
subsidiary, certain former officers and directors of OEC, and OEC's outside
auditors. These three lawsuits have been consolidated in the United States
District Court for the District of Massachusetts under the name Zeid, et al.
v. Open Environment Corp., et al. The consolidated lawsuit alleges violations
of the federal securities laws prior to Borland's acquisition of OEC. The
lawsuit is purportedly brought as a class action on behalf of purchasers of
OEC stock from April 13, 1995 to October 10, 1996. The Company and other
defendants filed a motion to dismiss the consolidated complaint on December
16, 1997. The motion was granted in part and denied in part. The case will now
proceed to the discovery phase. No trial date has been set. Borland's OEC
subsidiary intends to defend this lawsuit vigorously. If this lawsuit is not
settled and the case is litigated, an adverse decision could have a material
adverse effect on Borland's financial condition and results of operations.
In addition, Borland is involved in various other legal actions arising in
the normal course of business. Borland believes that the probability is remote
that the financial consequence of judgments, if any, arising from any of the
above actions would have a materially adverse impact on its financial
condition or results of operations. However, due to the inherent uncertainties
of litigation, the outcome of any of these actions could be unfavorable and
Borland may choose to make payments, or enter into other arrangements, to
settle such actions or may be required to pay damages or other expenses. Such
an outcome in certain of these matters could have a material adverse effect on
Borland's financial condition or results of operations.
EMPLOYEES
Borland believes that its success is highly dependent upon its ability to
recruit, retain and motivate qualified employees. Borland is subject to
regular, intense and at times extraordinary competition for such employees and
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has taken actions that it has determined to be necessary or appropriate to
attract and retain such employees in light of such competition and recruiting
efforts. There can be no assurance, however, that Borland will continue to be
successful in doing so in the future.
None of Borland's U.S. employees are represented by a labor union. Employees
of certain of Borland's subsidiaries may be represented by worker's councils
or other similar organizations as required by local regulations. Borland
believes that its relations with its employees are good.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains forward-looking statements which
involve risks and uncertainties. Borland's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the additional factors set forth under
"Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes for the fiscal year
ended March 31, 1997 in Borland's Annual Report on Form 10-K and in Borland's
Quarterly Report on Form 10-Q for the three-month periods ended June 30, 1997
and September 30, 1997, incorporated by reference in this Joint Proxy
Statement/Prospectus (the "Borland Consolidated Financial Statements").
OVERVIEW
Borland develops, markets and supports software development tools,
intelligent middleware, database management systems, and application
management systems for business enterprises and independent software
developers. Borland has several product lines and additional complementary
products and services that are designed to meet the needs of software
developers and business enterprises developing and using software in desktop,
LAN, client/server, enterprise and Internet/intranet environments.
Borland is organized around its major products, a family of interoperable
development tools, that include versions for desktop users, professional
developers and large business enterprises.
Borland's business strategy centers around its Information Network product
strategy. An Information Network is a network of interconnected resources that
cooperate to transform an organization's vast amount of data into real-time
information that is customized for, and meaningful to, its users, whether they
are employees, customers or suppliers. Borland's Information Network strategy
encompasses all of Borland products with the objective of providing customers
with an integrated family of component-based development applications and
intelligent middleware that enable customers to develop Information Network
applications. The strategy is designed to allow software developers to scale
applications for both centralized and decentralized IT departments and to
integrate legacy computing systems, new computing systems and emerging
Internet/intranet technologies independent of any underlying network
architecture.
Borland distributes its products domestically and internationally through
independent distributors, dealers, ISVs and VARs and also markets and sells to
corporations, government bodies, educational institutions and end-user
customers through direct sales and through the Internet. Borland offers
certain return privileges to some of its customers and also offers its
distributors certain limited product exchange privileges and rebates. Borland
recognizes revenue upon shipment; and allowances for estimated future returns,
exchanges and rebates are recorded as a reduction of revenue at that time.
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RESULTS OF OPERATIONS
The following table sets forth Borland's unaudited consolidated results of
operations as a percentage of net revenues for the three months and six months
ended September 30, 1997 and 1996 and for the fiscal years ended March 31,
1997, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED MARCH
SEPTEMBER 30, SEPTEMBER 30, 31,
-------------- -------------- --------------------
1997 1996 1997 1996 1997 1996 1995
------ ------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...... 15.0 19.2 15.1 21.2 19.5 15.6 21.9
------ ------ ------ ------ ----- ----- -----
Gross margin........ 85.0 80.8 84.9 78.8 80.5 84.4 78.1
Selling, general and
administrative....... 59.0 82.9 59.2 92.7 94.7 57.8 76.4
Research and
development.......... 23.3 37.3 24.2 36.0 36.4 20.7 23.5
Restructuring and
merger related
charges.............. -- -- -- 1.4 12.5 0.3 23.2
Other non-recurring
charges.............. -- -- -- -- 11.3 -- --
------ ------ ------ ------ ----- ----- -----
Total operating
expenses........... 82.3 120.2 83.4 130.1 154.9 78.8 123.1
------ ------ ------ ------ ----- ----- -----
Operating income
(loss)............... 2.7 (39.4) 1.5 (51.3) (74.4) 5.6 (45.0)
Interest income, net
and other............ 1.4 4.2 .9 4.6 3.4 1.8 1.3
Gain on sale of
Quattro Pro.......... -- -- -- -- -- -- 40.4
------ ------ ------ ------ ----- ----- -----
Income (loss) before
income taxes....... 4.1 (35.2) 2.4 (46.7) (71.0) 7.4 (3.3)
Income tax provision.. 0.5 1.2 0.5 (0.1) 0.3 1.4 1.0
------ ------ ------ ------ ----- ----- -----
Net income (loss)... 3.6% (36.4)% 1.9% (46.6)% (71.3)% 6.0% (4.3)%
====== ====== ====== ====== ===== ===== =====
</TABLE>
RECENT DEVELOPMENTS
On January 9, 1998, Borland announced that it expected that revenues for its
fiscal quarter ended December 31, 1997 will not deviate materially from then
current published analyst estimates of between approximately $42 million and
$43 million, and that net income per share for the same period will meet or
exceed then current published analyst estimates of between approximately $0.02
and $0.04 per share.
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Net Revenues
Net revenues were $42.5 million for the three months ended September 30,
1997, an increase of 8% from $39.3 million for the three months ended
September 30, 1996. Net revenues were $84.5 million for the six months ended
September 30, 1997, an increase of 9% from $77.5 million for the six months
ended September 30, 1996. Net revenues in the most recent quarter were
favorably affected by the introduction of JBuilder 1.0, Borland's Java
development product. In addition, Borland continued to realize positive
results from its increased focus and marketing efforts on the client/server,
enterprise and Internet markets. These products represented approximately 55%
of net revenues for the three months ended September 30, 1997 as compared to
47% of net revenues for the three months ended June 30, 1997. Borland's non-
U.S. net revenues represented approximately 56% for the three months ended
September 30, 1997 and 1996.
Borland expects its revenues may vary from quarter to quarter as a result of
numerous factors. For example, in the past, Borland has experienced declining
sales of certain of its products in anticipation of the release of new
products. Also, Borland cannot determine whether the increasing price
competition in the industry, the timing of competitors' product releases or
other factors will have an adverse effect upon the product upgrade revenue
which has historically been a significant component of Borland's revenue.
Finally, a greater portion of Borland's revenues are being derived from
client/server and enterprise sales which are characterized by longer sales
cycles and increased transaction values.
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Borland expects that a significant portion of its revenues for the quarter
ending December 31, 1997 will come from new products and new versions of
existing products as well as the release of client/server developer tools and
products for Internet/intranet-related development. There can be no assurances
that these products will be released on a timely basis or that the sales of
such products will meet Borland's expectations.
Borland's ability to implement its strategy to focus on software developers
and the opportunities associated with the enterprise market could have a
significant impact on future revenues. Borland's relatively recent entry into
this market is subject to a number of risks, including the risks that Borland
has historically not competed in this market, that the market itself is new
and evolving, that Borland must make choices regarding the operating systems
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. There can be no assurances that the sales of these
client/server, multi-tier products will meet Borland's expectations due to
various factors including the ongoing transition of and investment in
resources for this segment by Borland, Borland's credibility in this arena,
and a competitive environment in which many of Borland's competitors have
greater financial resources which may be leveraged to gain market share.
From time to time, Borland may make announcements to its customers with
respect to the timeframes within which Borland expects to ship new products.
Such announcements are for the purpose of providing its customers with a
general idea of the expected availability of products for planning purposes
based only upon estimates and are not a prediction by Borland of the exact
availability of such products. In the past, certain of Borland's products
shipped later, and in some cases substantially later, than the timeframe
within which Borland originally anticipated that the products would be
available. Due to the inherent uncertainties of software development, it is
likely that such situations will occur from time to time in the future as
well. Moreover, the loss of key employees may increase the risk of delays in
product availability from time frames originally anticipated. Consequently,
announcements regarding Borland's expectations of when products may ship
should not be considered a prediction by Borland that the products will ship
in any particular fiscal quarter or otherwise be relied upon by investors as a
basis for predicting Borland's results for any future period.
Borland is dependent on licenses from third-party suppliers for certain of
its products. In particular, Borland is dependent upon certain licenses from
Microsoft which is both a licensor to Borland and its most significant
competitor. If any such third-party licenses were terminated or not renewed or
if these third parties fail to develop new products in a timely manner,
Borland could be required to develop an alternative approach to developing its
products which could require payment of substantial fees to third parties or
additional internal development costs and delays and such products may not be
successful in providing the same level of functionality. Such delays,
increased costs or reduced functionality could materially adversely affect
Borland's business, operating results and financial conditions.
Gross Margins
Gross margins were 85.0% and 80.8% of net revenues for the three months
ended September 30, 1997 and 1996, respectively. Gross margins were 84.9% and
78.8% of net revenues for the six months ended September 30, 1997 and 1996,
respectively. The improvement in margins for the respective periods was
primarily the result of the increase in client/server and enterprise products
as a percentage of net revenues. In addition, Borland benefited from improved
inventory control measures implemented during fiscal 1997.
Gross margins can be affected by various factors, including product revenue
mix, price changes, changes in the composition of sales by product or
distribution channel, sales volumes, special product promotions and return
privileges, all of which may be subject to other factors, including the timing
of product releases, actions taken by competitors, or other factors beyond
Borland's control. In particular, Borland's gross margins can be strongly
affected in particular periods by aggressive pricing strategies and return
privileges employed in connection with new product introductions and upgrades.
The microcomputer software industry continues to experience substantial price
competition. The extent to which price competition may require Borland to
lower prices with the result of lower margins remains uncertain.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses were $25.1 million and
$32.6 million for the three months ended September 30, 1997 and 1996,
respectively, and were 59.0% and 82.9% of net revenues for such
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periods, respectively. SG&A expenses declined by 23.0% as compared to the same
quarter last year. In addition to cost savings associated with prior year
restructurings, Borland took steps to eliminate redundant marketing programs
and duplicative functions within its sales organization.
Although certain SG&A expenses can be managed or controlled on a medium or
long term basis, a substantial portion of such expenses are essentially fixed
on a quarter to quarter basis. As a result, when Borland suffers adverse
effects to its net revenues or margins because of delays in new product
introductions, price competition or other competitive factors, Borland
generally is unable to take actions in the short term to substantially reduce
expenses.
Borland incurs substantial expenses in connection with the introduction of
new products and generally a significant portion of such costs are incurred
prior to the release of the new products. As a result, in addition to the
general risks associated with the ultimate success of Borland's new products,
results for any quarter may be materially and adversely affected to the extent
significant expenses are incurred, but significant revenues from the new
product are not recognized until a later quarter.
Research and Development
Research and development expenses were $9.9 million and $14.7 million for
the three months ended September 30, 1997 and 1996, and were 23.3% and 37.3%
of net revenues for such periods, respectively. Research and development
expenses declined 32.5% as compared to the same quarter last year. The
decrease in research and development expenses was principally due to a
reduction in headcount associated with the prior year restructuring efforts.
Borland's focus on providing products to the software developer community is
subject to a number of uncertainties including, but not limited to, rapid
changes in the industry, Borland's ability to make timely product
introductions, the increasing importance of Internet technologies, and
competitive responses to Borland's strategic actions. Borland believes that it
is necessary to continue to invest in research and development efforts to
remain competitive. Because of the inherent uncertainties of software
development projects, there can be no assurance that Borland's research and
development efforts will result in successful product introductions or
increased revenue.
Restructurings
Subsequent to March 31, 1997, there have been no changes to Borland's
estimate of the total cost of restructurings occurring prior to fiscal 1998.
During the six months ended September 30, 1997, the restructuring reserves
decreased by $2.9 million. The decrease was primarily due to cash payments
related to severance and noncancellable rent costs of excess facilities.
<TABLE>
<CAPTION>
SEVERANCE
AND BENEFITS FACILITIES OTHER TOTAL
------------ ---------- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accrual as of March 31, 1997........ $ 2,047 $ 1,959 $ 952 4,958
Cash charges...................... (1,634) (1,032) (230) (2,896)
------- ------- ----- -------
Accrual as of September 30, 1997.... $ 413 $ 927 $ 722 $ 2,062
======= ======= ===== =======
</TABLE>
Interest Income, Net and Other
Interest income, net and other, was $0.6 million and $1.7 million for the
three months ended September 30, 1997 and 1996, and were 1.4% and 4.2% of net
revenues for such periods, respectively. The decrease was principally due to a
non-recurring benefit of $1.4 million of interest income in fiscal year 1997
related to a tax settlement with the IRS.
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Income Taxes
Income tax expense for the quarter ended September 30, 1997 was
approximately $0.2 million. Such tax expense resulted principally from non-
U.S. withholding taxes, which are assessed without regard to the profitability
of the applicable operation.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $83.5 million at
September 30, 1997 an increase of $29.1 million from a balance of $54.4
million at March 31, 1997. Working capital (deficit) increased from $(1.3)
million as of March 31, 1997 to $36.9 million as of September 30, 1997.
Net cash used by Borland for operating activities in the six months ended
September 30, 1997 was $2.5 million and was primarily comprised of Borland's
net income of $1.6 million offset by an increase in accounts receivable of
$3.6 million. Additionally, $3.8 million was used to pay down accounts
payable, accrued expenses and short-term restructuring charges originating
from the year ended March 31, 1997. Net cash used by Borland for investing
activities of $1.4 million consisted primarily of $2.3 million from the
purchase of property and equipment less sales of equipment for $.7 million.
Financing activities provided net cash of $33.0 million, primarily from
exercises of employee stock options and the issuance of 495 shares of
manditorily convertible preferred stock and warrants. Borland believes that
its existing cash balances and funds expected to be provided by operations
will be sufficient to finance its working capital requirements at least
through the next twelve months.
Recent Events Change in Fiscal Year
On July 22, 1997, Borland resolved to change its fiscal year end. The fiscal
year end will change from the last calendar day of March to the last Saturday
ending closest to December thirty-first. The change will be effective for
calendar year 1998 starting with the period beginning January 1, 1998. Due to
this change, the fiscal year which began on April 1, 1997, will end on
December 31, 1997, a short period of nine calendar months.
FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Acquisition of Open Environment Corporation
On November 18, 1996, Borland completed the acquisition of OEC. Borland
issued 4,975,000 shares of Borland Common Stock, or approximately 16% of the
total number of shares of Borland Common Stock outstanding as of that date in
exchange for all the outstanding common stock of OEC. In addition, Borland
assumed options for the purchase of approximately 1,190,000 shares of common
stock of OEC, which were converted to options to purchase approximately
786,000 shares of Borland Common Stock upon completion of the merger.
The merger was accounted for as a pooling of interests, and accordingly,
Borland's consolidated financial statements have been restated for all periods
presented. Borland reported its financial results on a March 31 fiscal year
end basis, whereas OEC reported its financial results on a calendar year
basis. For purposes of pooling of interests accounting, the balance sheet of
Borland as of March 31, 1996 has been combined with that of OEC as of December
31, 1995. The statements of operations of Borland for the years ended March
31, 1996 and 1995 have been combined with those of OEC for the years ended
December 31, 1995 and 1994, respectively.
OEC's statement of operations for the three months ended March 31, 1996 have
not been combined with any of Borland's statements of operations. Instead,
OEC's net income for that period has been credited to retained earnings. (See
Note 3 to the Borland Consolidated Financial Statements).
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Net Revenues
Net revenues were $151.4 million, $245.1 million and $272.2 million in
fiscal 1997, 1996 and 1995, respectively. Included in net revenues for fiscal
1997, 1996 and 1995 are revenues of $8.2 million, $29.9 million and $18.1
million, respectively, related to OEC. Exclusive of such OEC revenues,
revenues declined by $72.0 million from fiscal 1996 to 1997. The decline in
net revenues was primarily related to a decline in desktop product revenue
principally caused by extremely competitive pricing and reduced market share.
Net revenue from desktop products in fiscal 1997 declined $82.0 million or
46%, compared to fiscal 1996. This decline in revenues from desktop products
during fiscal 1997 was partially offset by an increase in revenues from client
server products.
In the fourth quarter of 1997 the percentage of revenues associated with
Borland's desktop products constituted 57.5% of Borland's total revenues,
compared to 72.9% (81.7% excluding OEC) in the same period of the prior year.
In contrast, Borland's revenues from the sale of client server products
increased to 42.2% (26.3% excluding OEC) in the fourth quarter of fiscal 1997,
compared to 26.4% (17.5% excluding OEC) in the same period of the prior fiscal
year. If Borland continues to experience declines in sales of its desktop
products beyond those levels already experienced, which are not offset by
sales of other products, Borland's operating results and financial condition
would be materially and adversely affected.
Net revenues for fiscal 1996 and 1995 include $7.9 million and $27.1
million, respectively, related to the sale of licenses of Paradox for Windows
to Novell. Exclusive of such license revenue, fiscal 1996 revenue declined by
$7.9 million from fiscal 1995. Such license revenue declined for several
reasons, including an increasingly competitive marketplace, offerings by
competitors of product suites at lower prices, and declines in revenues from
DOS product versions.
Borland's non-U.S. revenues represented approximately 59%, 45% and 43% of
total net revenues in fiscal 1997, 1996 and 1995, respectively. The increase
in the percentage of non-U.S. revenues in fiscal 1997 and 1996 was caused by
aggressive pricing in the U.S. retail channel, the timing of releases of
foreign language versions of products and the slower decline in revenues from
desktop database products in non-U.S. markets. In addition, in fiscal 1995,
Borland recorded as part of U.S. revenues a large non-recurring license fee
from Novell. Fluctuations in currency exchange rates did not have a material
impact on total net revenues or operating results in fiscal 1997, 1996 or
1995. However, there can be no assurance that fluctuations in currency
exchange rates will not have a material impact on Borland's future net
revenues, operating results, or financial condition.
Acquisition and Disposition of Products
In June 1994, Borland sold its Quattro Pro product line to Novell for $145
million in cash. The terms of the agreement also entitled Novell to certain
licensing rights to distribute up to one million copies of Borland's Paradox
for Windows database product over a three year period in a suite of products
also containing Quattro Pro for Windows and WordPerfect for Windows. Of the
$145 million, $110 million was attributed to the sale of the Quattro Pro
product line and $35 million to the Paradox licenses. In fiscal 1997, Borland
amended the license with Corel Corporation which had acquired Novell's rights
under the license, pursuant to which, Corel has rights to market and enhance
the products; however, Borland retained limited distribution rights until
October, 1997.
In fiscal 1995, Borland reported revenue of $27.1 million related to the
Paradox licenses and a net non-operating gain of $109 million related to the
sale of Quattro Pro, which reflected the costs and expenses of disposing of
the Quattro Pro product line, the net book value of assets sold to Novell and
the operating profit of the Quattro Pro product line for the first fiscal
quarter. As a result of Borland's significant tax loss carry-forwards and
other tax benefits, Borland did not incur a significant tax expense related to
this gain. Following the closing of this transaction, Borland no longer had
revenues related to sales of the Quattro Pro and Borland Office products.
Combined Quattro Pro and Borland Office revenues were $101.6 million and $87.3
million for the fiscal years 1994 and 1993, respectively. Such revenues were
25.8% and 18.8% of fiscal years 1994 and 1993 revenues, respectively. During
fiscal 1994, the cost of revenues and operating expenses directly attributable
to Quattro Pro and Borland Office were $44.7 million and $29.2 million,
respectively, which costs have not
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continued subsequent to the disposition of the product line. The pro forma net
revenues and related operating loss of Borland for the year ended March 31,
1994, after giving effect to the Novell transaction as if it had been
consummated at April 1, 1993, were $291.9 million and $92.8 million,
respectively.
Borland acquired ReportSmith, Inc. in May 1994 in exchange for approximately
1.8 million shares of Borland's common stock and options. Under the terms of
the agreement, the former holders of ReportSmith stock had the right to demand
payment in cash for their stock, which election was made. During the fiscal
years ended March 31, 1996 and 1995, Borland paid out cash of approximately
$0.8 million and $16.0 million, respectively, to redeem such shares. This
acquisition was accounted for under the purchase method of accounting. In
connection with this transaction and based on an appraisal, Borland recorded a
write-off of $16.2 million at the time of the acquisition, related to the
estimated value of acquired research and development in process.
Inflation
Inflation has not had a significant impact on Borland's revenues or
operations.
Gross Margins
Gross margins were 80.5%, 84.4% and 78.1% in fiscal 1997, 1996 and 1995,
respectively. Included in fiscal 1996 is deferred license revenue of $7.9
million associated with the Paradox licenses sold to Novell in fiscal 1995.
Without this revenue, gross margins for fiscal 1996 would have been 83.9%.
Gross margins in fiscal 1997 were negatively impacted by lower revenues,
resulting from lower volumes and lower selling prices. This also resulted in
certain fixed costs being spread across lower revenues, as well as by charges
related to the write-off of excess inventory. Favorable gross margins are
dependent upon Borland's ability to successfully manage its outsourcing
arrangements and its ability to sustain a higher percentage of revenues from
products with relatively higher margins.
Gross margins in fiscal 1996 benefited from a cost reduction achieved as a
result of the outsourcing of Borland's manufacturing operations which
commenced in April 1995. In addition, gross margins for fiscal 1996 were
favorably affected as a higher percentage of revenues were generated from
products with relatively higher margins. Specifically, the increased business
from site licenses and OEM arrangements contributed to this favorable product
mix.
Gross margins in fiscal 1995 were favorably impacted by the $27.1 million of
license revenue from the Paradox licenses sold to Novell. Excluding the effect
of this sale, gross margins for fiscal year 1995 would have been 75.6%. Fiscal
year 1995 gross margins were negatively impacted by lower revenues.
Amortization of acquired technology rights and capitalized software
development costs was $0.5 million, $0.9 million, and $2.3 million in fiscal
years 1997, 1996 and 1995, respectively.
Selling, General and Administrative
SG&A expenses were $143.3 million, $141.7 million and $207.9 million in
fiscal 1997, 1996 and 1995, respectively. Such expenses were 94.7%, 57.8% and
76.4% of revenues in fiscal 1997, 1996 and 1995, respectively.
SG&A expenses increased in fiscal 1997 from fiscal 1996 in the areas of
marketing, employee costs, facilities and outside services. These increases
primarily resulted from the acquisition of OEC in November 1996. Excluding the
costs associated with OEC, fiscal 1997 SG&A expenses were $133.4 million, or
88.1% of revenue, excluding revenue associated with OEC. Exclusive of OEC,
SG&A expenses as a percentage of revenue in fiscal 1997 increased due to the
costs associated with recruiting new employees and costs associated with
retention and motivation of existing employees.
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SG&A expenses decreased in fiscal 1996 from fiscal 1995 in the areas of
marketing, employee costs, facilities and outside services. These reductions
primarily resulted from the restructuring which occurred in January 1995 in
order to reduce Borland's cost structure.
Research and Development
Research and development expenses for fiscal 1997, 1996 and 1995 were $55.2
million, $50.7 million, and $63.8 million, respectively. Such expenses were
36.4%, 20.7% and 23.5% of revenues in fiscal 1997, 1996 and 1995,
respectively. This investment in research and development in fiscal 1997
resulted in the release of a new product of Borland C++ Builder for Windows
95, NT, and new versions of Delphi for Windows 95, NT, Intrabuilder for
Windows 95, NT and InterBase. Substantial amounts were also invested in
developing JBuilder, which was released in September 1997. The increase in
research and development expenses from fiscal 1996 to fiscal 1997 reflects the
efforts to increase product lines while continuing to release new versions of
existing products.
Borland has historically offered technical support to the purchasers of its
products. Support requirements continue to increase as product offerings
increase in sophistication, Borland's client server business increases and the
client server market expands to more sophisticated users and developers. Such
markets require an overall higher level of technical support expertise, which
could translate into higher levels of personnel costs. However, the
combination of increasing support requirements and lower gross margins for
Borland's support products may have a material adverse effect on Borland's
operating results and financial condition.
As part of its efforts to attract and retain key employees, Borland has had
and may continue to be required to substantially increase the compensation,
stock options or other benefits offered to employees in order to attract and
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.
Restructuring, Merger and Other Non-Recurring Charges
During fiscal 1997, Borland recorded restructuring and merger related
charges totaling $18.9 million. OEC recorded a revision for restructuring
charges of $1.1 million in the quarter ended June 30, 1996. Such charges
included write-off of inventory, prepaid royalties and facilities related to
discontinued education centers, and severance. In response to significant
losses from operations in the three and six months ended September 30, 1996,
Borland implemented a world-wide restructuring and realignment of its
corporate structure during October 1996, which resulted in a 15% reduction in
workforce. In connection with this restructuring, Borland recorded a $3.0
million restructuring charge in the quarter ended December 31, 1996 primarily
for severance costs and lease terminations.
Based on the results of the October 1996 restructuring and the results of
the quarter ended December 31, 1996, Borland implemented an additional
worldwide restructuring and realignment and recorded the related charge of
$6.5 million during the quarter ended March 31, 1997. The fourth quarter
restructuring plan involved significant reductions in operational expenses as
well as the implementation of new programs aimed at increasing Borland's
revenues. The restructuring included measures to achieve a reduction in
employees and contractors of approximately 300 personnel worldwide, or a
reduction of approximately 30 percent. Borland also implemented new marketing
and support programs to replace programs no longer integral to Borland's core
business or strategic focus. In the quarter ended December 31, 1996 Borland
recorded a $3.0 million restructuring charge of which $2.0 million was related
to severance costs associated with the reduction in the worldwide workforce,
$.4 million to the termination of certain lease agreements and $.1 million to
the write off of certain fixed assets $.5 million to other costs associated
with the restructuring.
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Pursuant to the merger with OEC Borland incurred merger related costs of
$8.9 million. The charge for merger related costs included in the Borland
Consolidated Statements of Operations consists principally of severance costs,
write-offs of certain assets and professional fees.
During fiscal 1995, Borland recorded restructuring charges of $50 million.
The restructuring charges were incurred for the world wide reduction of the
workforce by approximately 40%, the centralization of certain marketing and
development activities to improve efficiency, the outsource of manufacturing
operations in the U.S. and in Europe and the write-down of facilities and
certain purchased technology costs. In addition, several international
operations were closed, sales efforts in those areas are now conducted through
authorized distributors.
During the fourth quarter of fiscal 1997, Borland incurred non-recurring
charges of $17.1 million relating to professional fees and settlement costs.
Income Taxes
On a consolidated basis, Borland generated a pre-tax loss of approximately
$107.4 million in fiscal 1997, a pre-tax profit of approximately $18.0 million
in fiscal 1996 and a pre-tax loss of approximately $8.9 million in fiscal
1995. Income tax expense was approximately $0.5 million, $3.3 million and $2.9
million in fiscal 1997, 1996 and 1995, respectively.
For U.S. federal income tax purposes, Borland had net operating loss
carryforwards of approximately $177 million at March 31, 1997 and U.S. federal
tax credit carryforwards of approximately $22 million. These loss and credit
carryforwards expire between 1998 and 2012, if not utilized. At March 31,
1997, Borland also had an Alternative Minimum Tax (AMT) credit carryforward of
approximately $2 million, which does not expire and approximately $34 million
of net operating loss carryforwards in various foreign jurisdictions, certain
of which will expire beginning in 1998, if not utilized.
At March 31, 1997, Borland had a net deferred tax asset of approximately
$136 million. This asset is comprised of the tax effect of the above described
loss and credit carryforwards, plus the tax effect of future reversing
temporary differences. Borland believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets such that a full
valuation allowance has been provided. Deferred tax assets and related
valuation allowances of approximately $37 million relate to certain U.S.
operating loss carryforwards resulting from the exercise of employee stock
options, the tax benefit of which, when recognized, will be accounted for as a
credit to additional paid-in capital rather than a reduction of the income tax
provision.
During the fiscal year ended March 31, 1997 Borland recorded an income tax
benefit of approximately $2.1 million resulting from a settlement reached with
the IRS. The settlement resolved differences regarding certain disputed
deductions related to the years ended in 1986-1991 for its former subsidiary,
Ashton-Tate Corporation. Without the settlement benefit, Borland would have
incurred an income tax expense of approximately $2.6 million.
During the fiscal year ended March 31, 1997, Borland successfully appealed a
foreign tax assessment of approximately $18 million including interest.
Borland originally was successful in abating the assessment; yet, the foreign
tax authority had appealed the decision of the court. The above appeal has now
definitively abated the assessment.
Borland has unresolved deficiency notices or proposed adjustments from IRS
and various state governments for additional taxes and interest of
approximately $5 million. Borland is protesting these assessments or
adjustments with the appellate divisions of the respective tax authorities.
Borland believes that the ultimate outcome of the above assessment will not
have a material adverse impact on Borland's financial position or results of
operations.
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Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $54.4 million at
March 31, 1997, a decrease of $53.4 million from a balance of $107.8 million
as of March 31, 1996. Working capital decreased from $86.6 million as of March
31, 1996 to $(1.3) million as of March 31, 1997.
Net cash used by Borland for operating activities during fiscal 1997 was
$56.2 million. The primary use of cash was to fund ongoing operations.
However, Borland incurred substantial cash expenditures related to the two
restructurings. Net cash paid for severance and facilities costs associated
with restructurings, approximated $10.8 million. In addition, Borland paid
approximately $12 million related to bonus and retention plans. (See Note 10
to the Borland Consolidated Financial Statements).
Net cash provided by investing activities of $21.9 million consisted
primarily of $4.9 million of acquisitions of property and equipment which was
offset by $4.6 million provided by the sale of fixed assets and real estate
held for sale and a decrease in short-term investments of $22.4 million. Cash
provided by financing activities, resulting primarily from the exercises of
employee stock options, provided net cash of $3.6 million.
Included in Borland's cash flows for fiscal 1997 is $1.5 million, which
represents the net cash provided by OEC for the three months ended March 31,
1996.
Currency fluctuations had an insignificant impact on Borland's cash flow
during fiscal 1997. Borland cannot predict the impact such fluctuations might
have on its future cash flows and there can be no assurance that foreign
exchange rates will not have a material impact on future cash flows.
On June 30, 1997, Borland completed a private placement of 495 shares of
Borland Series B Preferred Stock for approximately $25 million, net of
issuance costs. The non-dividend paying Borland Series B Preferred Stock is
convertible into shares of Borland Common Stock. Each share of Borland Series
B Preferred Stock is accompanied by a warrant to purchase 400 shares of
Borland Common Stock. The conversion price for the Borland Series B Preferred
Stock and the warrant exercise price is based on the market value of Borland
Common Stock.
Borland believes that its existing cash balances and funds expected to be
provided by operations will be sufficient to finance its working capital
requirements at least through fiscal 1998.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued FAS
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). This statement establishes standards for the way companies report
information about operating segments in annual financial statements for
periods beginning after December 15, 1997. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Borland will adopt FAS 131 beginning in fiscal 1998 and does not
expect such adoption to have a material effect on its consolidated financial
statements.
In June 1997, the FASB issued FAS No. 130 "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements for periods
beginning after December 15, 1997. Comprehensive income, as defined, includes
all changes in equity (net assets) during a period from nonowner sources.
Examples of items to be included in comprehensive income which are excluded
from net income include cumulative translations adjustments resulting from
consolidation of foreign subsidiaries' financial statements and unrealized
gains and losses on available-for-sale securities. Reclassification of
financial statements for earlier periods for comparative purposes is required.
Borland will adopt FAS 130 beginning in 1998 and does not expect such adoption
to have a material effect on its consolidated financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS
129") and Statement of Financial Accounting Standards No. 128,
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"Earnings per Share" ("SFAS 128"). SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure. SFAS 129 is
effective for financial statements for the periods ending after December 15,
1997.
SFAS 128 simplifies the standards for computing earnings per share ("EPS")
previously found in APB No. 15, "Earnings per Share," and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the financial statements
for all entities with complex capital structures. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS is computed similarly to fully diluted EPS under APB Opinion No. 15. SFAS
128 is effective for Borland's fiscal quarter ending December 31, 1997. The
following table represents unaudited, pro forma disclosures of basic and
diluted EPS in accordance with SFAS 128 assuming the standard was adopted
during all periods presented below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1997 1996 1995
------- ------ -------
<S> <C> <C> <C>
Net income (loss) per common share--as reported...... $ (2.96) $ 0.40 $ (0.37)
Basic net income (loss) per common share--pro forma.. $ (2.96) $ 0.43 $ (0.37)
Diluted net income (loss) per common share--pro
forma............................................... $ (2.96) $ 0.40 $ (0.37)
</TABLE>
MANAGEMENT
The directors and executive officers of Borland and their ages as of
January 23, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Delbert W. Yocam........ 54 Chairman of the Board and Chief Executive Officer
Hobart McK. Birmingham.. 53 Vice President, General Counsel and Secretary
Kathleen M. Fisher...... 42 Vice President, Finance and Chief Financial Officer
Richard A. LeFaivre..... 50 Vice President, Research and Development and Chief
Technology Officer
John Floisand........... 53 Vice President, Worldwide Sales
George Hara............. 44 Director
Stephen J. Lewis........ 39 Director
David Heller............ 52 Director
William F. Miller....... 72 Director
Harry J. Saal........... 53 Director
</TABLE>
Delbert W. Yocam has been the Chairman of the Board and Chief Executive
Officer of Borland since December 1996. From November 1994 to December 1996,
he served as an independent consultant. From 1992 to 1994, he served as
President, Chief Operating Officer and a director of Tektronix, Inc., a
measurement, color printing, video and networking company based in
Wilsonville, Oregon. From 1989 to 1992, Mr. Yocam served as an independent
consultant. Prior to 1989, Mr. Yocam served in a variety of executive
management positions for ten years at Apple Computer, Inc., a personal
computer company. He served as President of Apple Pacific from 1988 to 1989;
as Executive Vice President and Chief Operating Officer from 1986 to 1988; as
Executive Vice President of Product Operations from 1985 to 1986; and as
Executive Vice President and General Manager of the Apple II group from 1983
to 1985. Prior to managing the Apple II group, he was Vice President of
Operations and Vice President of Manufacturing. Mr. Yocam is a member of the
board of directors of Adobe Systems Inc., a desktop publishing and application
software company; Hollywood Park, Inc., a hotel and entertainment company;
Raster Graphics, Inc., a large format color printing company; and Xircom,
Inc., a network access company.
Hobart McK. Birmingham joined Borland in February 1997 as Vice President and
General Counsel, and was appointed Secretary in March 1997. Prior to joining
Borland, Mr. Birmingham served as Senior Director
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and Associate General Counsel at Apple Computer, Inc. from 1995 to 1997. From
1988 to 1995 Mr. Birmingham was a partner with the law firm of Graham & James.
Additionally, Mr. Birmingham was an associate and partner (1979) with the law
firm of Bronson, Bronson & McKinnon from 1974 through 1988.
Kathleen M. Fisher joined Borland in May 1997 as Vice President of Finance
and Chief Financial Officer. Prior to joining Borland, Ms. Fisher served as
Vice President of Finance, Treasurer, and Chief Financial Officer at Phoenix
Publishing Systems, Inc., a software publishing company. From 1993 to 1995 Ms.
Fisher served as Vice President of Finance, Treasurer & Chief Financial
Officer of Glacier Water Services, Inc., a purified water manufacturer. Ms.
Fisher also served as Vice President of Finance & Business Development of
Vitarel Microelectronics, a multi-chip modules company from 1990 to 1993.
Richard A. LeFaivre joined Borland in May 1997 as Vice President, Research
and Development and Chief Technology Officer. Prior to joining Borland, Mr.
LeFaivre served as Vice President, Advanced Technology Group at Apple
Computer, Inc., a personal computer company. From April 1996 to January 1997,
Mr. LeFaivre served as Senior Vice President, Product Development at Viacom,
Inc., a diversified entertainment and publishing company. From June 1995 to
April 1996, Mr. LeFaivre served as Vice President, Engineering at Silicon
Graphics Computer Systems, Inc., a computer company. From March 1991 to June
1995, Mr. LeFaivre served as Vice President, Advanced Technology Group at
Apple Computer, Inc.
John Floisand joined Borland in April 1997 as Vice President, U.S. Sales. He
was promoted to Vice President, Worldwide Sales in July 1997. Prior to joining
Borland, Mr. Floisand served in a variety of executive management positions
for 11 years at Apple Computer, most recently as Senior Vice President of
Worldwide Sales. Prior to joining Apple Computer, Mr. Floisand served as
Managing Director of Base2.
George Hara has served as a director of Borland since April 1990. Mr. Hara
is managing partner of DEFTA Partners, a venture capital firm specializing in
the information technology area. He is the founder of Data Control Ltd., a
computer network provider, for which he served as President from 1984 until
March 31, 1997. Mr. Hara is also a director of Futuretel, a MPEG editing
system developer; Pixera, a digital camera manufacturer; Base Technologies, a
systems integrator company; and Cybergold, an internet based advertising
company.
Stephen J. Lewis has served as a director of Borland since October 1993. Mr.
Lewis has been a managing director of Generation Ventures, L.L.C., a China
focused venture capital firm since November 1994. Mr. Lewis was a managing
director of SCM International Ltd., an international investment bank from 1993
to 1994. Mr. Lewis was employed with Booz-Allen & Hamilton, Inc., a management
consulting and technology firm from 1981 to 1993, most recently serving as a
Vice President and Partner in the Operations management practice. Mr. Lewis is
also a director of Invision Interactive, Inc., a multimedia sound company.
David Heller has served as a director of Borland since April 1984. Mr.
Heller is a founder, a director and the President of Pacific Technology
Capital Corporation, a financial advisory and investment banking firm; a
director of Tie Rack U.S., a clothing accessory company; a director of Power
Computing Corporation, a computer manufacturing company and a director of
America West Golf Manufacturing, Inc., a golf club manufacturing company.
William F. Miller has served as a director of Borland since January 1996.
Dr. Miller is the Herbert Hoover Professor Emeritus, Graduate School of
Business, Stanford University and President Emeritus of SRI International. He
is also Professor Emeritus of Computer Science, School of Engineering,
Stanford University. In 1990, Dr. Miller retired after 11 years as President
and CEO of SRI International. Until recently he served on the board of
directors of Wells Fargo Bank and Co., Varian Associates, Pacific Gas and
Electric Company, First Interstate Bancorp and Fireman's Fund Insurance
Company. Dr. Miller serves on the board of several private companies and non-
profit organizations and is Chairman of WhoWhere?, Inc.
Harry J. Saal has served as a director of Borland since January 1996. Dr.
Saal is a director of Network Associates, a network management and analysis
company. Dr. Saal founded Network General Corporation and
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<PAGE>
was Chairman of Network General Corporation prior to its acquisition by
McAffee Associates in December 1997. Dr. Saal founded Nestar Systems, Inc., a
local area network systems company. Dr. Saal is also chairman of Imaging
Technologies Corporation, a designer of controllers for laser printers and
related devices. He is also a director of GlobalNet Systems, Ltd., an internet
service provider, and serves on the board of several non-profit organizations.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL
OWNERS
The following table sets forth information, as of January 11, 1998, with
respect to the beneficial ownership of Borland Common Stock by (i) each person
known by Borland to be the beneficial owner of more than 5% of Borland Common
Stock, (ii) each director of Borland, (iii) each current executive officer of
Borland, and (iv) all current executive officers and directors of Borland as a
group.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
COMMON STOCK COMMON STOCK
NUMBER OF OUTSTANDING BEFORE OUTSTANDING AFTER
NAME SHARES THE MERGER THE MERGER(11)
---- --------- ------------------ -----------------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Merrill Lynch & Co.,
Inc.(1).................... 4,691,463 12.09% 8.79%
Neuberger & Berman(2)....... 4,048,200 10.43% 7.59%
EXECUTIVE OFFICERS AND
DIRECTORS:
Delbert W. Yocam(3)......... 864,559 2.18% 1.59%
George Hara(4).............. 112,500 * *
David Heller(5)............. 197,500 * *
Stephen J. Lewis(6)......... 88,140 * *
William F. Miller(7)........ 105,000 * *
Harry J. Saal(8)............ 67,500 * *
Hobart McK. Birmingham(9)... 46,436 * *
Kathleen M. Fisher.......... -- -- --
John Floisand............... -- -- --
Richard A. LeFaivre......... -- -- --
All directors and executive
officers as a group (10
persons)(10)............... 1,481,635 3.68% 2.70%
</TABLE>
- --------
* Less than 1%
(1) Information is based on a Schedule 13G filing dated February 11, 1997.
Number of shares which may be deemed beneficially owned includes shares
held by various funds related to or managed by Merrill Lynch & Co., Inc.
The address of Merrill Lynch & Co., Inc. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281.
(2) Information is based on a Schedule 13G filing dated December 15, 1997.
Number of shares which may be deemed beneficially owned includes shares
held by various funds related to or managed by Neuberger and Berman LLC
and Neuberger and Berman Management Inc. The address of Neuberger &
Berman is 605 Third Ave., New York, New York, 10158.
(3) Represents options exercisable within 60 days of January 11, 1998 to
acquire 864,559 shares.
(4) Represents options exercisable within 60 days of January 11, 1998 to
acquire 112,500 shares.
(5) Represents options exercisable within 60 days of January 11, 1998 to
acquire 197,500 shares.
(6) Includes options exercisable within 60 days of January 11, 1998 to
acquire 82,500 shares.
(7) Represents options exercisable within 60 days of January 11, 1998 to
acquire 105,000 shares.
(8) Represents options exercisable within 60 days of January 11, 1998 to
acquire 67,500 shares.
(9) Represents options exercisable within 60 days of January 11, 1998 to
acquire 46,436 shares.
(10) Includes options exercisable within 60 days of January 11, 1998 to
acquire 1,475,995 shares.
(11) After the consummation of the Merger, Roger J. Sippl, Chairman and Chief
Executive Officer of Visigenic, will become the Chief Technology Officer
of Borland. Consequently, based upon Mr. Sippl's ownership of Visigenic
Common Stock on January 11, 1998, following the consummation of the
Merger, Mr. Sippl will beneficially hold approximately 4.1% of the
outstanding shares of Borland Common Stock and all directors and
executive officers as a group (including Mr. Sippl) will beneficially
hold approximately 6.77% of such outstanding shares. See "Information
Concerning Visigenic--Security Ownership of Directors, Executive Officers
and Certain Beneficial Owners."
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<PAGE>
INFORMATION CONCERNING VISIGENIC
The following Business section contains forward-looking statements which
involve risks and uncertainties. Visigenic's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those factors set forth under "Risk
Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
BUSINESS
OVERVIEW
Visigenic is a leading independent provider of software tools for
distributed object technologies for the Internet/intranet and enterprise
computing environments. Visigenic's standards-based products facilitate the
development, deployment and management of distributed business applications by
providing the communication framework for distributed object applications.
Visigenic's distributed object products, consisting of CORBA-compliant object
request brokers and CORBA-based services, provide a communication framework
and enable the development and deployment of reliable, flexible and cost-
effective distributed business applications. Visigenic also markets a cross-
platform database access product, based on JDBC interface API, which provides
Java developers with database access to the major relational database
management systems.
Visigenic markets and sells its software through its direct sales and
telesales forces, independent software vendors ("ISVs"), value added resellers
("VARs") and international distributors in North America, Europe and Asia.
Visigenic's customers include Borland, Cisco, Compuware, Healtheon, Hewlett-
Packard, Hitachi, Netscape, Novell, Oracle, Platinum technology, Silicon
Graphics and Sybase.
PRODUCTS
Visigenic's distributed object products include VisiBroker for Java and
VisiBroker for C++ which are both based on the CORBA standard, and utilize
Internet Inter-ORB Protocol ("IIOP"). Visigenic's VisiBroker product line also
includes two object services, Events and Naming, that are service
implementations of the Naming and Events CORBA specification. Developers
frequently need these services when implementing distributed object
applications. In addition, Visigenic has developed VisiBroker Bridge, a bridge
from Microsoft's ActiveX and Distributed Component Object Model ("DCOM"), to
CORBA-based applications. Visigenic also markets its VisiChannel for JDBC
database access products which provides Java developers with database access
to the major relational database management systems ("DBMS").
Distributed Object Products
VisiBroker for C++. VisiBroker for C++ is a complete CORBA 2.0-compliant
object request broker that consists of a runtime and supporting development
environment for building, deploying and managing distributed C++ applications
that are open, flexible and interoperable across multiple platforms. Objects
built with VisiBroker for C++ can easily be accessed by Web-based
applications, such as applications built with VisiBroker for Java, that
communicate using CORBA's IIOP.
VisiBroker for C++ operates on Sun Solaris, Digital UNIX, HP-UX, IBM AIX,
SGI Irix, Windows NT and Windows 95 platforms. VisiBroker for C++ was first
released in September 1994, and Visigenic released version 3.0 of this product
in September 1997.
VisiBroker for Java. VisiBroker for Java is the first client- and server-
side CORBA 2.0-compliant object request broker written completely in Java.
VisiBroker for Java consists of a runtime and supporting development
environment for building distributed Java applications for the Internet and
intranets. VisiBroker for Java can be used for client applets that run in
Java-enabled browsers such as Netscape Navigator and Microsoft Internet
Explorer, as well as objects that reside on servers.
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The VisiBroker for Java development environment is available on Windows NT,
Windows 95 and Sun Solaris. Distributed applications developed with VisiBroker
for Java can be deployed on any platform supporting the Java environment.
VisiBroker for Java was first released in April 1996, and Visigenic released
version 3.0 of this product in September 1997.
VisiBroker Events Service for C++ and Java. The VisiBroker Events Service
for C++ and Java is a full implementation of the Object Management Group's
("OMG's") CORBA Events Service specification. The event service allows
"supplier objects" to communicate via an event channel, notifying any number
of "consumer objects" when events they "subscribe to" take place. This
supplier-consumer model reduces server traffic and improves scalability over
the alternative of a polling scheme.
The VisiBroker Events Service was first released in December 1996 and is
currently available for Windows NT, Sun Solaris and Java environments.
VisiBroker Naming Service for C++ and Java. The VisiBroker Naming Service
for C++ and Java is a full implementation of the OMG's CORBA Naming Service
specification. The naming service enables developers to register object names
at runtime. Naming contexts are organized into a hierarchical namespace.
Client applications can then use the Naming Service to discover the names and
object references for objects they wish to use by simply traversing the naming
context hierarchy.
The VisiBroker Naming Service was first released in December 1996 and is
currently available for Windows NT, Sun Solaris and Java environments.
VisiBroker Bridge. VisiBroker Bridge is a connectivity tool that enables
Microsoft's ActiveX controls implemented in Web pages, Visual Basic
applications or OLE-enabled applications to interoperate with CORBA objects.
This technology provides customers the flexibility to operate in familiar
Microsoft applications and development environments, with the added benefit of
transparently accessing distributed objects based on CORBA standards.
Developers using ActiveX-enabled tools such as Microsoft Excel or Microsoft
Access, or ActiveX-enabled development environments such as Microsoft's Visual
Basic and Visual C++, Borland's Delphi and Powersoft's PowerBuilder, can build
applications that transparently and easily access CORBA objects over the
Internet or intranets. Additionally, VisiBroker Bridge also serves to bridge
the Microsoft DCOM environment to the VisiBroker CORBA/IIOP environment.
VisiBroker Bridge provides information technology ("IT") organizations that
have a strong commitment to Microsoft's standard for object development with a
way to access environments where application functionality exists as CORBA
objects. Visigenic initially released this product in March 1997.
Database Access Products
Through fiscal 1997, revenues derived from the licensing of its database
connectivity products based upon the Open Database Connectivity ("ODBC")
standard accounted for a significant portion of Visigenic's total revenues.
During fiscal 1997 and the first six months of fiscal 1998, Visigenic's
revenues from database connectivity products declined each quarter as a
percentage of total revenues. As a result, in October 1997, Visigenic
announced that, in order to focus its efforts on its business relating to
distributed object products, Visigenic would be transitioning out of its
business relating to ODBC database access products and would not be further
enhancing such products, which included its VisiODBC software developer kits,
VisiODBC drivers and VisiChannel for ODBC. As part of this transition,
Visigenic and Intersolv entered into an agreement in August 1997 under which
Visigenic's customers for these products are being offered a plan to
transition to comparable products provided by Intersolv. In the six months
ended September 30, 1997, Visigenic's revenues derived from licensing of ODBC-
based data connectivity products accounted for less than 10% of total
revenues, and Visigenic does not anticipate that it will derive significant
revenues from those products in future periods. Despite its decision to
transition out of its ODBC-product business, Visigenic remains contractually
committed under many of its agreements with customers to provide them with
service and support. Visigenic continues to offer VisiChannel for JDBC, its
JDBC-based database access product.
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VisiChannel for JDBC. VisiChannel for JDBC simplifies database access from
Internet/intranet Java applications to relational DBMSs. VisiChannel for JDBC
is the first product that integrates Visigenic's database access and
distributed object technologies. Conforming to the JDBC standard, VisiChannel
for JDBC uses the IIOP to provide optimized communication between client and
server. The thin all-Java VisiChannel for JDBC clients may be deployed on any
platform where a Java runtime environment exists. The VisiChannel for JDBC
Server, using the ODBC database access standard, accesses data via the
appropriate ODBC database driver, either supplied with VisiChannel (Oracle,
Sybase, Informix), or by third parties. This allows enterprises to leverage
their investment in their existing ODBC database access infrastructure.
VisiChannel for JDBC is available for Windows NT (Versions 3.51 and 4.0) and
Sun Solaris (Version 2.5.1). The VisiChannel for JDBC Client runs on any
platform with a Java runtime environment on a Java-enabled Web browser.
Visigenic initially released VisiChannel for JDBC in March 1997.
CUSTOMERS
Worldwide, Visigenic has sold its products to more than 1,200 customers,
including end user IT organizations, ISVs, VARs, and distributors. Most of
Visigenic's customers come from the following industries: financial services,
telecommunications, network management/systems management, ISVs and VARs. In
fiscal 1996, one customer, Platinum technology, accounted for approximately
21% of Visigenic's total revenues. No individual customer accounted for more
than 10% of Visigenic's total revenues in fiscal 1997, nor in the six months
ended September 30, 1997. A relatively small number of ISV and VAR customers
have accounted for a significant percentage of Visigenic's revenues, and
Visigenic expects that sales to ISV and VAR customers will continue to
represent a significant portion of Visigenic's revenues in future periods. In
fiscal 1997 and in the six months ended September 30, 1997, approximately 48%
and 39% of Visigenic's total revenues were derived from ten customers.
SALES AND MARKETING
Visigenic's sales and marketing objective is to achieve broad market
penetration by targeting multiple channels of distribution, including direct
sales and telesales, ISVs, VARs, system integrators ("SIs"), and international
distributors. Visigenic is actively seeking to increase its base of VARs,
ISVs, SIs and international distributors. As of December 31, 1997, Visigenic's
sales organization included 52 employees and its marketing organization
included 17 employees.
Visigenic's marketing efforts are directed at building brand name awareness
while also highlighting the value of Visigenic's distributed object products.
Visigenic's marketing efforts include market research, product planning,
creating collateral materials, managing press coverage and other public
relations, identifying potential customers, advertising, attending tradeshows,
speaking at industry conferences, direct mail campaigns and establishing and
maintaining close relationships with recognized industry analysts. Visigenic
also maintains a home page on the Internet that is a source of sales leads.
A significant element of the Company's strategy is to embed its technology
in products offered by Visigenic's VAR and ISV customers, such as Borland,
Cisco, Compuware, Healtheon, Hewlett-Packard, Informix, Netscape, Novell,
Oracle and Sybase, Inc. A relatively small number of VAR and ISV customers
have accounted for a significant percentage of Visigenic's total revenues.
Visigenic intends to seek similar distribution arrangements with other VARs
and ISVs to embed Visigenic's technology in their products and expects that
these arrangements will account for a significant portion of Visigenic's
revenues in future periods. If Visigenic is unsuccessful in securing license
agreements with additional VARs and ISVs on commercially reasonable terms or
at all, or if Visigenic's VAR and ISV customers are unsuccessful in selling
their products, this would have a material adverse effect on Visigenic's
business, results of operations and financial condition.
Direct Sales/Telesales. Visigenic's direct sales and telesales forces focus
on medium to large-sized ISVs, VARs and corporate IT opportunities. To date,
the direct sales and telesales forces have been primarily targeting
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strategic ISVs and VARs to leverage their sales and marketing expertise as
well as their position in the market. Visigenic has direct sales offices or
personnel in San Mateo, California; Denver, Colorado; Atlanta, Georgia;
Chicago, Illinois; Boston, Massachusetts; Dallas, Texas; Reston, Virginia;
Paris, France; Frankfurt, Germany; and Freiburg, Germany. Visigenic's
telesales organization, based in San Mateo, works jointly with the direct
sales force to receive customer orders as well as proactively identify,
contact and qualify customer leads.
Independent Software Vendors. Visigenic has relationships with a number of
ISVs to leverage their sales and marketing channels through joint marketing
programs and product bundling agreements.
Value Added Resellers and System Integrators. VARs and SIs customize,
configure and install Visigenic's software products and bundle these products
with their software solutions and services.
International Distributors. Visigenic believes that it is important to
develop a strong international presence and intends to do business in markets
outside of North America principally through distributors. International
sales, which include export sales from North America, accounted for 39%, 26%,
23% and 34% of Visigenic's revenues in fiscal 1995, fiscal 1996, fiscal 1997,
and the first six months of fiscal 1998, respectively. Visigenic is working
with its distributors to develop end user, ISV, VAR and SI relationships in
their respective territories. As of December 31, 1997, Visigenic had 22
international distributors. In September 1997, Visigenic entered into a new
distributor agreement with Valtech, which thereby became a primary distributor
for Visigenic's products in certain European territories. In September 1997,
Visigenic acquired Interactive Objects Software GmbH ("iO"), a leading German
consulting company that specializes in distributed object computing, which
resulted in iO becoming a wholly-owned subsidiary of Visigenic. See Note 3 of
Notes to Visigenic Consolidated Financial Statements.
Visigenic believes that its continued growth will require expansion of its
international operations. To successfully expand international sales,
Visigenic must establish additional foreign sales offices, hire additional
personnel and recruit additional international distributors and resellers. To
the extent Visigenic is unable to do so in a timely manner, its growth in
international sales, if any, will be limited, and Visigenic's business,
results of operations and financial condition could be materially adversely
affected.
There are a number of risks inherent in Visigenic's international business
activities, including unexpected changes in regulatory requirements, tariffs
and other trade barriers, costs and risks of localizing and internationalizing
products for foreign countries, longer accounts receivable payment cycles,
potentially adverse tax consequences, repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. None of Visigenic's products
is currently a "double byte" product, which is required to localize these
products in certain non-English character set markets such as Asia. Visigenic
believes that it will be required to develop double byte versions of its
products and engage in other internationalization and localization activities.
There can be no assurance Visigenic will successfully complete these
activities in a timely manner. With the exception of sales made by the German
subsidiary, all of Visigenic's sales are currently denominated in U.S. dollars
and, therefore, increases in the value of the U.S. dollar related to foreign
currencies could make Visigenic's products less competitive in foreign
markets. In addition, revenue of Visigenic earned in various countries where
the company does business may be subject to taxation by more than one
jurisdiction, thereby adversely affecting Visigenic's earnings. There can be
no assurance that such factors will not have an adverse effect on the revenue
from Visigenic's future international sales and, consequently, on Visigenic's
financial condition or results of operations.
PROFESSIONAL SERVICES
Visigenic believes that a high level of customer service and support is
critical to Visigenic's success. In December 1996, Visigenic acquired
CustomWare, Inc. ("CustomWare"), a training and consulting firm focused on
Java and CORBA technologies. In September 1997, Visigenic acquired iO, a
leading German consulting company that specializes in distributed object
computing. Visigenic grew its professional service organization from 14
employees at the beginning of fiscal 1997 to 44 employees as of December 31,
1997.
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Visigenic's professional services organization provides product training,
various consulting services, and product support. These services are designed
to promote the successful development and deployment of distributed business
applications built with Visigenic's distributed object and database access
products.
Consulting and Training. Visigenic's consulting services include application
design and development, strategy assessments, project mentoring and technology
transfer, thereby enabling the customer to choose the level of service that
fits its development needs. Visigenic's consultants are experienced in
distributed objects and application architecture. Visigenic complements its
consulting services with a training curriculum that covers product training
and complementary technologies, such as CORBA, Java and JDBC.
Technical Support and Maintenance. Visigenic offers customer support through
telephone, electronic mail and fax. Visigenic provides new software releases,
maintenance releases and enhancements under annual support agreements with
customers. Maintenance and customer support license fees are not included in
software license fees but are purchased separately for an annual fee.
PRODUCT DEVELOPMENT
Visigenic believes its future success will depend in large part on its
ability to expand the Visigenic product family by enhancing existing products,
integrating database access technology with distributed object technology and
developing new products to meet a broad range of customer needs. Visigenic's
product development organization is responsible for new product and technology
development, product testing and user interface development. This organization
is working to expand the availability of Visigenic's products on the leading
hardware platforms, operating systems, DBMSs, programming languages and
networking and communication protocols.
Since inception, Visigenic has made substantial investments in product
development and related activities. Visigenic's products have been developed
primarily by Visigenic's internal development staff and, in some instances,
with the assistance of external consultants. Certain technologies have been
acquired and integrated into Visigenic's products through licensing
arrangements. Visigenic expects that most of its new products will be
developed internally. However, Visigenic will evaluate on an ongoing basis
externally developed technologies and products for integration into its
product lines.
Visigenic expects to enhance its VisiBroker for C++ and VisiBroker for Java
products and expand its distributed object product line. Visigenic is
developing an object-oriented transaction processing system based on the
Object Transaction Service ("OTS") specified by the OMG that enables mission-
critical On-line Transaction Process ("OLTP") applications. In addition,
Visigenic is jointly developing a product, TP Broker, with Hitachi that is a
combination of Visigenic's VisiBroker for C++ product, a transaction interface
implementation and OpenTP1, Hitachi's advanced transaction processing engine.
Visigenic expects that development activities with respect to its database
access products will include the enhancement of its VisiChannel for JDBC
product. Visigenic announced in October 1997 its decision to transition out of
its business relating to ODBC-based database access products. See "--
Products--Database Access Products" above.
Visigenic also intends to continue to leverage its technologies to provide
integrated database capabilities for its VisiBroker product line. VisiChannel
for JDBC is the first product that integrates the database access and
CORBA/IIOP technologies. Visigenic's VisiBroker products will provide a more
complete distributed object solution, addressing both the distributed object
and database access requirements of its customer base.
As of December 31, 1997, there were 58 employees on Visigenic's product
development staff. Visigenic's product development expenditures in fiscal
1995, fiscal 1996, fiscal 1997 and for the first six months of fiscal 1998
were $3.2 million, $4.3 million, $9.5 million, and $5.4 million, respectively.
Visigenic expects that it will continue to commit substantial resources to
product development in the future.
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COMPETITION
Visigenic's products are targeted at the emerging markets for standards-
based distributed object software. The markets for Visigenic's products are
intensely competitive, subject to rapid change and significantly affected by
new product introductions and other market activities of industry
participants. Visigenic believes that the principal competitive factors in
these markets are product quality, performance and price, vendor and product
reputation, product architecture and quality of support.
In the standards-based distributed object market, Visigenic competes
principally against Iona Technologies, a public company, Expersoft, a
privately held company, and BEA, a public company which recently acquired
Digital Equipment Corporation's object request broker. Visigenic's distributed
object products also compete against existing or proposed distributed object
solutions from hardware vendors such as Hewlett-Packard, IBM, ICL and Sun. In
addition, because there are relatively low barriers to entry in the software
market and because the Visigenic's products are based on publicly available
standards, Visigenic expects to experience additional competition in the
future from other established and emerging companies if the market for
database access and distributed object software continues to develop and
expand. In particular, relational database vendors including Informix,
Microsoft, Oracle and Sybase may offer standards-based database access
software to their customers, eliminating or reducing demand for the
Visigenic's products. Similarly, operating system vendors such as Hewlett-
Packard, IBM, Microsoft and Sun may offer standards-based distributed object
products bundled with their operating systems. For instance, Microsoft has
introduced DCOM, which could reduce or eliminate the need for CORBA-compliant
ORBs, such as those offered by Visigenic, for Microsoft operating systems.
Many of these current and potential competitors have well-established
relationships with current and potential customers of Visigenic and the
combined company, have extensive knowledge of the markets serviced by
Visigenic, more extensive development, sales and marketing resources and are
capable of offering single vendor solutions. Increased competition could
result in price reductions, fewer customer orders, reduced gross margins and
loss of market share, any one of which could materially adversely affect the
combined company's business, operating results and financial condition. There
can be no assurance that Visigenic will be able to compete successfully
against current and future competitors or that competitive pressures will not
materially and adversely affect its business, financial condition or results
of operations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Visigenic's success is dependent in part upon its proprietary technology.
While Visigenic relies on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights, Visigenic believes that factors such as the technical and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable products and product support are
more essential to establishing and maintaining a technology leadership
position, particularly because Visigenic is supplying standards-based
products. Visigenic seeks to protect its software, published data,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. Visigenic has granted limited
access to its source code to third parties under confidentiality obligations.
Despite Visigenic's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of Visigenic's products or to obtain and
use information that Visigenic regards as proprietary.
Policing unauthorized use of Visigenic's products is difficult, and while
Visigenic 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 Visigenic's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that Visigenic's means of protecting its proprietary
rights will be adequate or that Visigenic's competitors will not independently
develop similar technology. Visigenic distributes its products electronically
through the Internet. Distributing Visigenic's products through the Internet
makes Visigenic's software more susceptible to unauthorized copying and use.
Visigenic has historically allowed and intends to continue to allow customers
to electronically download its client and server software. If as a result of
changing legal interpretations of liability for unauthorized use of
Visigenic's
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<PAGE>
software or otherwise, users were to become less sensitive to avoiding
copyright infringement, Visigenic's business, results of operations and
financial condition could be materially adversely affected.
From time to time, Visigenic has received claims that it has infringed third
parties' intellectual property rights and there can be no assurance that in
the future, third parties will not claim infringement by Visigenic with
respect to current or future products. Visigenic expects that software
developers will increasingly be subject to infringement claims as the number
of products and competitors in Visigenic's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require Visigenic to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to Visigenic or at all,
which could have a material adverse effect upon Visigenic's business, results
of operations and financial condition.
In addition, Visigenic relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in Visigenic's products to perform key functions. Visigenic
has announced its decision to transition out of its business relating to ODBC-
based database access products. Visigenic does license the base technology for
the VisiODBC SDK products from Microsoft. Visigenic also licenses security
technology it currently uses in its VisiBroker SSL product and plans to use in
several of its future products from RSA Data Security, Inc. ("RSA") and
Talarian SmartSockets from Talarian for inclusion into a version of the
VisiChannel product line. Microsoft has the right to terminate its license
with Visigenic any time after delivery to Visigenic of the Microsoft SDK for
ODBC 3.0, which occurred in December 1996. In addition, in February 1997,
Microsoft converted its license to Visigenic from an exclusive to a non-
exclusive license. Visigenic's licenses with RSA and Talarian may only be
terminated for material breach. Visigenic has entered into a joint technology
agreement with JavaSoft, a subsidiary of Sun, that grants Visigenic the right
to sublicense JavaSoft's JDBC test suites and ODBC bridge. There can be no
assurances that such firms will remain in business, that they will continue to
support their technology or that their technology will otherwise continue to
be available to Visigenic on commercially reasonable terms. The loss of or
inability to maintain any of these software licenses could result in delays or
cancellations in product shipments until equivalent software can be identified
and licensed or developed and integrated with Visigenic's products. Any such
delay or cancellation could materially adversely affect Visigenic's business,
results of operations and financial condition.
EMPLOYEES
As of December 31, 1997, Visigenic employed 199 full time personnel,
including 58 in product development, 44 in professional services, 69 in sales
and marketing and 28 in finance and administration.
PROPERTIES
Visigenic's principal executive offices and product development facilities
are located in San Mateo, California and consist of approximately 40,000
square feet under leases that will expire between November 2001 and February
2003. Visigenic has sales offices in Atlanta, Boston, Chicago, Dallas, Denver,
New York, and the Washington, D.C. area, Paris, France, and Frankfurt and
Freiburg, Germany.
LEGAL PROCEEDINGS
On April 10, 1997, Western Imaging, Inc. ("Western Imaging") filed a
complaint in the U.S. District Court for the Northern District of California
against Visigenic and Corel Corporation ("Corel"), a licensee of Visigenic,
alleging breach of contract, intentional and negligent misrepresentation,
copyright infringement, trademark infringement, misappropriation of trade
secrets and other related claims.
The lawsuit claims that in a May 1994 agreement with Western Imaging,
Visigenic sold to Western Imaging all right, title and interest not only to
its Lumena product, but also to its Color Tools, Creative License, Oasis and
Signature products as well. As a result, Western Imaging asserts that
Visigenic breached the terms of the
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agreement with Western Imaging when, among other things, it licensed Creative
License, Color Tools, Oasis and Signature to Corel. Western Imaging is seeking
injunctive relief, unspecified damages, impoundment of the disputed software
during the pendency of the litigation, and punitive damages.
Visigenic has not sold or marketed the disputed software products since
January 1995. Visigenic does not utilize this technology in any current
product offering. Visigenic has agreed to defend Corel pursuant to the terms
of its license to Corel. On August 8, 1997, Visigenic and Corel filed an
answer to the complaint denying Western Imaging's allegations. Visigenic
believes it has meritorious defenses to such claims and intends to defend the
litigation vigorously. However, due to the nature of the litigation and
because the lawsuit is at an early stage, Visigenic cannot determine the total
expense or possible loss, if any, that may ultimately be incurred either in
the context of a trial or as a result of a negotiated settlement. Regardless
of the ultimate outcome of the litigation, it could result in significant
diversion of time by Visigenic's technical and managerial personnel. Because
the results of the litigation, including any potential settlement, are
uncertain, there can be no assurance that they will not have a material
adverse effect on Visigenic's business, operating results and financial
condition.
SELECTED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to and should be read in conjunction with the Visigenic Consolidated Financial
Statements and Notes thereto and the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------- -----------------
1994(2) 1995(2) 1996 1997 1996 1997
------- ------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenue........... $ 575 $ 1,831 $ 6,734 $ 19,601 $ 7,810 $11,774
Gross profit............ $ 96 $ 952 $ 4,866 $ 14,936 $ 6,146 $ 7,967
Loss from operations.... $(2,399) $(4,619) $(4,472) $(20,494) $(15,948) $(6,442)
Net loss................ $(2,398) $(4,568) $(4,408) $(20,268) $(15,939) $(6,222)
Net loss per share
(1).................... -- $ (1.58) -- $ (.43)
Pro forma net loss per
share (1).............. $ (0.39) -- $ (1.30) --
Shares used in per share
calculation (1)........ 11,418 12,807 12,254 14,411
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 2,979 $ 771 $ 2,433 $ 19,679 $17,971
Working capital......... $ 2,733 $ 530 $ 712 $ 22,667 $17,662
Total assets............ $ 3,621 $ 2,193 $ 5,109 $ 33,043 $27,909
Stockholders' equity.... $ 3,214 $ 1,221 $ 2,242 $ 26,998 $21,440
</TABLE>
- --------
(1) See Note 2 of Notes to Visigenic Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used to
compute per share amounts.
(2) Although the statement of operations of Visigenic for the fiscal year
ended March 31, 1994 and the balance sheet of Visigenic as of March 31,
1995 and 1994 were audited, the combined statement of operations for the
fiscal year ended March 31, 1994 and the combined balance sheets as of
March 31, 1995 and 1994 of Visigenic and iO were not audited.
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<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth statements of operations for each of the ten
quarters ended September 30, 1997. This quarterly information is unaudited,
but has been prepared on the same basis as the annual Consolidated Financial
Statements and, in the opinion of Visigenic's management, reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair representation of the information for the periods presented. Such
statements of operations should be read in conjunction with Visigenic's
audited Consolidated Financial Statements and Notes thereto included elsewhere
herein. Operating results for any quarter are not necessarily indicative of
results for any future period.
As adjusted to reflect the pooling of interests of iO:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $1,201 $ 1,591 $ 1,383 $2,559 $ 3,404 $ 4,406 $ 5,539 $ 6,252 $ 6,210 $ 5,564
Gross profit............ $ 798 $ 1,134 $ 862 $2,072 $ 2,643 $ 3,503 $ 4,187 $ 4,603 $ 4,463 $ 3,504
Loss from operations.... $ (980) $(1,020) $(1,748) $ (724) $(13,674) $(2,274) $(2,348) $(2,198) $(2,699) $(3,743)
Net loss................ $ (984) $ (998) $(1,705) $ (721) $(13,668) $(2,271) $(2,263) $(2,066) $(2,606) $(3,616)
</TABLE>
As historically presented:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $ 911 $ 1,301 $ 1,093 $2,270 $ 2,961 $ 3,822 $ 4,751 $ 5,484 $ 5,560 $ 4,824
Gross profit............ $ 722 $ 1,059 $ 786 $1,997 $ 2,528 $ 3,290 $ 3,887 $ 4,353 $ 4,129 $ 3,099
Loss from operations.... $(978) $(1,019) $(1,746) $ (721) $(13,665) $(2,345) $(2,451) $(2,220) $(2,736) $(3,852)
Net loss................ $(977) $ (991) $(1,698) $ (713) $(13,659) $(2,303) $(2,309) $(2,059) $(2,643) $(3,670)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains forward-looking statements which
involve risks and uncertainties. Visigenic's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the additional factors set forth under
"Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
This discussion and analysis should be read in conjunction with the
Visigenic Consolidated Financial Statements and Notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus for the fiscal year ended
March 31, 1997.
OVERVIEW
Visigenic commenced operations in February 1993 and was engaged principally
in product and market research and product development until the launch of its
initial products in November 1994. Visigenic first recognized material revenue
in the fourth quarter of fiscal 1995. In May 1996, Visigenic acquired
PostModern Computing Technologies Inc. ("PostModern"), a supplier of
distributed object technology, and began selling VisiBroker for C++ and
VisiBroker for Java, distributed object products based on technology acquired
from PostModern. On September 5, 1997 Visigenic acquired Interactive Objects
Software GmbH ("iO"), a leading German consulting company that specializes in
distributed object computing, which resulted in iO becoming a wholly-owned
subsidiary of Visigenic. See Note 3 of Notes to Visigenic Consolidated
Financial Statements.
Through fiscal year 1997, revenues derived from the licensing of its
database connectivity products based upon the Open Database Connectivity
("ODBC") standard accounted for a significant portion of Visigenic's
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total revenues. During fiscal 1997 and the first six months of fiscal 1998,
Visigenic's revenues from database connectivity products declined each quarter
as a percentage of overall revenues. As a result, in October 1997, Visigenic
announced that, in order to focus its efforts on its business relating to
distributed object products, Visigenic would be transitioning out of its
business relating to ODBC database access products and would not be further
enhancing such products, which included its VisiODBC software developer kits,
VisiODBC drivers and VisiChannel for ODBC products. As part of this
transition, Visigenic and Intersolv entered into an agreement in August 1997
under which Visigenic's customers for these products are being offered a plan
to transition to comparable products provided by Intersolv. In the quarter
ended September 30, 1997, Visigenic's revenues derived from licensing of ODBC-
based data connectivity products accounted for less than 10% of revenues, and
Visigenic does not anticipate that it will derive significant revenues from
those products in future periods. Despite its decision to transition out of
its ODBC-product business, Visigenic remains contractually committed under
many of its agreements with customers to provide them with service and
support. Visigenic continues to offer VisiChannel for JDBC, its JDBC-based
data base access product.
Visigenic's revenues are derived from license fees from licensing its
products, royalties from VARs, ISVs and distributors, and fees for services
related to its products, including software maintenance, development
contracts, consulting and training. License fees for Visigenic's products vary
according to the specific products licensed. Terms and conditions of
individual license transactions, including prices and discounts, are often
highly negotiated based on volumes and commitments and vary considerably from
customer to customer. Certain of Visigenic's license arrangements with VARs
and ISVs provide for sublicense fees payable to Visigenic based on a percent
of the VAR's or ISV's net revenue. Certain of Visigenic's license arrangements
with VARs and ISVs provide for fixed fees for the right to make and distribute
an unlimited number of copies of Visigenic's product for a specified period of
time. Service revenues are primarily attributable to consulting services
performed by iO maintenance and other revenue, including training and
consulting revenue and engineering development fees. Prior to the acquisition
of PostModern, Visigenic's revenues were attributable to non-recurring license
fees for its database access products, particularly its VisiODBC product line,
and fees from related services. Since the acquisition of PostModern,
Visigenic's revenues have been attributable to non-recurring license fees for
both its database access and its distributed object products and fees from
related services. Given its election to transition out of its business
relating to ODBC-based database access products, Visigenic expects that its
distributed object products will account for substantially all of its license
revenues for the foreseeable future. Factors adversely affecting the pricing
of or demand for its products could have a material adverse effect on
Visigenic's business, results of operations and financial condition.
Visigenic generally recognizes revenues from license and pre-paid royalty
fees upon delivery of software products if there are no significant post-
delivery obligations, if collection is probable and if the license agreement
requires payment within 90 days. If significant post-delivery obligations
exist or if a product is subject to customer acceptance, revenues are deferred
until no significant obligations remain or acceptance has occurred. Royalty
revenues (other than from pre-paid royalties) are recognized when it is
reported by VARs, ISVs and distributors. Maintenance revenues from ongoing
customer support and product upgrades are recognized ratably over the term of
the applicable maintenance period, which is typically twelve months.
Consulting and training revenues are generally recognized as services are
performed over the term of the agreement. If maintenance revenues are included
in a license agreement, such amount is unbundled from the license fee at its
fair market value. Revenues from engineering development work is generally
recognized on a percentage of completion basis. If a transaction includes both
license and service elements, license fee revenues are recognized upon
shipment of the software, provided services do not include significant
customization or modification of the base product and payment terms are not
subject to acceptance criteria. In cases where license fee payments are
contingent upon the acceptance of services, revenues from both the license and
service elements are deferred until the acceptance criteria are met. See Note
2 of Notes to Visigenic Consolidated Financial Statements.
Visigenic licenses its products to VARs and ISVs, who include Visigenic's
products in their own products, and to end users, who deploy Visigenic's
products in their own computing environments. A substantial portion of
Visigenic's license revenues to date are attributable to licenses to VARs and
ISVs. A relatively small number
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<PAGE>
of VAR and ISV customers have accounted for a significant percentage of
Visigenic's license revenues. For fiscal 1996, licenses to Visigenic's ten
largest customers accounted for approximately 65% of Visigenic's total
revenues and licenses to one customer, Platinum technology, accounted for
approximately 21% of Visigenic's total revenues. For fiscal 1997, licenses to
Visigenic's ten largest customers accounted for approximately 48% of
Visigenic's total revenues and no customer accounted for greater than 10% of
Visigenic's total revenues. For the first six months of fiscal 1998, licenses
to Visigenic's ten largest customers accounted for approximately 39% of
Visigenic's total revenues. Visigenic expects licenses to end user customers
to increase, yet a limited number of VAR and ISV customers will continue to
account for a significant percentage of revenue for the foreseeable future.
The sales cycles associated with the license of Visigenic's products are
often lengthy (typically ranging from six to twelve months) and are subject to
a number of significant delays over which Visigenic has little or no control.
In some cases, the license of Visigenic's software products is an enterprise-
wide decision by prospective end user customers or a product strategy decision
by VARs and ISVs. Generally, Visigenic must provide a significant amount of
information to prospective customers regarding the use and benefits of
Visigenic's products as part of its sales efforts. In addition, the
implementation of some of Visigenic's products involves a significant
commitment of resources by prospective customers and may require substantial
reengineering of customers' computing environments. The cost to the customer
of Visigenic's product is typically only a portion of the related hardware,
software, development, training and integration costs of implementing a large
scale system. Given these factors and Visigenic's expected continued
dependence on a limited number of customers for a substantial part of its
license revenues, the loss of a major customer or any reduction or delay in
sales to or implementations by such customers could have a material adverse
effect on Visigenic's business, results of operations and financial condition.
Visigenic markets its products in North America through its direct sales and
telesales organizations and through VARs and ISVs. Throughout the rest of the
world, Visigenic markets its products through distributors, VARs, ISVs and
direct sales in western Europe. International revenues, which include export
sales from North America, accounted for approximately 26% of total revenue in
fiscal 1996, approximately 23% of total revenues in fiscal 1997 and
approximately 34% of total revenues for the six months ended September 30,
1997. In September 1997, Visigenic entered into a new distributor agreement
with Valtech, which thereby became a primary distributor for Visigenic's
products in certain European territories. In September 1997, Visigenic also
acquired iO, a leading German consulting company that specializes in
distributed object computing, which resulted in iO becoming a wholly-owned
subsidiary of Visigenic. See Note 3 of Notes to Visigenic Consolidated
Financial Statements. Visigenic intends to increase its international sales
force and focus on establishing additional international distributor, VAR and
ISV relationships. Visigenic expects that international revenue will account
for an increasing portion of total revenues in the future. As a result,
failure to manage international sales appropriately could have a material
adverse effect on Visigenic's business, results of operations and financial
condition.
Visigenic's quarterly operating results have varied significantly in the
past, and its results are likely to vary significantly from time to time in
the future. In addition, Visigenic's limited operating history makes the
prediction of future operating results difficult. Visigenic expects that prior
growth rates of Visigenic's software products revenues will not be sustainable
in the future. Visigenic's future operating results will depend on many
factors, including the size, timing and terms and conditions of individual
license transactions; the relatively long sales and implementation cycles for
Visigenic's products; the delay or deferral of customer implementations (some
of which could result in connection with the Merger announcement); changes in
Visigenic's operating expenses; the ability of Visigenic to develop and market
new products and control costs; market acceptance of new products; timing of
introduction or enhancement of products by Visigenic or its competitors; the
level of product and price competition; the ability of Visigenic to expand its
direct sales and telesales force, its indirect distribution channels and its
customer support capabilities; activities of and acquisitions by competitors;
changes in database access and distributed object software, database
technology and industry standards; changes in the mix of products and services
sold; changes in the mix of channels through which products and services are
sold;
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<PAGE>
levels of international sales; personnel changes and difficulties in
attracting and retaining qualified sales, marketing and technical personnel;
changes in customers' budgeting cycles; foreign currency exchange rates;
quality control of products sold; and general economic conditions. Visigenic
has not been profitable to date and Visigenic currently anticipates that it
will operate at a loss through at least the middle of 1998. There can be no
assurance that any of Visigenic's business or strategies will be successful or
that Visigenic will be able to achieve or sustain profitability on a quarterly
or annual basis.
In fiscal 1995 and fiscal 1996, Visigenic's consulting services, maintenance
and other revenues consisted primarily of maintenance and consulting directly
related to license sales and development fees. In fiscal 1997, Visigenic began
making a significant investment in a professional services organization and a
growing portion of its service and other revenues consisted of consulting and
training revenues. In fiscal 1998, Visigenic continued to build its
professional services organization, principally through its acquisition of iO
effective September 5, 1997. This acquisition resulted in iO becoming a
wholly-owned subsidiary of Visigenic. The acquisition was accounted for as a
pooling of interests. Accordingly, Visigenic's consolidated financial
statements for all periods presented have been restated to include the
financial statements of iO.
Visigenic's VAR and ISV sales generally reflect a relatively high amount of
revenues per order. The loss or delay of individual orders, therefore, can
have a significant impact on the revenue and quarterly results of Visigenic.
Because Visigenic's operating expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could
cause significant variations in operating results from quarter to quarter and
could result in significant losses. To the extent such expenses precede, or
are not subsequently followed by, increased revenues, Visigenic's operating
results would be materially adversely affected. As a result of these and other
factors, revenues for any quarter is subject to significant variation, and
Visigenic believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. It is likely that in some future quarter
Visigenic's operating results will be below the expectations of market
analysts and investors. In such event, the price of Visigenic Common Stock
would likely be materially adversely affected.
Visigenic acquired PostModern effective May 31, 1996 and CustomWare
effective December 3, 1996. The acquisitions of PostModern and CustomWare were
accounted for as a purchase in the quarter ended June 30, 1996 and the quarter
ended December 31, 1996, respectively. See "--Purchased In Process Product
Development and Amortization." PostModern's and CustomWare's financial results
prior to the effective date of their respective acquisitions are not included
in Visigenic's financial results presented herein.
Visigenic first recognized material revenues in the fourth quarter of fiscal
1995 after Visigenic shipped version 1.0 of its VisiODBC product line. During
fiscal 1997 and the first six months of fiscal 1998, Visigenic's revenues from
database connectivity products declined each quarter as a percentage of
overall revenues. As a result, in October 1997, Visigenic announced that, in
order to focus its efforts on its business relating to distributed object
products, Visigenic would be transitioning out of its business relating to
ODBC database access products and would not be further enhancing such
products, which included its VisiODBC software developer kits, VisiODBC
drivers and VisiChannel for ODBC products. As a result, Visigenic believes
that period-to-period comparisons of annual operating results are less
meaningful than an analysis of recent quarterly results. The following table
sets forth for the periods indicated the percentage of total revenues
represented by certain line items from Visigenic's Consolidated Statements of
Operations.
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<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPT.
YEAR ENDED MARCH 31, 30, 1997
-------------------------- --------------
1995 1996 1997 1996 1997
------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue:
Software products.............. 50.0% 73.9% 78.3% 79.0% 68.7%
Consulting services,
maintenance and other......... 50.0 26.1 21.7 21.0 31.3
------- ------ ------- ------ -----
Total revenue................ 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------ -----
Cost of revenue:
Software products.............. 2.6 9.1 6.8 6.8 8.7
Consulting services,
maintenance and other......... 45.4 18.6 17.0 14.5 23.6
------- ------ ------- ------ -----
Total cost of revenue........ 48.0 27.7 23.8 21.3 32.3
------- ------ ------- ------ -----
Gross profit..................... 52.0 72.3 76.2 78.7 67.7
------- ------ ------- ------ -----
Operating expenses:
Product development............ 172.6 64.6 48.5 53.0 45.7
Sales and marketing............ 84.1 51.8 51.3 59.0 52.3
General and administrative..... 47.6 22.3 14.5 14.9 19.1
Purchased in process product
development................... -- -- 63.1 153.8 --
Amortization of excess of
purchase price over net assets
acquired...................... -- -- 3.4 2.2 5.2
------- ------ ------- ------ -----
Total operating expenses..... 304.3 138.7 180.8 282.9 122.3
------- ------ ------- ------ -----
Loss from operations............. (252.3) (66.4) (104.6) (204.2) (54.6)
Interest and other income, net... 2.8 1.0 1.2 0.4 3.7
------- ------ ------- ------ -----
Loss before provision for income
taxes........................... (249.5) (65.4) (103.4) (203.6) (50.9)
Provision for income tax......... -- 0.1 -- 0.5 1.9
------- ------ ------- ------ -----
Net loss......................... (249.5)% (65.5)% (103.4)% (204.1)% (52.8)%
======= ====== ======= ====== =====
</TABLE>
RECENT DEVELOPMENTS
Visigenic's revenue for the third quarter of fiscal 1998, ended December 31,
1997, was $6.7 million, representing a 21% increase over revenue of $5.5
million recorded during the comparable period of fiscal 1997. The third
quarter net loss was $2.1 million, compared to a net loss of $2.3 million for
the same quarter of the prior year.
Software license revenue from VisiBroker products increased approximately
95% in the third quarter of fiscal 1998 when compared to the third quarter of
fiscal 1997. Total software license revenue decreased 4.9% in comparison with
the third quarter of fiscal 1997 due primarily to Visigenic's previously
announced discontinuance of its ODBC-based database access product line.
Revenue from consulting services, maintenance and other increased 146% over
the comparable period of the prior year and accounted for 34% of total revenue
for the third quarter of fiscal 1998.
For the nine months ended December 31, 1997, Visigenic's revenue increased
38% to $18.5 million from $13.3 million in the comparable period of the prior
year. The net loss for the first nine months of fiscal 1998 was $8.3 million,
compared to a net loss of $18.2 million for the first nine months of fiscal
1997.
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Revenue
For the six months ended September 30, 1997, Visigenic's revenue grew 51% to
$11.8 million from $7.8 million reported for the comparable period of the
prior fiscal year.
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Software Products. Revenues from software licenses increased during the six
month period ended September 30, 1997 over the comparable period of fiscal
1997 primarily due to an increased volume of licensing of Visigenic's
products, resulting from the expansion of Visigenic's direct sales and
telesales organizations. However the average transaction size declined from
the first half of fiscal 1997 to the same period in fiscal 1998, mainly due to
the transition of Visigenic's sales and marketing strategy to grow the end-
user business.
License revenues for the first six months of fiscal 1998 was adversely
impacted by a one-time charge of $753,000 for certain client-side ODBC driver
products and a discontinued version of VisiChannel based on SmartSockets(TM)
middleware, which Platinum technology returned. Platinum technology remains a
customer of Visigenic's distributed object technology and a stockholder of the
Visigenic. On October 21, 1997, Visigenic announced that in order to focus its
efforts on the increasing demand for it's ORB technology, it would not be
further enhancing its ODBC data access products, which include VisiODBC SDKs,
VisiODBC Drivers and VisiChannel for ODBC.
Consulting Services, Maintenance and Other. Consulting, maintenance and
other revenues increased 124% in the first six months of fiscal 1998 over the
comparable period of the prior year and accounted for 31.3% and 21.0% of total
revenues for the first six months of fiscal 1998 and fiscal 1997,
respectively. The increase in revenues was primarily due to the greater
licensing of products to customers under agreements with maintenance
components and growth in training and consulting activities including the
results from the acquisition of iO in September 1997. See Note 3 of Notes to
Visigenic Consolidated Financial Statements.
Cost of Revenue
Software Products. Cost of software license revenues includes product
packaging, documentation, production and shipping. Cost of software license
revenues increased from $531,000 for the six months ended September 30, 1996
to $1,030,000 for the six months ended September 30, 1997. The increases
resulted from increased volume of licensing of Visigenic's products as well as
additional technology and products licensed from third parties for inclusion
in Visigenic's product line.
Consulting Services, Maintenance and Other. Cost of consulting, maintenance
and other revenues consists primarily of personnel and personnel-related
overhead allocation, facility and systems costs incurred in providing
consulting, training, customer support and engineering development services.
Cost of consulting, maintenance and other revenues increased from $1.1 million
for the six months ended September 30, 1996 to $2.8 million for the six months
ended September 30, 1997. These increases reflect the effect of fixed costs
resulting from Visigenic's investment during the first half of fiscal 1998 in
a larger professional services organization, including the acquisition of iO
in Germany which was accounted for as a pooling of interests. See Note 3 of
Notes to Visigenic Consolidated Financial Statements. Visigenic intends to
continue investing resources in its professional services organization.
Operating Expenses
Product Development. Product development expenses include expenses
associated with the development of new products, enhancements of existing
products and quality assurance activities, and consist primarily of employee
salaries, personnel-related overhead allocation, benefits, consulting costs,
the cost of technology licensed from other software companies and the cost of
software development tools. Product development expenses increased by 30% from
$4.1 million for the six months ended September 30, 1996 to $5.4 million for
the six months ended September 30, 1997. The increase in the dollar amount of
product development expenses was primarily attributable to costs of additional
personnel and full-time contractors in Visigenic's product development
operations and, to a lesser extent, the licensing of technology from third
parties which has been or will be incorporated into Visigenic's products.
In accordance with Statement of Financial Accounting Standards No. 86, the
Company has charged all software development costs to product development
expense as incurred because expenditures which were eligible for
capitalization were insignificant.
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Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
personnel-related overhead allocation, field office rent and related expenses,
travel and entertainment, advertising and promotional expenses. Sales and
marketing expenses increased by 34% from $4.6 million for the six months ended
September 30, 1996 to $6.2 million for the six months ended September 30,
1997. The increase in sales and marketing expenditures reflects primarily the
hiring of additional sales and marketing personnel, costs associated with
expanded advertising and promotional activities, increased sales commissions
and increased costs associated with field sales offices. Visigenic expects
that sales and marketing expenses will continue to increase in absolute dollar
amounts as Visigenic continues to expand its sales and marketing efforts
domestically, establishes additional sales offices internationally and
increases advertising and promotional activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive,
information technology and finance personnel and personnel related overhead
allocation. General and administrative expenses increased by 94% from $1.2
million for the six months ended September 30, 1996 to $2.3 million for the
six months ended September 30, 1997. The increase in general and
administrative expenses was primarily due to increased staffing and associated
expenses necessary to manage and support Visigenic's increased scale of
operations, costs associated with the merger of iO and an increase in reserves
associated with Visigenic's decision to discontinue enhancement of the ODBC
data access product line.
Purchased In Process Product Development and Amortization. In May 1996,
Visigenic completed the acquisition of PostModern which was accounted for as a
purchase in the quarter ended June 30, 1996. In December 1996, Visigenic
completed the acquisition of CustomWare which was accounted for as a purchase
in the quarter ended December 31, 1996. In connection with the acquisition of
PostModern, Visigenic recorded a write-off in the quarter ended June 30, 1996
of approximately $12.0 million related to in process product development which
had not reached technological feasibility and, in the opinion of management,
had no alternative future use. The remaining excess of purchase price over net
assets acquired of approximately $1.1 million will be amortized over two
years. In connection with the acquisition of CustomWare, Visigenic recorded a
write-off in the quarter ended December 31, 1996 of approximately $350,000
related to in process product development which had not reached technological
feasibility and, in the opinion of management, had no alternative future use.
The remaining excess of purchase price over net assets acquired of
approximately $700,000 will be amortized over one year.
Provision for Taxes
Provision for taxes consists of foreign withholding taxes on sales to
customers in Japan and German income taxes related to the operations of iO.
See Note 3 of Notes to Visigenic Consolidated Financial Statements.
Fiscal Years Ended March 31, 1997, 1996 and 1995
Revenue
Software Products. Revenues from software products were $915,000,
$4,974,000, and $15,347,000 in fiscal 1995, 1996, and 1997, respectively,
representing increases of 444% from fiscal 1995 to fiscal 1996 and 209% from
fiscal 1996 to fiscal 1997. The revenue increase from fiscal 1995 to fiscal
1996 was primarily due to an increased volume of licensing of Visigenic's
database access products, resulting from an increase in the number of products
offered and the expansion of Visigenic's direct sales and telesales
organizations. The revenue increase from fiscal 1996 to fiscal 1997 was
primarily due to the increased volume of licensing of distributed object
products, resulting from the acquisition of PostModern, and Visigenic's
database access products.
Consulting Services, Maintenance and Other. Revenues from consulting
services, maintenance and other were $916,000, $1,760,000, and $4,254,000 in
fiscal 1995, 1996, and 1997, respectively, representing increases of 92% from
fiscal 1995 to fiscal 1996 and 142% from fiscal 1996 to fiscal 1997. The
revenue increases from fiscal 1995 to fiscal 1996 and from fiscal 1996 to
fiscal 1997 were due to the greater licensing of products to
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<PAGE>
customers under agreements with a maintenance component, growth in Visigenic's
installed base, and growth in training, consulting and development activities
including the results from the acquisition of iO in September 1997. See Note 3
of Notes to Visigenic Consolidated Financial Statements.
Cost of Revenue
Software Products. Cost of software products revenues was $48,000, $615,000,
and $1,334,000 in fiscal 1995, 1996, and 1997, respectively. The increase
resulted from increased volume of licensing of Visigenic's products and
royalties paid by iO for redistribution of product.
Consulting Services, Maintenance and Other. Cost of consulting services,
maintenance and other revenues was $831,000, $1,253,000, and $3,331,000 in
fiscal 1995, 1996, and 1997, respectively. The increase between fiscal 1996
and fiscal 1997 reflects the effect of fixed costs resulting from Visigenic's
investment during fiscal 1997 in a larger professional services organization
including the affect of the acquisition of iO in September 1997. See Note 3 of
Notes to Visigenic Consolidated Financial Statements. Visigenic intends to
continue investing resources in its professional services organization and
anticipates that the cost of consulting service, maintenance and other revenue
may exceed consulting service, maintenance and other revenue in future
periods.
Operating Expenses
Product Development. Product development expenses were $3,160,000,
$4,348,000, and $9,497,000 in fiscal 1995, 1996, and 1997, respectively,
representing increases of 38% from fiscal 1995 to fiscal 1996 and 118% from
fiscal 1996 to fiscal 1997. The increases in the dollar amount of product
development expenses were primarily attributable to costs of additional
personnel, including the engineering personnel from PostModern beginning in
June 1996, and full-time contractors in Visigenic's product development
operations and, to a lesser extent, the licensing of existing technology from
third parties which has been or will be incorporated into Visigenic's
products. Of the product development costs, approximately $1.2 million in
fiscal 1995 consisted of expenses for the development of a product Visigenic
later chose not to introduce commercially. There can be no assurance that
Visigenic will not devote significant resources in the future to develop and
market other products that Visigenic may choose not to introduce commercially.
Visigenic anticipates that it will continue to devote substantial resources to
product development, including acquiring or licensing technology from others,
in order to introduce new products, enhance existing products or accelerate
its time to market.
In accordance with Statement of Financial Accounting Standards No. 86,
Visigenic has charged all software development costs to product development
expense as incurred because expenditures which were eligible for
capitalization in prior periods were insignificant.
Sales and Marketing. Sales and marketing expenses were $1,539,000,
$3,485,000, and $10,061,000 in fiscal 1995, 1996, and 1997, respectively,
representing increases of 126% from fiscal 1995 to fiscal 1996 and 189% from
fiscal 1996 to fiscal 1997. The increases in sales and marketing expenditures
reflect primarily the hiring of additional sales and marketing personnel,
costs associated with expanded advertising and promotional activities,
increased sales commissions and increased costs associated with field sales
offices. Of the sales and marketing costs, approximately $900,000 in fiscal
1995 consisted of expenses relating to a product Visigenic later chose not to
introduce commercially, none of which expenses was of a recurring nature.
Visigenic expects that sales and marketing expenses will continue to increase
in absolute dollar amount as Visigenic continues to expand its sales and
marketing efforts domestically and internationally, establishes additional
sales offices and increases advertising and promotional activities.
General and Administrative. General and administrative expenses were
$872,000, $1,505,000, and $2,841,000 in fiscal 1995, 1996, and 1997,
respectively, representing increases of 73% from fiscal 1995 to fiscal 1996
and 89% from fiscal 1996 to fiscal 1997. The increases in the absolute dollar
amounts of general and administrative expenses were primarily due to increased
staffing and associated expenses necessary to manage and support Visigenic's
increased scale of operations and, since August 1996, expenses associated with
being a public company. Visigenic believes that the absolute dollar amount of
its general and administrative expenses will continue to increase as a result
of the anticipated expansion of Visigenic's administrative staff to support
growing operations.
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Purchased in Process Product Development and Amortization
In May 1996, Visigenic completed the acquisition of PostModern which was
accounted for as a purchase and, in December 1996, Visigenic completed the
acquisition of CustomWare which was accounted for as a purchase. In connection
with the acquisition of PostModern, Visigenic recorded a write-off of
approximately $12.0 million related to in process product development which
had not reached technological feasibility and, in the opinion of management,
had no alternative future use. In connection with the acquisition of
CustomWare, Visigenic recorded a write-off of approximately $350,000 related
to in process product development which had not reached technological
feasibility and, in the opinion of management, had no alternative future use.
Interest And Other Income, Net
Interest and other income, net, is comprised primarily of interest income
earned on Visigenic's cash and cash equivalents. Interest and other income,
net, was $94,000, $85,000, and $351,000 in fiscal 1995, 1996, and 1997,
respectively. The increase of 313% from fiscal 1996 to fiscal 1997 was
primarily due to the cash received from Visigenic's initial public offering,
completed August 8, 1996, and Visigenic's secondary offering, completed
February 12, 1997.
Provision for Income Taxes
The provision for taxes for 1995, 1996 and 1997 consists of foreign
withholding taxes on sales to customers in Japan and German income taxes
related to the operations of iO. See Notes 3 and 9 of Notes to Visigenic
Consolidated Financial Statements.
As of March 31, 1997, Visigenic had Federal and state net operating loss
carryforwards of approximately $17.2 million and $1.4 million, respectively,
which expire at various dates through 2012. In addition, as of March 31, 1997,
Visigenic had general business credit carryforwards of approximately $981,000,
which expire at various dates through 2012. Utilization of the net operating
loss and business credit carryforwards may be subject to an annual limitation
due to the ownership change limitations provided by the Internal Revenue Code
of 1986, as amended, and similar state provisions. See Note 9 of Notes to
Visigenic Consolidated Financial Statements.
Liquidity and Capital Resources
Visigenic's principal sources of liquidity as of September 30, 1997 include
cash and cash equivalents of $18.0 million, a $5.0 million revolving line of
credit which expires on July 14, 1998, and a $2.0 million equipment term loan
with a draw down period ending April 15, 1998 with equipment borrowings to be
amortized over thirty-six months thereafter. Advances under the revolving line
of credit and term loan bear interest at the bank's prime lending rate (8.5%
at September 30, 1997). Line of credit advances are limited to 80% of eligible
accounts receivable. All advances are secured by substantially all of the
assets and contractual rights of Visigenic. Both the line of credit and the
equipment term loan contain certain financial restrictions and covenants when
borrowings are outstanding. As of September 30, 1997, Visigenic was in
compliance with these financial restrictions and covenants. There were no
borrowings outstanding under the line of credit or equipment term loan as of
September 30, 1997. See Note 4 of Notes to Visigenic Consolidated Financial
Statements.
Visigenic's operating activities used cash of $4.4 million in fiscal 1995,
$2.6 million in fiscal 1996 and $11.6 million in fiscal 1997. The decline in
net cash used in operations in fiscal 1996 as compared with fiscal 1995 was
primarily due to an increase in accounts payable, accrued liabilities and
deferred revenue. The increased use of cash in fiscal 1997 was primarily due
to investments in Visigenic's infrastructure and product development as well
as an increase in accounts receivable. The increase in accounts receivable was
primarily due to an increase in revenues in fiscal 1997.
Visigenic used $389,000, $1.2 million and $4.3 million of net cash during
fiscal 1995, fiscal 1996 and fiscal 1997, respectively, for investing
activities, due primarily to purchases of property and equipment. In fiscal
1997, $1.9 million of cash, net of cash acquired, was used for the acquisition
of PostModern and CustomWare. Financing activities provided $2.6 million, $5.4
million and $33.1 million of net cash during fiscal 1995, fiscal 1996 and
fiscal 1997, respectively, due to the issuance of Preferred and Common Stock
and convertible notes and debt financing.
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Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contracts) and advance payment of
software development fees and software license fees. Capital expenditures were
primarily for computers, furniture and equipment. Visigenic expects that its
capital expenditures will increase as its employee base grows. As of September
30, 1997, Visigenic did not have any material commitments for capital
expenditures.
Visigenic believes that its existing sources of liquidity and cash generated
from operations will satisfy Visigenic's projected working capital and other
cash requirements for at least the next twelve months. Although operating
activities may provide cash in certain periods, to the extent Visigenic
experiences growth in the future, Visigenic anticipates that its operating and
investing activities will use cash. Any such future growth and any
acquisitions of other technologies, products or companies may require
Visigenic to obtain additional equity or debt financing, which may not be
available or may be dilutive. If adequate funds are not available to satisfy
either short or long-term capital requirements, Visigenic may be required to
limit its operations significantly.
MANAGEMENT
The executive officers of Visigenic and their ages as January 23, 1998 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roger J. Sippl................. 42 Chairman of the Board of Directors, Chief
Executive Officer and acting-Vice
President, Engineering
Mark D. Hanson................. 37 President and Chief Operating Officer
Jens Christensen, Ph.D......... 34 Vice President, Advanced Systems, Chief
Technical Officer and Director
Kevin C. Eichler............... 38 Vice President, Operations, Chief Financial
Officer, Treasurer and Secretary
J. Scott Chalmers.............. 53 Vice President, Worldwide Sales
Robert J. Macdonald............ 41 Vice President, Marketing
Robert Perreault............... 40 Vice President, Professional Services
Therese H. Langlais............ 39 Vice President, Business Development
</TABLE>
Roger J. Sippl is the founder of Visigenic and has served as a director and
Chief Executive Officer since February 1993. Mr. Sippl is a co-founder of The
Vantive Corporation, a customer interaction applications software company
("Vantive") and has served as its Chairman of the Board since December 1996.
Mr. Sippl served as a director of Vantive since December 1990. Prior to his
relationship with Vantive, Mr. Sippl founded Informix Software, a database
software company ("Informix"), in 1980 and served as that company's President
and Chief Executive Officer until 1989, and its Chairman of the Board until
December 1992.
Mark D. Hanson has served as President and Chief Operating Officer of
Visigenic since January 1995. Mr. Hanson served as Vice President, Worldwide
Sales from June 1994 when he joined Visigenic until his appointment as
President and Chief Operating Officer. From July 1992 to March 1994, Mr.
Hanson was Vice President of Channel Sales of Sybase, a database software
company, and Vice President, International Sales of Gain Technology ("Gain"),
a software company, before the acquisition of Gain by Sybase. From January
1991 to June 1992, Mr. Hanson served as Vice President, Worldwide Sales and
Support for Macromedia, a supplier of PC multimedia software and services.
Prior to that time, Mr. Hanson was employed as Vice President at Informix from
1984 to January 1991, most recently as Vice President, Americas Sales.
Jens Christensen has served as Vice President, Advanced Systems, Chief
Technical Officer and a director of Visigenic since May 1996. From October
1991 to May 1996, Dr. Christensen served as President and Chief Executive
Officer of PostModern Computing Technologies Inc., a software company he co-
founded in 1991. Dr. Christensen holds a Ph.D. in computer science from
Stanford University.
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Kevin C. Eichler has served as Vice President, Operations, Chief Financial
Officer, Treasurer and Secretary of Visigenic since July 1996. From July 1995
to July 1996, Mr. Eichler served as Executive Vice President, Finance, and
Chief Financial Officer for National Insurance Group, a financial services and
related technology solution provider. From January 1991 to June 1995, Mr.
Eichler served as Executive Vice President, Finance and Chief Financial
Officer for Mortgage Quality Management, Inc., a national provider of quality
control services and technologies to residential mortgage lenders. From
January 1990 to January 1991, Mr. Eichler served as Tax Manager, Corporate
Finance for NeXT Software, Inc., a software company. From May 1988 to January
1990, Mr. Eichler served as Domestic Tax Manager for Microsoft, a software
company.
J. Scott Chalmers has served as Vice President, Worldwide Sales of Visigenic
since October 1996. Prior to joining Visigenic, Mr. Chalmers was employed for
six years at Informix, where he held various positions, the most recent being
Vice President of U.S. Sales. Mr. Chalmers has had 25 years experience in
senior sales and management positions at such companies as Cullinet, AT&T
Information Systems and IBM.
Robert J. Macdonald has served as Vice President, Marketing of Visigenic
since September 1996. Prior to that, Mr. Macdonald was employed for over 10
years at Informix where he held various positions, the most recent being Vice
President, Corporate Marketing.
Robert Perreault has served as Vice President, Professional Services of
Visigenic since September 1996. Mr. Perreault served as Vice-President of
Research and Development from September 1995, when he joined Visigenic, until
his appointment as Vice-President, Professional Services. From May 1994 to
September 1995, Mr. Perreault served as Vice President of Client/Server
Technology at Compuware Corporation, a software company. From September 1993
to May 1994, he served as Vice President of Database and Connectivity Products
at Uniface Corporation, a software company which merged with Compuware
Corporation in May 1994. In 1993, Mr. Perreault co-founded and served as
President of Data Accessibility Solutions, Inc., a consulting company which
merged with Visigenic in May 1996. Mr. Perreault co-founded and served as Vice
President of U.S. Operations for RIAL, Inc., a consulting company, from
September 1991 to August 1993.
Therese H. Langlais has served as Vice President, Business Development since
September 1996. Ms. Langlais served as Vice President of Marketing from
November 1993 until her appointment as Vice President, Business Development
and as Director of Marketing from April 1993 to November 1993. Prior to
joining Visigenic, Ms. Langlais was employed for nine years at Informix, where
she held various positions, the most recent being Director of Strategic
Projects.
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SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL
OWNERS
The following table sets forth information, for each person known by
Visigenic to be the beneficial owner of more than 5% of Visigenic Common
Stock, each director of Visigenic, each current executive officer of Visigenic
and all current executive officers and directors of Visigenic as a group, (i)
the total number of shares of Visigenic Stock owned as of January 11, 1998,
(ii) the percent of Visigenic Stock so owned as of that date, (iii) the total
number of shares of Borland Stock to be beneficially owned after the
consummation of the Merger and (iv) the percent of Borland Common Stock to be
so owned after the consummation of the Merger.
<TABLE>
<CAPTION>
VISIGENIC COMMON STOCK (1) BORLAND COMMON STOCK
------------------------------------- -------------------------------------
NUMBER OF SHARES PERCENTAGE OF SHARES NUMBER OF SHARES PERCENTAGE OF SHARES
OWNED BEFORE OUTSTANDING BEFORE OWNED AFTER OUTSTANDING AFTER
NAME THE MERGER THE MERGER THE MERGER THE MERGER
- ---- ---------------- -------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Elizabeth Salmon (2).... 2,508,750 17.2% 2,056,874 4.1%
Neguine Navab (3)....... 1,467,102 10.0 1,202,848 2.4
Prasad Mokkapati (4).... 761,735 5.2 624,531 1.2
EXECUTIVE OFFICERS AND
DIRECTORS
Roger J. Sippl (5)...... 2,508,750 17.2 2,056,874 4.1
Mark D. Hanson (6)...... 337,156 2.3 276,427 *
Jens Christensen, Ph.D
(7).................... 1,467,102 10.0 1,202,848 2.4
Kevin C. Eichler (8).... 124,921 * 102,420 *
J. Scott Chalmers (9)... 157,500 1.1 129,131 *
Robert J. Macdonald
(10)................... 173,500 1.2 142,249 *
Robert Perreault (11)... 114,687 * 94,030 *
Therese H. Langlais
(12)................... 124,208 * 101,836 *
Gill Cogan (13)......... 559,684 3.8 458,874 *
Howard H. Graham (14)... 2,187 * 1,793 *
J. Sidney Webb (15)..... 82,187 * 67,383 *
Eric Young (16)......... 452,187 3.1 370,739 *
Executive officers and
directors as a group
(12 persons) (17)...... 6,104,069 39.7 5,004,604 9.7
</TABLE>
- --------
*Less than 1%.
(1) Except as indicated in the footnotes to this table, Visigenic believes
that the persons named in the table have sole voting and dispositive
power with respect to all shares of Visigenic Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
(2) Includes (i) 2,055,000 shares held by Roger J. Sippl, Ms. Salmon's
spouse, (ii) 40,000 shares Mr. Sippl has the right to acquire pursuant to
an option exercisable within 60 days, 31,667 of which will be subject to
repurchase by Visigenic at such date, if issued and (iii) 20,000 shares
held by Nelson D. Salmon and Elizabeth G. Salmon, Trustees of the Nelson
D. Salmon Trust dated October 14, 1994. See footnote 5.
(3) Includes (i) 71,495 shares Ms. Navab has the right to acquire pursuant to
options exercisable within 60 days, 3,167 of which will be subject to
repurchase by Visigenic at such date, if issued, (ii) 724,800 shares held
by Dr. Christensen, Ms. Navab's spouse and (iii) 25,000 shares Dr.
Christensen has the right to acquire pursuant to an option exercisable
within 60 days, 19,742 of which will be subject to repurchase by
Visigenic at such date, if issued. Ms. Navab is Director of Object
Technologies for Visigenic. Ms. Navab acquired her shares and options in
Visigenic in connection with Visigenic's acquisition of PostModern
Computing Technologies, Inc. ("PostModern"). See footnote 7.
(4) Includes 30,000 shares Mr. Mokkapati has the right to acquire pursuant to
an option exercisable within 60 days, 23,750 of which will be subject to
repurchase by Visigenic at such date, if issued. Mr. Mokkapati is Senior
Architect for Distributed Objects for Visigenic. Mr. Mokkapati acquired
his shares in connection with Visigenic's acquisition of PostModern.
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<PAGE>
(5) Includes (i) 40,000 shares Mr. Sippl has the right to acquire pursuant to
an option exercisable within 60 days, 31,667 of which will be subject to
repurchase by Visigenic at such date, if issued, (ii) 393,750 shares held
by Elizabeth G. Salmon, Mr. Sippl's spouse, as separate property and
(iii) 20,000 shares held by Nelson D. Salmon and Elizabeth G. Salmon,
Trustees of the Nelson D. Salmon Trust dated October 14, 1994. Mr. Sippl
disclaims beneficial ownership of all such shares. See footnote 2. Mr.
Sippl is Chairman of the Board of Directors and Chief Executive Officer
of Visigenic.
(6) Includes (i) 82,554 shares subject to a right of repurchase in favor of
Visigenic which lapses over time and (ii) 90,000 shares Mr. Hanson has a
right to acquire pursuant to options exercisable within 60 days, 62,502
of which will be subject to repurchase by Visigenic at such date, if
issued. Mr. Hanson is President and Chief Operating Officer of Visigenic.
(7) Includes (i) 25,000 shares Dr. Christensen has the right to acquire
pursuant to an option exercisable within 60 days, 19,792 of which will be
subject to repurchase by Visigenic at such date, if issued, (ii) 645,807
shares held by Neguine Navab, Dr. Christensen's spouse and (iii) 71,495
shares Ms. Navab has the right to acquire pursuant to options exercisable
within 60 days, 3,167 of which will be subject to repurchase by Visigenic
at such date, if issued. Dr. Christensen acquired his shares in Visigenic
in connection with Visigenic's acquisition of PostModern. Dr. Christensen
is Vice President, Advanced Systems, Chief Technical Officer and director
of Visigenic. See footnote 3.
(8) Includes 120,000 shares Mr. Eichler has the right to acquire pursuant to
options exercisable within 60 days, 75,209 of which will be subject to
repurchase by Visigenic at such date, if issued. Mr. Eichler is Chief
Financial Officer of Visigenic.
(9) Represents 157,500 shares Mr. Chalmers has the right to acquire pursuant
to options exercisable within 60 days, 102,814 of which will be subject
to repurchase by Visigenic at such date, if issued. Mr. Chalmers is Vice
President, World Wide Sales of Visigenic.
(10) Includes 172,500 shares Mr. Macdonald has the right to acquire pursuant
to options exercisable within 60 days, 109,063 of which will be subject
to repurchase by Visigenic at such date, if issued. Mr. Macdonald is Vice
President, Marketing of Visigenic.
(11) Includes 97,000 shares Mr. Perreault has the right to acquire pursuant to
options exercisable within 60 days, 61,198 of which will be subject to
repurchase by Visigenic at such date, if issued. Mr. Perreault is Vice
President, Professional Services of Visigenic.
(12) Includes 25,000 shares Ms. Langlais has the right to acquire pursuant to
options exercisable within 60 days, 13,959 of which will be subject to
repurchase by Visigenic, if issued, (ii) 4,750 shares held by the Mary
Lucille Halloran, Trustee of the Halloran 1990 Living Trust dated 3/12/90
and (iii) 12,501 shares subject to a right of repurchase in favor of
Visigenic which lapses over time. Ms. Langlais is Vice President,
Business Development of Visigenic.
(13) Includes 2,187 shares Mr. Cogan has the right to acquire pursuant to
options exercisable within 60 days, if issued, and shares held by
entities affiliated with Weiss, Peck & Greer Venture Partners. Mr. Cogan,
as a general partner of Weiss, Peck & Greer Venture Partners, may be
deemed to beneficially own shares, but Mr. Cogan disclaims beneficial
ownership of all such shares except to the extent of his proportional
interest therein. Represents 46,940 shares held by Weiss, Peck & Greer
Venture Associates II (Overseas), Ltd., 214,190 shares held by Weiss,
Peck & Greer Venture Associates II, L.P. and 296,367 shares held by WPG
Enterprise fund. Mr. Cogan, a Director of Visigenic, is a general partner
of Weiss, Peck & Greer Venture Partners.
(14) Represents 2,187 shares Mr. Graham has the right to acquire pursuant to
options exercisable within 60 days, if issued. Mr. Graham is a director
of Visigenic.
(15) Includes (i) 2,187 shares Mr. Webb has the right to acquire pursuant to
options exercisable within 60 days, is issued, (ii) 10,000 shares held by
J. Sidney Webb, Trustee of the Webb Family Trust and (iii) 417 shares
subject to a right of repurchase in favor of Visigenic which lapses over
time.
(16) Includes 2,187 shares Mr. Young has the right to acquire pursuant to
options exercisable within 60 days, if issued, and shares held by
entities affiliated with Canaan Capital Partners. Mr. Young, as a general
partner of Canaan Capital Partners, may be deemed to beneficially own
shares, but Mr. Young disclaims beneficial ownership of all such shares
except to the extent of his proportional interest therein. Represents
357,200 shares held by Canaan Capital Offshore Limited Partnership C.V.
("Offshore"), 42,800 shares held by Canaan Capital Limited Partnership
("CCLP") and 50,000 shares held by Quai Limited ("Quai"). Eric Young is a
director of Visigenic and is a general partner of Offshore and CCLP. Quai
is a limited partner of Canaan Partners. Mr. Young holds no voting or
dispositive control over shares held by Quai, and he disclaims beneficial
ownership of such shares.
(17) Includes 95,472 shares subject to rights of repurchase in favor of
Visigenic which lapse over time.
100
<PAGE>
DIRECTOR COMPENSATION
Directors of Visigenic did not receive any cash compensation for their
services as members of the Board of Directors of Visigenic in the year ended
March 31, 1997.
INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information regarding executive
compensation paid by Visigenic for services rendered to Visigenic during the
fiscal years ended May 31, 1995, 1996 and 1997 by Roger J. Sippl, who will
serve as Chief Technical Officer of Borland following the Merger. See "The
Merger--Employment Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
--------------------------- ---- -------- -----
<S> <C> <C> <C>
Roger J. Sippl........................................... 1997 $ 1(1) --
Chairman of the Board of Directors and 1996 $ 90,001 --
Chief Executive Officer 1995 $120,000 --
</TABLE>
- --------
(1) Mr. Sippl received a salary of $1 for the fiscal year ended March 31,
1997.
Mr. Sippl did not receive any options to purchase shares of Visigenic Common
Stock in the fiscal year ended March 31, 1997.
Mr. Sippl did not exercise any options to purchase shares of Visigenic's
Common Stock during the year ended March 31, 1997. Mr. Sippl held no
unexercised options during the fiscal year ended March 31, 1997.
Mr. Sippl formed RogerLabs, Inc. ("RLI") in February 1996, in order to
pursue technology research and development projects of interest to him. Mr.
Sippl is the sole owner, director and officer of RLI. In June 1996, Visigenic
acquired certain technology and other assets being developed by RLI that
Visigenic expects it may use in a future product or products. Visigenic paid
Mr. Sippl $40,000 to acquire these assets. RLI's cost of development of the
technology, consisting chiefly of salaries of RLI employees and fees paid to
consultants, exceeded the price paid by Visigenic. In connection with the
asset sale, five employees of RLI became employees of Visigenic.
101
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following pro forma unaudited combined condensed financial statements
give effect to the proposed Merger of Visigenic and a wholly-owned subsidiary
of Borland, 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 Visigenic as of September 30, 1997 assuming that the
proposed Merger had occurred as of September 30, 1997. Such pro forma
information is based upon the historical balance sheet data of Borland and
Visigenic as of that date. The pro forma unaudited combined condensed
statements of operations give effect to the proposed Merger by combining the
results of operations of both entities for the fiscal years ended March 31,
1997, 1996 and 1995 and for the six months ended September 30, 1997 and 1996,
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 Visigenic
included elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus.
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.
102
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
BORLAND VISIGENIC PRO
SEPTEMBER 30, SEPTEMBER 30, FORMA
1997 1997 ADJUSTMENTS COMBINED
------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 81,679 $17,971 $ -- $ 99,650
Short-term investments.... 1,793 -- -- 1,793
Accounts receivable, net.. 21,375 5,664 -- 27,039
Inventories............... 971 -- -- 971
Other..................... 7,164 496 (1,000)(3) 6,660
-------- ------- ------- --------
Total current assets...... 112,982 24,131 (1,000) 136,113
Property and equipment,
net........................ 103,244 3,207 (1,000)(3) 105,451
Other non-current assets.... 6,992 571 -- 7,563
-------- ------- ------- --------
Total assets.............. $223,218 $27,909 $(2,000) $249,127
======== ======= ======= ========
LIABILITIES
Current liabilities:
Accounts payable.......... $ 11,044 $ 651 $ -- $ 11,695
Accrued expenses.......... 40,303 3,214 -- 43,517
Short term restructuring.. 1,892 -- 10,000 (3) 11,892
Income taxes payable...... 4,227 -- -- 4,227
Other..................... 18,646 2,604 -- 21,250
-------- ------- ------- --------
Total current
liabilities.............. 76,112 6,469 10,000 92,581
Long-term debt and other.... 22,141 -- -- 22,141
-------- ------- ------- --------
Total liabilities......... 98,253 6,469 10,000 114,722
Mandatorily redeemable
preferred shares........... 24,265 -- -- 24,265
Stockholders' equity........ 100,700 21,440 (12,000)(3) 110,140
-------- ------- ------- --------
Total liabilities and
stockholders' equity..... $223,218 $27,909 $(2,000) $249,127
======== ======= ======= ========
</TABLE>
See Accompanying Notes to Pro Forma Unaudited Combined Condensed Financial
Statements.
103
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30, YEAR ENDED MARCH 31,
--------------------- -----------------------------
1997 1996 1997 1996 1995
--------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 96,244 $ 85,262 $ 170,977 $251,821 $ 274,016
Cost of revenues........ 16,538 18,121 34,115 40,025 60,618
--------- ---------- --------- -------- ---------
Gross profit............ 79,706 67,141 136,862 211,796 213,398
Operating expenses:
Selling, general and
administrative......... 59,051 77,752 156,858 146,734 210,353
Research and
development............ 25,863 31,997 64,670 55,062 66,996
Restructuring and merger
related charges........ -- 1,083 18,944 679 63,070
Other non-recurring
charges................ -- -- 17,100 -- --
Purchased in process
development............ -- 12,014 12,364 -- --
--------- ---------- --------- -------- ---------
Total operating
expenses............. 84,914 122,846 269,936 202,475 340,419
--------- ---------- --------- -------- ---------
Operating income
(loss)................. (5,208) (55,705) (133,074) 9,321 (127,021)
Interest income, net.... 1,195 3,595 5,488 4,306 3,656
Gain on sale of Quattro
Pro.................... -- -- -- -- 109,927
--------- ---------- --------- -------- ---------
Income (loss) before
income taxes........... (4,013) (52,110) (127,586) 13,627 (13,438)
Provision (benefit) for
income taxes........... 612 (52) 642 3,316 2,957
--------- ---------- --------- -------- ---------
Net income (loss) (See
Note 6)................ $ (4,625) $ (52,058) $(128,228) $ 10,311 $ (16,395)
========= ========== ========= ======== =========
Net income (loss) per
share.................. $ (.10) $ (1.12) $ (2.73) $ .22 $ (.40)
========= ========== ========= ======== =========
Weighted average shares
and equivalent shares.. 49,386 46,340 47,012 46,528 40,804
========= ========== ========= ======== =========
</TABLE>
See Accompanying Notes to Pro Forma Unaudited Combined Condensed Financial
Statements.
104
<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 11.9 million shares of Borland Common
Stock for an aggregate of up to approximately 14.5 million shares of Visigenic
Common Stock (based on shares of Visigenic Common Stock outstanding as of
September 30, 1997) in connection with the Merger based on an Exchange Ratio
of 0.81988 of a share of Borland Common Stock for each share of Visigenic
Common Stock. The actual number of shares of Borland Common Stock to be issued
will be determined at the Effective Time based on the number of shares of
Visigenic Common Stock then outstanding.
The pro forma unaudited combined condensed balance sheet presents the
combined financial position of Borland and Visigenic as of September 30, 1997
assuming that the proposed Merger had occurred as of September 30, 1997. Such
pro forma information is based upon the historical consolidated balance sheet
data of Borland and Visigenic as of that date. The pro forma unaudited
combined condensed statements of operations give effect to the proposed Merger
of Borland and Visigenic by combining the results of operations of both
entities for the fiscal years ended March 31, 1997, 1996, and 1995 and for the
six months ended September 30, 1997 and 1996, on a pooling of interests basis.
2. There were no material transactions between Borland and Visigenic during
any period presented.
3. The combined company expects to incur charges to operations currently
estimated to be in the range of $6 to $8 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 Visigenic will incur aggregate transaction costs of approximately
$4 million associated with the Merger, bringing the total charge associated
with the transaction to an estimated range of $10 million to $12 million.
The pro forma combined balance sheet as of September 30, 1997 has been
adjusted by $12 million, the upperpoint 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.
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>
SIX MONTHS
ENDED SEPTEMBER 30, YEAR ENDED MARCH 31,
--------------------- -----------------------------
1997 1996 1997 1996 1995
--------- ---------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET REVENUES
Borland............... $ 84,470 $ 77,452 $ 151,376 $245,087 $272,185
Visigenic............. 11,774 7,810 19,601 6,734 1,831
--------- ---------- --------- -------- --------
Combined.............. $ 96,244 $ 85,262 $ 170,977 $251,821 $274,016
========= ========== ========= ======== ========
NET INCOME (LOSS)
Borland............... $ 1,597 $ (36,119) $(107,960) $ 14,719 $(11,827)
Visigenic............. (6,222) (15,939) (20,268) (4,408) (4,568)
--------- ---------- --------- -------- --------
Combined.............. $ (4,625) $(52,058) $(128,228) $ 10,311 $(16,395)
========= ========== ========= ======== ========
</TABLE>
Certain classifications have been made to the Visigenic's consolidated
financial statements in the pro forma unaudited combined condensed financial
statements to conform to Borland's classifications.
105
<PAGE>
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 Visigenic for each period using the Exchange
Ratio of 0.81988 of a share of Borland Common Stock for each share of
Visigenic Common Stock.
6. For the six months ended September 30, 1997, pro forma unaudited combined
net loss per share was computed as the pro forma unaudited combined loss of
$4,625,000 increased by $383,000 relating to the accretion attributable to the
warrants issued in conjunction with Borland's private placement of manditorily
redeemable convertible preferred stock divided by the pro forma unaudited
combined weighted average common shares outstanding. The $383,000 represents
the fair value of the warrants, which was treated as a distribution to the
holders of the manditorily redeemable preferred stock. Accordingly, the fair
value of the warrants has been recognized in the pro forma unaudited combined
net loss per share on a pro rata basis over the period that the manditorily
redeemable convertible preferred stock can be converted into common stock. The
fair value of the warrants was estimated at the date of issuance using the
Black-Scholes pricing model.
106
<PAGE>
COMPARISON OF RIGHTS OF BORLAND STOCKHOLDERS AND VISIGENIC STOCKHOLDERS
Upon consummation of the Merger, stockholders of Visigenic will become
stockholders of Borland. The rights of former Visigenic stockholders will
continue to be governed by the DGCL, and 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 Visigenic (the "Visigenic
Certificate" and the "Visigenic Bylaws," respectively), on the other hand,
that may affect the rights of Visigenic's stockholders who become holders of
Borland Common Stock.
SPECIAL MEETINGS
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or by any other person authorized to do so in the corporation's
certificate of incorporation or the bylaws. The Borland Bylaws provide that
special meetings of the stockholders may only be called by the Borland Board,
the Chairman of the Board or the President. The Visigenic Bylaws and Visigenic
Certificate provide that special meetings may only be called by the Visigenic
Board, the President or the Chief Executive Officer.
CLASSIFICATION OF BOARD OF DIRECTORS
The Borland Certificate provides that the number of directors shall be fixed
from time to time by the Borland Board pursuant to the Borland Bylaws. The
Borland Bylaws set the authorized number of directors at seven, subject to
change pursuant to a resolution by the Borland Board. The Borland Certificate
and Bylaws provide for the division of the Borland Board into three classes,
with the number of directors per class as nearly equal as possible.
The Visigenic Bylaws provide that the number of directors shall be set at
six. The Visigenic Certificate and Bylaws provide (i) that the number of
directors shall be fixed from time to time exclusively by the Visigenic Board
and (ii) for the division of the Visigenic Board into three classes with
staggered terms, the first class consisting of two directors, the second class
consisting of two directors and the third class consisting of two directors.
REMOVAL OF DIRECTORS
The Borland Certificate and Bylaws provide that any director or the entire
Borland Board may be removed, with or without cause, by the affirmative vote
of the holders of at least a majority of the voting power of the then
outstanding shares of capital stock of Borland entitled to vote generally in
the election of directors, voting together as a single class.
The Visigenic Certificate and Bylaws provide that any director or the entire
Visigenic Board may be removed, but only for cause and only by the affirmative
vote of the holders of at least 66 2/3% of the voting power of the then
outstanding shares of capital stock of Visigenic entitled to vote generally in
the election of directors, voting together as a single class.
INTRODUCTION OF BUSINESS BY STOCKHOLDERS AT MEETING OF STOCKHOLDERS
The Borland Bylaws provide that a stockholder's notice regarding business to
be conducted at a stockholders meeting must be received by the Secretary of
Borland not less than 30 days prior to the meeting, provided that if Borland
has given less than 40 days' notice to its stockholders of the stockholders
meeting, the stockholder's notice must be received by the Secretary of Borland
no later than the close of business on the tenth day following the day Borland
gives its notice.
The Visigenic Bylaws provide that a stockholder's notice regarding business
to be conducted at a stockholders meeting must be received at Visigenic's
principal executive offices not less than 120 calendar days
107
<PAGE>
in advance of the date that Visigenic's proxy statement was released to
stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, or in the event of a special meeting, notice by the stockholder to
be timely must be received not later than the close of business on the tenth
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made.
AMENDMENT OF BYLAWS AND CERTIFICATE
The Borland Bylaws provide that the Bylaws may be amended by (i) the
affirmative vote of a majority of the directors present at any board meeting
at which a quorum is present or (ii) by a majority vote of the shares
represented and entitled to vote at a meeting of the stockholders.
The Visigenic Certificate provides that, notwithstanding any provision of
law which may permit a lesser vote, the Visigenic Certificate may only be
amended by 66 2/3% of voting power of the then outstanding shares of capital
stock of Visigenic. The Visigenic Bylaws may be amended by (i) the Visigenic
Board, by approval of a majority of the total number of authorized directors,
or (ii) the affirmative vote of 66 2/3% of the voting power of outstanding
shares of capital stock of Visigenic entitled to vote generally in the
election of directors, voting together as a single class.
The foregoing summary does not purport to be a complete statement of the
rights of holders of Borland Common Stock and Visigenic Common Stock under,
and is qualified in its entirety by reference to, the DGCL, the Borland
Certificate and Borland Bylaws, and the Visigenic Certificate and Visigenic
Bylaws. See "Description of Borland Capital Stock" for a summary of certain
other rights relating to the Borland Common Stock.
108
<PAGE>
DESCRIPTION OF BORLAND CAPITAL STOCK
The authorized capital stock of Borland consists of 100,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
As of January 12, 1998, there were approximately 38,811,762 shares of
Borland Common Stock outstanding.
The holders of Borland Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of Borland, holders of
Borland Common Stock are entitled to share ratably in the assets remaining
after payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of Borland Common Stock have no preemptive,
conversion or redemption rights. All of the outstanding shares of Borland
Common Stock are fully paid and non-assessable.
The transfer agent for Borland Common Stock is ChaseMellon Shareholder
Services.
PREFERRED STOCK
Up to 1,000,000 shares of Borland Preferred Stock are authorized for
issuance. Of the Preferred Stock, 100,000 shares have been designated as
Series A Junior Participating Preferred Stock and 1,470 shares have been
designated as Series B Convertible Preferred Stock. Borland's Board of
Directors has the authority, without further action by the stockholders, to
issue the remaining undesignated Preferred Stock in one or more series and to
fix the designations, powers, preferences, privileges and relative
participating, optional or special rights and the qualifications, limitations
or restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which
may be greater than the rights of the Common Stock. The Board of Directors,
without stockholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control
of Borland or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock.
As of January 12, 1998, there were 550 shares of Borland Series B
Convertible Preferred Stock outstanding. Subject to certain limitations,
shares of the Series B Preferred Stock are convertible into shares of its
Common Stock, at the election of the holder of the Series B Preferred Stock,
at a price (the "Conversion Rate") equal to the lower of market price at the
original date of issuance of such share of Series B Preferred Stock (the
"Initial Price") or the market price when a holder of Series B Preferred Stock
delivers notice of an election to convert such shares ("Notification Date").
"Market price" is generally determined by the closing price for Borland Common
Stock on the applicable date. Each share of Series B Preferred Stock is
entitled to a number of votes that equals the number of shares of Borland
Common Stock into which the Series B Preferred Stock may be converted.
Approval of at least 66 2/3% of the Series B Preferred Stock, voting as a
separate class, is required to approve any amendment to Borland's Certificate
of Incorporation that would adversely affect the Series B Preferred Stock.
Upon any liquidation, dissolution or winding up of Borland, each share of
Series B Preferred Stock is entitled to be paid $50,000 per share from the
assets of Borland. After payment in full of the foregoing each holder of
Series B Preferred Stock, such holders are entitled to no further
distributions. In addition, upon at least 20 trading days' written notice,
Borland may elect to redeem, on October 29, 1999, 2000 or 2001, all shares of
Series B Preferred Stock which remain outstanding on October 29, 1999 at
$55,000 per share. Subject to certain limitations, Borland also has a right to
call for redemption if the Conversion Rate is less than $6.00 per share.
109
<PAGE>
BORLAND RIGHTS AGREEMENT
On December 20, 1991, Borland adopted a Stockholder Rights Plan (the
"Borland Rights Plan," and each right under the Borland Rights Plan, a
"Right") for each share of Borland outstanding Common Stock. When exercisable,
each Right initially entitles the holder to purchase Borland Common Stock at a
50% discount to its then-current market price. The Rights become exercisable
on the earlier of: (i) the close of business on December 10, 2001 or (ii) the
time at which the Rights are redeemed which shall be prior to the earlier of
(A) December 10, 2001 or (B) with certain exceptions, the close of business on
the tenth day following the first day of a public announcement by Borland or
any individual or entity (an "Acquiring Person") that such individual or
entity has acquired beneficial ownership of 15% or more of Borland Common
Stock, except in the case of a "Qualifying Offer" defined as a tender or
exchange offer for all shares approved by a majority of disinterested
directors which is deemed to be fair by an investment banker and otherwise in
the best interests of the stockholders of Borland. The Rights are redeemable
by the Company at a nominal price.
The Rights Plan was designed to protect and maximize the value of the
outstanding equity interests in Borland in the event of an unsolicited attempt
by an acquiror to take over Borland in a manner or on terms not approved by
the Borland Board of Directors. The Merger Agreement and the consummation of
the Merger will not cause any change, effect or result under the Borland
Rights Agreement which is adverse to the interests of Visigenic. Visigenic
does not have a rights plan.
110
<PAGE>
AMENDMENTS TO THE BORLAND 1997 STOCK OPTION PLAN
GENERAL
The Borland 1997 Stock Option Plan (the "Option Plan") was adopted by the
Borland Board on June 18, 1997 and approved by Borland's stockholders on
September 5, 1997. Currently, a maximum of 1,600,000 shares of Common Stock
may be issued under the Option Plan.
Option grants under the Option Plan are made at the discretion of the
Compensation Committee or the Borland Board. Accordingly, future grants under
the Option Plan are not yet determinable. As of January 14, 1998, a total of
1,486,028 shares had been issued under the Option Plan or were subject to
options outstanding under the Option Plan, leaving 113,972 shares of Common
Stock available for future option grants under the Option Plan. On December 5,
1997, subject to stockholder approval, the Borland Board amended the Option
Plan to increase the aggregate maximum number of shares of Borland's Common
Stock reserved for issuance under the Option Plan from 1,600,000 shares to
3,300,000 shares.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the amount of compensation, including stock option related
compensation, paid to each of Borland's chief executive officer and its four
other most highly compensated executive officers, that Borland may deduct as a
business expense for federal income tax purposes. However, section 162(m)
exempts from this limit certain "performance-based compensation." In order to
comply with the requirements of the exemption for performance-based
compensation, the Option Plan provides that no employee may be granted in any
fiscal year a number of Borland options which in the aggregate is for more
than 500,000 shares, except that Borland may make an additional one-time grant
to any newly-hired employee of an option for up to 1,500,000 shares (the
"Grant Limits"). On December 5, 1997, subject to stockholder approval, the
Borland Board amended the Option Plan to increase the Grant Limit for
continuing employees to 1,000,000 shares and to increase the size of the
additional one-time grant to new hires to 2,000,000 shares.
The Borland Board seeks stockholder approval of the amendment to the Option
Plan authorizing the additional 1,700,000 shares for future stock option
awards and increasing the Grant Limits. The Board believes that the increase
in the number of shares reserved for issuance under the Option Plan and the
increase in the Grant Limits are in the best interests of Borland. Competition
for highly qualified individuals in Borland's industry is intense, and the
Borland Board believes that in order to attract the best candidates
successfully, Borland must continue to offer a competitive equity incentive
program. The Borland Board believes that the increase in the number of shares
available for grant under the Option Plan and the increase in the Grant Limits
will be an important factor in assisting Borland to attract and retain the
high caliber employees, directors and consultants essential to the success of
Borland and to continue the Option Plan's important role in motivating
employees to contribute to Borland's growth and profitability. The proposed
amendment to the Option Plan and the increase in the Grant Limits is intended
to ensure that Borland will continue to have available a reasonable number of
shares and a sufficient Grant Limit to meet these goals.
SUMMARY OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety by the
specific language of the Option Plan, a copy of which is available to any
stockholder upon written request to Borland's Secretary at Borland's principal
executive office.
General. The purpose of the Option Plan is to advance the interests of
Borland and its stockholders by providing an incentive to attract, retain and
reward Borland's employees, directors and consultants and by motivating such
persons to contribute to Borland's growth and profitability. The Option Plan
provides for the grant to employees of incentive stock options within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and the grant to employees, directors and consultants of nonstatutory
stock options.
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Shares Subject to Plan; Grant Limits. Currently, a maximum of 1,600,000 of
the authorized but unissued or reacquired shares of Common Stock of Borland
may be issued under the Option Plan. As amended, subject to stockholder
approval, the maximum number of shares issuable under the Option Plan would be
increased to 3,300,000. As amended, subject to stockholder approval, the Grant
Limit for continuing employees would be increased to 1,000,000 shares and the
size of the additional one-time grant to new hires would be increased to
2,000,000 shares. Appropriate adjustments will be made to the shares subject
to the Option Plan, the Grant Limits, the automatic nonemployee director
grants discussed below and to outstanding options upon any stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of Borland. If
any outstanding option expires, terminates or is canceled, or if shares
acquired subject to a company repurchase option are repurchased by Borland,
the expired or repurchased shares are returned to the Option Plan and again
become available for grant.
Administration. The Option Plan will be administered by the Borland Board or
a duly appointed committee of the Borland Board, which, in the case of options
intended to qualify for the performance-based compensation exemption under
section 162(m) of the Code, must be comprised solely of two or more "outside
directors" within the meaning of section 162(m) (hereinafter referred to
collectively as the "Option Board"). Subject to the provisions of the Option
Plan, the Option Board determines the persons to whom options are to be
granted, the number of shares to be covered by each option, whether an option
is to be an incentive stock option or a nonstatutory stock option, the timing
and terms of exercisability and vesting of each option, the purchase price and
the type of consideration to be paid to Borland upon the exercise of each
option, the time of expiration of each option, and all other terms and
conditions of the options. The Option Board may amend, modify, extend, cancel,
renew, or grant a new option in substitution for, any option, waive any
restrictions or conditions applicable to any option, and accelerate, continue,
extend or defer the exercisability or vesting of any option, including with
respect to the period following an optionee's termination of service with
Borland. The Option Plan provides, subject to certain limitations, for
indemnification by Borland of any director, officer or employee against all
reasonable expenses, including attorneys' fees, incurred in connection with
any legal action arising from such person's action or failure to act in
administering the plan. The Option Plan permits the Option Board to delegate
to an officer the authority to grant one or more options for not more than an
aggregate of 250,000 shares in any fiscal year to any person eligible under
the plan who is not an officer or a director of Borland, subject to guidelines
established by the Option Board. The Option Board will interpret the Option
Plan and options granted thereunder, and all determinations of the Option
Board will be final and binding on all persons having an interest in the
Option Plan or any option.
Eligibility. Options may be granted under the Option Plan to employees,
directors and consultants of Borland or of any present or future parent or
subsidiary corporations of Borland. In addition, options may be granted to
prospective service providers in connection with written employment offers,
provided that no shares may be purchased prior to such person's commencement
of service. As of January 14, 1998, Borland had approximately 792 full-time
equivalent employees and contractors, including 5 executive officers and 5
non-employee directors who would be eligible under the Option Plan. While any
eligible person may be granted a nonstatutory stock option, only employees may
be granted incentive stock options.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between Borland and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price of each incentive stock option may not be less than the fair
market value of a share of Borland Common Stock on the date of grant, while
the exercise price of a nonstatutory stock option may not be less than 85% of
such fair market value. However, any incentive stock option granted to a
person who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of Borland or any parent
or subsidiary corporation of Borland (a "Ten Percent Stockholder") must have
an exercise price equal to at least 110% of the fair market value of a share
of Common Stock on the date of grant.
The Option Plan provides that the option exercise price may be paid in cash,
by check, or in cash equivalent, by the assignment of the proceeds of a sale
or loan with respect to some or all of the shares being acquired upon
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the exercise of the option, to the extent legally permitted, by tender of
shares of Borland Common Stock owned by the optionee having a fair market
value not less than the exercise price or by means of a promissory note if the
optionee is an employee, by such other lawful consideration as approved by the
Option Board, or by any combination of these. Nevertheless, the Option Board
may restrict the forms of payment permitted in connection with any option
grant. No option may be exercised until the optionee has made adequate
provision for federal, state, local and foreign taxes, if any, relating to the
exercise of the option.
Options will become vested and exercisable at such times or upon such events
and subject to such terms, conditions, performance criteria or restrictions as
specified by the Option Board. The maximum term of an incentive stock option
granted under the Option Plan is ten years, provided that an incentive stock
option granted to a Ten Percent Stockholder must have a term not exceeding
five years. Unless his or her service is terminated for cause, an optionee's
option generally will remain exercisable for three months following
termination of service, provided that if termination results from the
optionee's death or disability, the option generally will remain exercisable
for twelve months following the optionee's termination of service. In any
event the option must be exercised no later than its expiration date. The
Option Board, in its discretion, may provide for longer or shorter post-
service exercise periods in particular instances.
Incentive stock options are nontransferable by the optionee other than by
will or by the laws of descent and distribution, and are exercisable during
the optionee's lifetime only by the optionee. Nonstatutory stock options
granted under the Option Plan may be assigned or transferred to the extent
permitted by the Option Board and set forth in the optionee's option
agreement.
Automatic Grant of Nonemployee Director Options. In addition to authorizing
the Option Board to grant options to employees, directors and consultants on a
discretionary basis, the Option Plan provides for the nondiscretionary,
automatic grant of options to directors who, at the time of grant, are not
employees of Borland or of any parent or subsidiary corporation of Borland (a
"Nonemployee Director"). Upon initial election or appointment to the Borland
Board, each Nonemployee Director will be granted automatically on the date of
such initial election or appointment an option to purchase 30,000 shares of
Common Stock (an "Initial Option"). In addition, on the date of each Annual
Meeting of the stockholders, each Nonemployee Director remaining in office
will be granted automatically an option to purchase 7,500 shares of Common
Stock (an "Annual Option"). The exercise price per share of each Nonemployee
Director option will equal the fair market value of Borland Common Stock on
the date of grant, generally the closing price reported on the Nasdaq National
Market. Unless earlier terminated under the terms of the Option Plan,
Nonemployee Director options will expire ten years after grant. Initial
Options will become exercisable in full on their first anniversary, while
Annual Options will become exercisable in full on the day preceding the first
Annual Meeting of the stockholders following the date of grant. Nonemployee
Directors options will remain exercisable for six months following the
director's termination of service unless such termination results from the
director's death or disability, in which case the option will remain
exercisable for twelve months, provided that in no event may the option be
exercised after its expiration date.
Change in Control. The Option Plan provides that in the event of (i) a sale
or exchange by the stockholders in a single or series of related transactions
of more than 50% of Borland's voting stock, (ii) a merger or consolidation in
which Borland is a party, (iii) the sale, exchange or transfer of all or
substantially all of the assets of Borland, or (iv) a liquidation or
dissolution of Borland wherein, upon any such event, the stockholders of
Borland immediately before such event do not retain immediately after such
event direct or indirect beneficial ownership of more than 50% of the total
combined voting power of the voting stock of Borland, its successor, or the
corporation to which the assets of Borland were transferred (a "Change in
Control"), the surviving, continuing, successor or purchasing corporation or
parent corporation thereof may either assume Borland's rights and obligations
under the outstanding options or substitute substantially equivalent options
for such corporation's stock. The Option Plan authorizes the Option Board to
provide in any option agreement under the Option Plan for the acceleration of
the vesting and exercisability of options upon such circumstances in
connection with a Change in Control and to such extent as the Option Board
determines in its discretion. To the extent that the outstanding options are
not assumed, replaced or exercised prior to the Change in Control, they will
terminate.
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Termination or Amendment. The Option Plan will continue in effect until the
earlier of its termination by the Board or the date on which all shares
available for issuance under the plan have been issued and all restrictions on
such shares under the terms of the plan and the agreements evidencing options
granted under the plan have lapsed, provided that all incentive stock options
must be granted within ten years of the date on which the Borland Board
adopted the Option Plan. The Option Board may terminate or amend the Option
Plan at any time. However, without stockholder approval, the Option Board may
not amend the Option Plan to increase the total number of shares of Common
Stock issuable thereunder, change the class of persons eligible to receive
incentive stock options, or effect any other change that would require
stockholder approval under any applicable law, regulation or rule. No
termination or amendment may adversely affect an outstanding option without
the consent of the optionee, unless the amendment is required to preserve an
option's status as an incentive stock option or is necessary to comply with
any applicable law, regulation or rule.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the federal
income tax consequences under current law of participation in the Option Plan
and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, Borland will not be
entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in
excess of that amount will be a capital gain. If a loss is recognized, there
will be no ordinary income, and such loss will be a capital loss. A capital
gain or loss will be long-term if the optionee's holding period is more than
12 months. Any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be deductible by
Borland for federal income tax purposes, except to the extent such deduction
is limited by applicable provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular
tax for the year. Special rules may apply with respect to certain subsequent
sales of the shares in a disqualifying disposition, certain basis adjustments
for purposes of computing the alternative minimum taxable income on a
subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no
taxable income as the result of the grant of such an option. Upon exercise of
a nonstatutory stock option, the optionee normally recognizes ordinary income
in the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If
the optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the
date on which the option is exercised unless the shares are subject to a
substantial risk of forfeiture and are not transferable, in which case the
determination date is the earlier of (i) the date on which the shares are
transferable or (ii) the date on which the shares are not subject to a
substantial risk of forfeiture. If the determination date is after the
exercise date, the optionee may elect, pursuant to section 83(b) of
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the Code, to have the exercise date be the determination date by filing an
election with the Internal Revenue Service no later than 30 days after the
date the option is exercised. Upon the sale of stock acquired by the exercise
of a nonstatutory stock option, any gain or loss, based on the difference
between the sale price and the fair market value on the determination date,
will be taxed as capital gain or loss. A capital gain or loss will be long-
term if the optionee's holding period following the determination date is more
than 12 months. No tax deduction is available to Borland with respect to the
grant of a nonstatutory stock option or the sale of the stock acquired
pursuant to such grant. Borland generally should be entitled to a deduction
equal to the amount of ordinary income recognized by the optionee as a result
of the exercise of a nonstatutory stock option, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder.
VOTE REQUIRED AND BORLAND BOARD RECOMMENDATION
The affirmative vote of a majority of shares of Borland Common Stock present
or represented by proxy and entitled to vote at the Borland Special Meeting is
required for approval of this proposal. Abstentions and broker non-votes will
each be counted as present for purposes of determining the presence of a
quorum. Abstentions and broker non-votes will have no effect either for or
against the vote for this proposal. The Borland Board believes that adoption
of the proposed amendment of the Option Plan is in the best interests of
Borland and the stockholders for the reasons stated above.
THE BORLAND BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL TO AMEND THE OPTION PLAN.
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AMENDMENT TO THE
BORLAND 1997 EMPLOYEE STOCK PURCHASE PLAN
The Borland 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Borland Board on June 18, 1997 and became effective on
September 5, 1997, the date on which the Borland stockholders approved the
adoption of the Purchase Plan. The Purchase Plan replaced Borland's 1990
Employee Stock Purchase Plan, and currently, a maximum of 200,000 shares of
Borland Common Stock may be issued under the Purchase Plan. On December 5,
1997, subject to stockholder approval, the Borland Board amended the Purchase
Plan to increase the number of shares of Borland Common Stock issuable under
the Purchase Plan from 200,000 shares to 400,000 shares.
The Borland Board seeks stockholder approval of the amendment to the
Purchase Plan to increase the number of shares issuable thereunder to 400,000
shares. The Borland Board believes that possible future growth will require
additional shares in the Purchase Plan to assure full employee participation.
The Borland Board believes that the Purchase Plan benefits Borland and its
stockholders by providing its employees with an opportunity through payroll
deductions to purchase shares of Borland Common Stock that is helpful in
attracting, retaining, and motivating valued employees. The proposed amendment
to increase the number of shares issuable under the Purchase Plan is necessary
to ensure that Borland will continue to have available a sufficient number of
shares to continue offering employees a stock purchase opportunity under the
Purchase Plan.
SUMMARY OF THE PURCHASE PLAN
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which is available to
any stockholder upon written request to Borland's Secretary at Borland's
principal executive office.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each participant in the Purchase
Plan is granted at the beginning of each offering under the plan (an
"Offering") the right to purchase through accumulated payroll deductions up to
a number of shares of Borland Common Stock (a "Purchase Right") determined on
the first day of the Offering. The Purchase Right is automatically exercised
on each purchase date during the Offering unless the participant has withdrawn
from participation in the Purchase Plan prior to such date.
Shares Subject to Plan. Currently, a maximum of 200,000 of Borland's
authorized but unissued or reacquired shares of Common Stock may be issued
under the Purchase Plan. The Borland Board has amended the Purchase Plan,
subject to stockholder approval, to increase the maximum number of shares of
Borland Common Stock issuable thereunder to an aggregate of 400,000 shares.
Appropriate adjustments will be made to the shares issuable under the Purchase
Plan and to outstanding Purchase Rights in the event of any stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of Borland, or in
the event of any merger, sale of assets or other reorganization of Borland. If
any Purchase Right expires or terminates, the shares subject to the
unexercised portion of such Purchase Right will again be available for
issuance under the Purchase Plan.
Administration. The Purchase Plan is administered by the Borland Board or a
duly appointed committee of the Borland Board (hereinafter referred to as the
"Purchase Plan Administrator"). Subject to the provisions of the Purchase
Plan, the Purchase Plan Administrator determines the terms and conditions of
Purchase Rights granted under the plan. The Purchase Plan Administrator will
interpret the Purchase Plan and Purchase Rights granted thereunder, and all
determinations of the Purchase Plan Administrator will be final and binding on
all persons having an interest in the Purchase Plan or any Purchase Right. The
Purchase Plan provides, subject to certain limitations, for indemnification by
Borland of any director, officer or employee against all reasonable expenses,
including attorneys' fees, incurred in connection with any legal action
arising from such person's action or failure to act in administering the plan.
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Eligibility. Any employee of Borland or of any present or future parent or
subsidiary corporation of Borland designated by the Purchase Plan
Administrator for inclusion in the Purchase Plan is eligible to participate in
an Offering under the plan so long as the employee is customarily employed for
at least 20 hours per week and more than five months in any calendar year.
However, no employee who owns or holds options to purchase, or who, as a
result of participation in the Purchase Plan, would own or hold options to
purchase, five percent or more of the total combined voting power or value of
all classes of stock of Borland or of any parent or subsidiary corporation of
Borland is eligible to participate in the Purchase Plan. As of January 14,
1998, approximately 792 full-time equivalent employees, including 5 executive
officers, were eligible to participate in the Purchase Plan.
Offerings. The Purchase Plan is implemented through two series of Offerings,
the terms of which are referred to herein as "Offering Periods." A twelve-
month "Annual Offering Period" will generally begin on or about December 1 of
each year, and a six-month "Half-Year Offering Period" will generally begin on
or about June 1 of each year. An employee may not participate simultaneously
in more than one Offering. Generally, each Annual Offering Period is comprised
of two six-month "Purchase Periods" ending on or about the last day of May and
November of each year, while each Half-Year Offering Period is comprised of a
single Purchase Period. However, the Purchase Plan Administrator may establish
a different term for one or more Offerings or different commencement or ending
dates for any Offering Period or Purchase Period. The initial Annual Offering
Period commenced on October 1, 1997 and will end on November 30, 1998.
Participation and Purchase of Shares. Participation in an Offering under the
Purchase Plan is limited to eligible employees who authorize payroll
deductions prior to the first day of an Offering Period (the "Offering Date").
Payroll deductions may not exceed 15% (or such other rate as the Purchase Plan
Administrator determines) of an employee's compensation on any payday during
the Offering Period. An employee who becomes a participant in the Purchase
Plan will automatically participate in each subsequent Offering Period
beginning immediately after the last day of the Offering Period in which he or
she is a participant until the employee withdraws from the Purchase Plan,
becomes ineligible to participate, or terminates employment.
Subject to any uniform limitations or notice requirements imposed by
Borland, a participant may increase or decrease his or her rate of payroll
deductions or withdraw from the Purchase Plan at any time during an Offering.
Upon withdrawal, Borland will refund without interest the participant's
accumulated payroll deductions not previously applied to the purchase of
shares. Once a participant withdraws from an Offering, that participant may
not again participate in the same Offering. If the fair market value of a
share of Common Stock on the Offering Date of the current Offering in which
employees are participating is greater than such fair market value on the
Offering Date of a new Offering, then, unless a participant elects otherwise,
each participant will be automatically withdrawn from the current Offering
after purchasing shares and enrolled in the new Offering.
Subject to certain limitations, each participant in an Offering is granted a
Purchase Right for a number of whole shares determined by dividing (i)
$2,083.33 multiplied by the number of months in the Offering Period by (ii)
the fair market value of a share of Common Stock on the Offering Date.
However, the maximum number of shares a participant may purchase in any
Offering Period is equal to 208.33 multiplied by the number of months in the
Offering Period. As a further limitation, no participant may purchase shares
of Common Stock under the Purchase Plan or any other employee stock purchase
plan of Borland having a fair market value exceeding $25,000 in any calendar
year (measured by the fair market value of Borland Common Stock on the first
day of the Offering Period in which the shares are purchased). Purchase Rights
are nontransferable and may only be exercised by the participant.
On the last day of each Purchase Period (a "Purchase Date"), Borland issues
to each participant in the Offering the number of shares of Borland Common
Stock determined by dividing the amount of payroll deductions accumulated for
the participant during the Purchase Period by the purchase price, limited in
any case by the number of shares subject to the participant's Purchase Right
for that Offering. The price at which shares are sold under the Purchase Plan
is established by the Purchase Plan Administrator but may not be less than 85%
of the lesser of the fair market value per share of Common Stock on the
Offering Date or on the Purchase Date. The fair market value of the Common
Stock on any relevant date generally will be the closing price per
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share as reported on the Nasdaq National Market. Any payroll deductions under
the Purchase Plan not applied to the purchase of shares will be returned to
the participant without interest, unless the amount remaining is less than the
amount necessary to purchase a whole share of Common Stock, in which case the
remaining amount may be applied to the next Purchase Period.
Change in Control. The Purchase Plan provides that, in the event of (i) a
sale or exchange by the stockholders in a single or series of related
transactions of more than 50% of Borland's voting stock, (ii) a merger or
consolidation in which Borland is a party, (iii) the sale, exchange or
transfer of all or substantially all of the assets of Borland, or (iv) a
liquidation or dissolution of Borland wherein, upon any such event, the
stockholders of Borland immediately before such event do not retain
immediately after such event direct or indirect beneficial ownership of more
than 50% of the total combined voting power of the voting stock of Borland,
its successor, or the corporation to which Borland's assets were transferred
(a "Change in Control"), the surviving, continuing, successor or purchasing
corporation or parent corporation thereof may assume Borland's rights and
obligations under the Purchase Plan. However, if such corporation elects not
to assume the outstanding Purchase Rights, the Purchase Date of the then
current Purchase Period will be accelerated to a date before the Change in
Control specified by the Purchase Plan Administrator. Any Purchase Rights that
are not assumed or exercised prior to the Change in Control will terminate.
Termination or Amendment. The Purchase Plan will continue until terminated
by the Purchase Plan Administrator or until all of the shares reserved for
issuance under the plan have been issued. The Purchase Plan Administrator may
at any time amend or terminate the Purchase Plan, except that the approval of
Borland's stockholders is required within twelve months of the adoption of any
amendment increasing the number of shares authorized for issuance under the
Purchase Plan, or changing the definition of the corporations which may be
designated by the Purchase Plan Administrator as corporations the employees of
which may participate in the Purchase Plan.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Purchase Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Generally, there are no tax consequences to an employee of either becoming a
participant in the Purchase Plan or purchasing shares under the Purchase Plan.
The tax consequences of a disposition of shares vary depending on the period
such stock is held before its disposition. If a participant disposes of shares
within two years after the Offering Date or within one year after the Purchase
Date on which the shares are acquired (a "disqualifying disposition"), the
participant recognizes ordinary income in the year of disposition in an amount
equal to the difference between the fair market value of the shares on the
Purchase Date and the purchase price. Such income may be subject to
withholding of tax. Any additional gain or resulting loss recognized by the
participant from the disposition of the shares is a capital gain or loss. If
the participant disposes of shares at least two years after the Offering Date
and at least one year after the Purchase Date on which the shares are
acquired, the participant recognizes ordinary income in the year of
disposition in an amount equal to the lesser of (i) the difference between the
fair market value of the shares on the date of disposition and the purchase
price or (ii) 15% of the fair market value of the shares on the Offering Date.
Any additional gain recognized by the participant on the disposition of the
shares is a capital gain. If the fair market value of the shares on the date
of disposition is less than the purchase price, there is no ordinary income,
and the loss recognized is a capital loss. If the participant owns the shares
at the time of the participant's death, the lesser of (i) the difference
between the fair market value of the shares on the date of death and the
purchase price or (ii) 15% of the fair market value of the shares on the
Offering Date is recognized as ordinary income in the year of the
participant's death.
If the exercise of a Purchase Right does not constitute an exercise pursuant
to an "employee stock purchase plan" under section 423 of the Code, the
exercise of the Purchase Right will be treated as the exercise of a
nonstatutory stock option. The participant would therefore recognize ordinary
income on the Purchase Date equal
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to the excess of the fair market value of the shares acquired over the
purchase price. Such income is subject to withholding of income and employment
taxes. Any gain or loss recognized on a subsequent sale of the shares, as
measured by the difference between the sale proceeds and the sum of (i) the
purchase price for such shares and (ii) the amount of ordinary income
recognized on the exercise of the Purchase Right, will be treated as a capital
gain or loss, as the case may be.
A capital gain or loss will be long-term if the participant holds the shares
for more than 12 months and short-term if the participant holds the shares for
12 months or less. Short-term capital gains are subject to the same tax rates
as ordinary income. Long-term capital gains are currently subject to a maximum
tax rate of (i) 28%, if the shares are held for more than 12 months but not
more than 18 months, or (ii) 20%, if the shares are held for more than 18
months.
If the participant disposes of the shares in a disqualifying disposition,
Borland should be entitled to a deduction equal to the amount of ordinary
income recognized by the participant as a result of the disposition, except to
the extent such deduction is limited by applicable provisions of the Code or
the regulations thereunder. In all other cases, no deduction by Borland is
allowed.
VOTE REQUIRED AND BORLAND BOARD RECOMMENDATION
The affirmative vote of a majority of shares of Borland Common Stock present
or represented by proxy and entitled to vote at the Borland Special Meeting is
required for approval of this proposal. Abstentions and broker non-votes will
each be counted as present for purposes of determining the presence of a
quorum. Abstentions and broker non-votes will have no effect either for or
against the vote for this proposal. The Borland Board believes that adoption
of the proposed amendment of the Purchase Plan is in the best interests of
Borland and the stockholders for the reasons stated above.
THE BORLAND BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL TO AMEND THE PURCHASE PLAN.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETINGS
Stockholders of Borland who wish to present proper proposals at Borland's
1998 Annual Meeting of Stockholders must submit their proposals in writing to
the Secretary of Borland no later than March 26, 1998, and must otherwise
comply with the requirements of Rule 14a-8 of the Exchange Act in order to
have such proposals included in the proxy statement and form of proxy relating
to that meeting.
If the Merger is consummated, Visigenic will not hold a 1998 Annual Meeting
of Stockholders. However, if such a meeting occurs, stockholders of Visigenic
who wish to present proper proposals at such meeting must submit their
proposals in writing to the Secretary of Visigenic no later than March 3,
1998, and must otherwise comply with the requirements of Rule 14a-8 of the
Exchange Act in order to have such proposals included in the proxy statement
and form of proxy relating to that meeting.
LEGAL MATTERS
The validity of the shares of Borland Common Stock to be issued pursuant to
the Merger Agreement and certain legal matters relating to the federal income
tax consequences of the Merger will be passed upon for Borland by Gray Cary
Ware & Freidenrich LLP, Palo Alto, California. Certain legal matters relating
to the federal income tax consequences of the Merger will be passed upon for
Visigenic by Cooley Godward LLP, Palo Alto, California.
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EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of Borland
for the year ended March 31, 1997, except as they relate to the unaudited six
month periods ended September 30, 1997 and 1996, have been audited by various
independent accountants. The companies and periods covered by these audits are
indicated in the individual accountants' reports. Such consolidated financial
statements have been so incorporated by reference into this Joint Proxy
Statement/Prospectus in reliance on the reports of the various independent
accountants given on the authority of such firms as experts in auditing and
accounting.
The consolidated balance sheets of Visigenic as of March 31, 1996 and 1997
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended March 31, 1997
included in this Joint Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
120
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VISIGENIC SOFTWARE, INC.:
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Visigenic Software, Inc.:
We have audited the accompanying consolidated balance sheets of Visigenic
Software, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1996
and 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visigenic Software, Inc.
and subsidiaries as of March 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
October 21, 1997
F-2
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
------------------ SEPT. 30,
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 2,433 $ 19,679 $ 17,971
Accounts receivable, net of allowance for
doubtful accounts of $60, $144, and $394.... 867 8,324 5,664
Other current assets......................... 279 709 496
-------- -------- --------
Total current assets....................... 3,579 28,712 24,131
PROPERTY AND EQUIPMENT, net.................... 1,457 3,143 3,207
OTHER ASSETS, net:
Excess of purchase price over net assets
acquired.................................... -- 1,078 465
Other........................................ 73 110 106
-------- -------- --------
$ 5,109 $ 33,043 $ 27,909
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................. $ 948 $ 846 $ 651
Accrued liabilities--
Payroll and related benefits................ 360 1,458 1,754
Other....................................... 358 1,222 1,460
Deferred revenue............................. 1,201 2,519 2,604
-------- -------- --------
Total current liabilities.................. 2,867 6,045 6,469
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value
Authorized--10,000,000 shares at March 31,
1996; 2,000,000 shares at March 31, 1997
and September 30, 1997
Outstanding--3,674,625 shares in 1996....... 4 -- --
Common stock, $.001 par value
Authorized--20,000,000 shares at March 31,
1996; 50,000,000 shares at March 31, 1997
and September 30, 1997
Outstanding--3,189,672 shares in 1996,
14,344,474 shares in 1997 and
14,500,178 shares at September 30, 1997.... 3 14 14
Additional paid-in capital................... 13,710 58,723 59,286
Accumulated deficit.......................... (11,479) (31,747) (37,843)
Accumulated translation adjustment........... 4 8 (17)
-------- -------- --------
Total stockholders' equity................. 2,242 26,998 21,440
-------- -------- --------
$ 5,109 $ 33,043 $ 27,909
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPT. 30,
-------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software products............. $ 915 $ 4,974 $ 15,347 $ 6,166 $ 8,086
Consulting services,
maintenance and other........ 916 1,760 4,254 1,644 3,688
------- ------- -------- -------- -------
Total revenue............... 1,831 6,734 19,601 7,810 11,774
------- ------- -------- -------- -------
COST OF REVENUE:
Software products............. 48 615 1,334 531 1,030
Consulting services,
maintenance and other........ 831 1,253 3,331 1,133 2,777
------- ------- -------- -------- -------
Total cost of revenue....... 879 1,868 4,665 1,664 3,807
------- ------- -------- -------- -------
GROSS PROFIT.................... 952 4,866 14,936 6,146 7,967
------- ------- -------- -------- -------
OPERATING EXPENSES:
Product development........... 3,160 4,348 9,497 4,138 5,382
Sales and marketing........... 1,539 3,485 10,061 4,607 6,163
General and administrative.... 872 1,505 2,841 1,163 2,252
Purchased in process product
development.................. -- -- 12,364 12,014 --
Amortization of excess of
purchase price over net
assets acquired.............. -- -- 667 172 612
------- ------- -------- -------- -------
Total operating expenses.... 5,571 9,338 35,430 22,094 14,409
------- ------- -------- -------- -------
LOSS FROM OPERATIONS............ (4,619) (4,472) (20,494) (15,948) (6,442)
INTEREST AND OTHER INCOME, net.. 94 85 351 48 431
------- ------- -------- -------- -------
LOSS BEFORE PROVISION FOR INCOME
TAXES.......................... (4,525) (4,387) (20,143) (15,900) (6,011)
PROVISION FOR INCOME TAXES...... 43 21 125 39 211
------- ------- -------- -------- -------
NET LOSS........................ $(4,568) $(4,408) $(20,268) $(15,939) $(6,222)
======= ======= ======== ======== =======
NET LOSS PER SHARE.............. $ (1.58) $ (.43)
======== =======
PRO FORMA NET LOSS PER SHARE.... $ (.39) $ (1.30)
======= ========
SHARES USED IN PER SHARE
CALCULATION.................... 11,418 12,807 12,254 14,411
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------ ------------------ PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
---------- ------ ---------- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994........... 1,674,625 $ 2 2,780,786 $ 2 $ 5,611 $ (2,401) $ -- $ 3,214
Issuance of common stock......... -- -- 459,575 1 183 -- -- 184
Repurchase of common stock....... -- -- (103,717) -- (32) -- -- (32)
Issuance of Series B convertible
preferred stock................. 625,000 1 -- -- 2,464 -- -- 2,465
Cash dividends of iO prior to
merger.......................... -- -- -- -- -- (52) -- (52)
Translation adjustment........... -- -- -- -- -- -- 10 10
Net loss......................... -- -- -- -- -- (4,568) -- (4,568)
---------- ---- ---------- --- ------- -------- ---- --------
BALANCE, MARCH 31, 1995........... 2,299,625 3 3,136,644 3 8,226 (7,021) 10 1,221
Issuance of Series B convertible
preferred stock................. 1,375,000 1 -- -- 5,459 -- -- 5,460
Exercise of stock options........ -- -- 54,068 -- 25 -- -- 25
Repurchase of common stock, net
of issuances.................... -- -- (1,040) -- -- -- -- --
Cash dividends of iO prior to
merger.......................... -- -- -- -- -- (50) -- (50)
Translation adjustment........... -- -- -- -- -- (6) (6)
Net loss......................... -- -- -- -- -- (4,408) -- (4,408)
---------- ---- ---------- --- ------- -------- ---- --------
BALANCE, MARCH 31, 1996........... 3,674,625 4 3,189,672 3 13,710 (11,479) 4 2,242
Issuance of Series C convertible
preferred stock................. 444,444 -- -- -- 4,000 -- -- 4,000
Issuance of common stock in
connection with the acquisition
of PostModern Computing
Technologies, Inc............... -- -- 3,099,821 3 10,382 -- -- 10,385
Issuance of common stock in
connection with public
offerings....................... -- -- 3,195,000 3 26,467 -- -- 26,470
Conversion of preferred stock in
public offering ................ (4,119,069) (4) 4,119,069 4 -- -- -- --
Conversion of convertible
notes........................... -- -- 270,871 -- 2,031 -- -- 2,031
Issuance of common stock in
connection with the acquisition
of CustomWare, Inc.............. -- -- 125,000 -- 1,500 -- -- 1,500
Issuance of common stock, net of
repurchases..................... -- -- 345,041 1 633 -- -- 634
Translation adjustment........... 4 4
Net loss......................... -- -- -- -- -- (20,268) -- (20,268)
---------- ---- ---------- --- ------- -------- ---- --------
BALANCE, MARCH 31, 1997........... -- -- 14,344,474 14 58,723 (31,747) 8 26,998
Issuance of common stock
(unaudited)..................... -- -- 155,704 -- 563 -- -- 563
Adjustment to conform year-end
of iO (unaudited)............... -- -- -- -- -- 126 -- 126
Translation adjustment
(unaudited)..................... -- -- -- -- -- -- (25) (25)
Net loss (unaudited)............. -- -- -- -- -- (6,222) -- (6,222)
---------- ---- ---------- --- ------- -------- ---- --------
BALANCE, SEPTEMBER 30, 1997 (unaudited).. -- $ -- 14,500,178 $14 $59,286 $(37,843) $(17) $ 21,440
========== ==== ========== === ======= ======== ==== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VISIGENIC SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
-------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(4,568) $(4,408) $(20,268) $(15,939) $(6,222)
Adjustments to reconcile net
loss to net cash used in
operating activities--
Depreciation and
amortization................. 179 361 1,389 502 1,094
Purchased in process product
development.................. -- -- 12,364 12,014 --
Provision for doubtful
accounts..................... -- 60 84 37 250
Adjustment to conform year-end
of pooled company............ -- -- -- -- 126
Changes in assets and
liabilities, net of
acquisition of PostModern and
CustomWare--
Decrease (increase) in
accounts receivable......... (408) (390) (7,191) (1,611) 2,390
Decrease (increase) in
prepaid expenses and other
current assets.............. (152) (90) (331) (1,269) 213
Increase (decrease) in
accounts payable............ 32 723 (193) 188 (195)
Increase in accrued
liabilities................. 233 277 1,446 1,064 529
Increase in deferred
revenue..................... 303 898 1,135 57 85
------- ------- -------- -------- -------
Net cash used in operating
activities................. (4,381) (2,569) (11,565) (4,957) (1,730)
------- ------- -------- -------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payment for purchase of
PostModern and CustomWare, net
of cash acquired.............. -- -- (1,919) (2,182) --
Purchases of property and
equipment..................... (384) (1,152) (2,341) (1,074) (545)
Organization costs and other
assets........................ (5) (49) (36) (31) 4
------- ------- -------- -------- -------
Net cash used in investing
activities................. (389) (1,201) (4,296) (3,287) (541)
------- ------- -------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
convertible notes............. -- -- 2,000 2,000 --
Net proceeds from issuance of
preferred stock............... 2,465 5,460 4,000 4,000 --
Net proceeds from issuance of
common stock.................. 149 22 27,107 13,458 563
Cash dividends of iO prior to
merger........................ (52) (50) -- -- --
------- ------- -------- -------- -------
Net cash provided by
financing activities....... 2,562 5,432 33,107 19,458 563
------- ------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS........... (2,208) 1,662 17,246 11,214 (1,708)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD............ 2,979 771 2,433 2,433 19,679
------- ------- -------- -------- -------
CASH AND CASH EQUIVALENTS, END
OF PERIOD...................... $ 771 $ 2,433 $ 19,679 $ 13,647 $17,971
======= ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(INFORMATION RELATING TO THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Visigenic Software, Inc. (the "Company") was incorporated on February 12,
1993. The Company operates in a single industry segment and is involved in the
design, development and marketing of distributed object and database access
software products. Through March 31, 1995 the Company's principal efforts were
focused on raising capital, developing its products and applications,
establishing marketing and sales channels and recruiting key personnel. During
fiscal 1996, the Company emerged from the development stage, however, the
Company continues to be subject to the risks associated with companies in a
comparable stage of development including, but not limited to, dependence on
key personnel; limited operating history and a history of losses; and the need
to develop new software products and product enhancements.
In May 1996, the Company acquired PostModern Computing Technologies Inc.
("PostModern") (See Note 3). Prior to the acquisition of PostModern, the
Company derived substantially all of its revenue from the licensing of its
database access products and fees from related services. Since the acquisition
of PostModern, the Company has also derived a significant portion of its
revenue from its distributed object products. On October 21, 1997 the Company
announced that in order to focus its efforts on the increasing demand for its
ORB technology (distributed object products), the Company would not be further
enhancing its database access products, which include VisiODBC SDK's, VisiODBC
Drivers and VisiChannel for ODBC. The Company's distributed object products
and services are each expected to continue to account for a significant
portion of the Company's revenue for the foreseeable future.
In September 1997, the Company merged with Interactive Objects Software GmbH
("iO"), a leading German consulting company that specializes in distributed
object computing, which resulted in iO becoming a wholly-owned subsidiary of
the Company. The merger was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements for all periods
presented have been restated to include the financial statements of iO (See
Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Functional Currency
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after elimination of intercompany
transactions and balances. The functional currency of the Company's German
subsidiary is the local currency. Foreign exchange gains and losses resulting
from the translation of the German subsidiary's financial statements are
reported as a separate component of stockholders' equity. The functional
currency of the Company's French subsidiary is the U.S. dollar. Accordingly,
foreign translation gains and loses, which have not been material to date, are
reflected in the accompanying consolidated statements of operations.
Additionally, exchange gains and losses arising form transactions denominated
in foreign currency have not been material to date and are reflected in the
accompanying consolidated statements of operations.
Use of Estimates in Preparation of Financial Statements
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 results of operations during the reporting period.
Actual results could differ from those estimates.
F-7
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase to be cash
equivalents. As of March 31, 1996 and 1997, the Company's cash and cash
equivalents were deposited in checking and money market accounts and
certificates of deposit.
Software Development Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," the Company capitalizes eligible computer software
development costs upon the establishment of technological feasibility, which
it has defined as completion of a working model. For the years ended March 31,
1995, 1996 and 1997, the amount of costs eligible for capitalization, after
consideration of factors such as realizable value, were not material and,
accordingly, all software development costs have been charged to product
development expense in the accompanying consolidated statements of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets (or
over the lease term if it is shorter for leasehold improvements), which range
from three to five years. Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------
1996 1997
------ -------
<S> <C> <C>
Computer equipment...................................... $1,206 $ 2,884
Furniture and fixtures.................................. 530 812
Purchased software...................................... 401 742
Leasehold improvements.................................. 34 142
------ -------
2,171 4,580
Less--Accumulated depreciation and amortization......... (714) (1,437)
------ -------
Property and equipment, net............................. $1,457 $ 3,143
====== =======
</TABLE>
Revenue Recognition and Deferred Revenue
The Company's revenue is derived from fixed license fees from licensing its
products, royalties from value added resellers (VARs), independent software
vendors (ISVs) and distributors, and fees for services related to its
products, including software maintenance, development contracts and consulting
and training. Certain of the Company's license arrangements with VARs and ISVs
provide for sublicense fees payable to the Company based on a percentage of
the VAR's or ISV's net revenue. Other license arrangements provide for fixed
license fees for the right to make and distribute an unlimited number of
copies of the Company's product for a specified period of time. Royalty
revenue, other than from prepaid royalties, is recognized when it is reported
by the VAR, ISV or distributor. Service revenue is primarily attributable to
consulting revenues of iO as well as lower margin maintenance and other
revenue, including training revenue and engineering development fees.
The Company generally recognizes revenue from license and prepaid royalties
upon delivery of software products if there are no significant post-delivery
obligations, if collection is probable and if the license agreement requires
payment within 90 days. If significant post-delivery obligations exist or if a
product is subject to customer acceptance, revenue is deferred until no
significant obligations remain or acceptance has occurred.
F-8
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maintenance revenue from ongoing customer support and product upgrades is
recognized ratably over the term of the applicable maintenance period, which
is typically 12 months. If maintenance is included in a license agreement,
such amounts are unbundled from the license fee at their fair market value.
Consulting and training revenue is generally recognized as services are
performed over the term of the agreement. Revenue from engineering development
work is generally recognized on a percentage of completion basis. If a
transaction includes both license and service elements, license fee revenue is
recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and payment
terms are not subject to acceptance criteria. In cases where license fee
payments are contingent upon the acceptance of services, revenues from both
the license and service elements are deferred until the acceptance criteria
are met.
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contract) and advance payment of
software development fees and license fees.
Significant Customers
A relatively small number of customers have accounted for a significant
percentage of the Company's total revenue. The following customers accounted
for more than 10% of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. 34% * *
Customer B................................................. 12% * *
Customer C................................................. * 21% *
Customer D................................................. 33% * *
</TABLE>
- --------
* less than 10%
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. As of
March 31, 1997, approximately 68% of accounts receivable was concentrated with
ten customers. The Company generally does not require collateral on accounts
receivable as the majority of the Company's customers are large, well
established companies. The Company provides reserves for credit losses, which
to date have been insignificant.
Stock-Based Compensation
Effective April 1, 1996, the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." In accordance with
the provisions of SFAS No. 123, the Company applies Accounting Principals
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its stock option plans.
Net Loss per Share and Pro Forma Net Loss per Share
For periods after the Company's initial public offering in August 1996, net
loss per share has been computed using the weighted average number of common
shares outstanding. Common equivalent shares have not been included as their
effect would be antidilutive. For the portion of fiscal 1997 prior to the
Company's initial public offering, net loss per share has been computed on a
pro forma basis.
F-9
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net loss per share is computed using the pro forma weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of convertible preferred stock (using
the if converted method) and stock options (using the treasury stock method).
Common stock options are excluded from the computation if their effect is
antidilutive. Convertible preferred stock outstanding during the period is
included (using the if converted method) in the computation of common
equivalent shares even though the effect is antidilutive. Also, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the Company's initial public offering as
if they were outstanding for all periods presented. Historical net loss per
share amounts for periods prior to fiscal 1996 have not been presented since
such amounts are not deemed meaningful due to the significant change in the
Company's capital structure that occurred upon consummation of the Company's
initial public offering.
Cash Dividends
Cash dividends for fiscal year 1995 and 1996 reflect dividends paid by iO to
the shareholders of iO prior to its merger with the Company. In October 1997,
the Company recorded and paid the final dividends in the aggregate amount of
approximately $115,000 to the shareholders of iO.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS No. 128
will become effective for the Company's year ending March 31, 1998. SFAS No.
128 will not have a material impact on the Company's results of operations.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure," which will be adopted by the Company in the fourth quarter
of 1998. SFAS No. 129 requires companies to disclose certain information about
their capital structure. SFAS No. 129 will not have a material impact on the
Company's financial statement disclosures.
Unaudited Interim Financial Data
The unaudited interim financial statements as of September 30, 1997 and for
the six months ended September 30, 1996 and 1997 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 to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. The data
disclosed in the notes to the consolidated financial statements for these
periods are unaudited. The results of operations for the six months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for any future period.
3. ACQUISITIONS:
Acquisition of PostModern
In May 1996, the Company completed the acquisition of PostModern, a supplier
of distributed object technology. In the acquisition the Company issued
3,099,821 shares of its common stock, valued at $3.00 per share based on an
independent appraisal of the Company's common stock, and paid a total of $2.3
million in exchange for all of PostModern's outstanding shares. The Company
also incurred acquisition-related costs of approximately $450,000, resulting
in a total purchase price of approximately $13.1 million. In addition, the
Company made cash payments, subject to one-year vesting and totaling $1.5
million, to certain PostModern
F-10
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
employees. The acquisition of PostModern was accounted for as a purchase in
the quarter ended June 30, 1996 and, accordingly, the results of PostModern
from the date of acquisition forward have been recorded in the Company's
consolidated financial statements.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicated that approximately $12.0
million of the acquired intangible assets consisted of in process product
development which had not reached technological feasibility and, in the
opinion of management, had no alternative future use. The acquired in process
product development was charged to expense in the Company's 1997 Statement of
Operations.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $1.1 million, which is being amortized on a
straight-line basis over a period of two years. Management believes that the
unamortized balance is recoverable through future operating results.
The following unaudited pro forma information shows the results of
operations for the two fiscal years ended March 31, 1997 as if the PostModern
acquisition had occurred at the beginning of each period presented and at the
purchase price established in May 1996. The results are not necessarily
indicative of what would have occurred had the acquisition actually been made
at the beginning of each of the respective periods presented or of future
operations of the combined companies. The pro forma results for 1997 combine
the Company's results for the year ended March 31, 1997 with the results of
PostModern for the period from April 1, 1996 through the date of acquisition
and includes the $12.0 million write-off discussed above. The following
unaudited pro forma results include the straight-line amortization of
intangibles over a period of two years.
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------------------
1996 1997
---------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue......................................... $ 7,736 $ 19,733
Net loss........................................ $ (6,406) $ (20,504)
Net loss per share.............................. $ (.56) $ (1.60)
Shares used in per share calculation............ 11,418 12,807
</TABLE>
In connection with the acquisition, the Company also assumed PostModern's
outstanding stock options and reserved 361,785 shares of the Company's common
stock for issuance upon exercise of such options at an exercise price of $0.24
to $0.60 per share under similar vesting terms. As of March 31, 1997, 15,000
options had been exercised, 346,785 are outstanding and 147,061 shares are
vested.
Acquisition of CustomWare
In December 1996, the Company completed the acquisition of CustomWare, Inc.
("CustomWare"), a training and consulting firm focused on Java and CORBA
technologies. In the acquisition, the Company issued 125,000 shares of its
common stock to the shareholder of CustomWare, resulting in a total purchase
price of approximately $1.5 million. The acquisition of CustomWare was
accounted for as a purchase in the quarter ended December 31, 1996.
In connection with the purchase price allocation, the Company received an
appraisal of the intangible assets which indicated that approximately $350,000
of the acquired intangible assets consisted of in process product development.
Because there can be no assurance that the Company will be able to
successfully complete the development of the CustomWare products or that the
acquired technology has any alternative future use, the
F-11
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquired in process product development was charged to expense by the Company
in its quarter ended December 31, 1996 and accordingly, the results of
CustomWare from the date of acquisition forward have been recorded in the
Company's consolidated financial statements.
As a result of the purchase price allocation, the excess of the purchase
price over net assets acquired is $700,000, which is being amortized on a
straight-line basis over a period of one year. Management believes that the
unamortized balance is recoverable through future operating results.
Comparative pro forma information reflecting the acquisition of CustomWare
has not been presented because the operations of CustomWare are not material
to the Company's consolidated financial statements.
Acquisition of iO Software GmbH
On September 5, 1997 the Company merged with iO, a leading German consulting
company that specializes in distributed object computing, which resulted in iO
becoming a wholly-owned subsidiary of the Company. In connection therewith,
the Company issued 353,767 shares of the Company's common stock in exchange
for all outstanding shares of iO.
The merger was accounted for as a pooling of interests. Accordingly, the
Company's consolidated financial statements for all periods presented have
been restated to include the financial statements of iO. Prior to the merger,
iO's year end was December 31. In accordance with Securities and Exchange
Commission rules and regulations, the restated consolidated financial
statements combine the consolidated financial statements of the Company for
the three years ended March 31, 1997 with the financial statements of iO for
the three years ended December 31, 1996. Revenue of iO for the three-month
period ended March 31, 1997 of $951,000 is excluded from the consolidated
financial statements. In addition, net income of iO for the three-month period
ended March 31, 1997 of $126,000 is also excluded from the consolidated
financial statements and was recorded as an adjustment to accumulated deficit
in the Company's consolidated financial statements in the quarter ended June
30, 1997.
Reconciliation of the current financial statements with previously reported
separate company information is presented as follows (in thousands):
<TABLE>
<CAPTION>
INTERACTIVE
VISIGENIC OBJECTS
SOFTWARE, SOFTWARE
INC. GMBH COMBINED
--------- ----------- --------
<S> <C> <C> <C>
Six months ended September 30, 1997:
Revenue..................................... $ 10,297 $1,477 $ 11,774
Net income (loss)........................... $ (6,400) $ 178 $ (6,222)
Six months ended September 30, 1996:
Revenue..................................... $ 6,783 $1,027 $ 7,810
Net income (loss)........................... $(15,962) $ 23 $(15,939)
Year ended March 31, 1997:
Revenue..................................... $ 17,018 $2,583 $ 19,601
Net income (loss)........................... $(20,330) $ 62 $(20,268)
Year ended March 31, 1996:
Revenue..................................... $ 5,575 $1,159 $ 6,734
Net loss.................................... $ (4,379) $ (29) $ (4,408)
Year ended March 31, 1995:
Revenue..................................... $ 1,115 $ 716 $ 1,831
Net income (loss)........................... $ (4,629) $ 61 $ (4,568)
</TABLE>
F-12
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs associated with the merger have been expensed in the quarter ended
September 30, 1997. The expenses associated with the merger, which consist
primarily of transaction costs, were approximately $300,000.
4. LINE OF CREDIT:
As of March 31, 1997, the Company had a $3.0 million revolving line of
credit agreement with a bank that expired on July 15, 1997. There were no
borrowings outstanding under the line of credit agreement as of March 31,
1997. In July 1997, the Company entered into a $5.0 million revolving line of
credit agreement (as amended on July 15, 1997) which expires on July 14, 1998,
and a $2.0 million equipment term loan agreement with a draw down period
ending April 15, 1998 which allows for equipment borrowings to be amortized
over thirty-six months thereafter. Both the line of credit and the equipment
term loan are incorporated into a loan agreement (the "Agreement") dated July
15, 1997. Advances under the Agreement bear interest at the bank's prime
lending rate. Line of credit advances are limited to 80% of eligible accounts
receivable. All advances are secured by substantially all of the assets and
contractual rights of the Company. The Agreement also contains certain
financial restrictions and covenants which require, among other things, for
the line of credit, that the Company maintain monthly tangible net worth and a
minimum quick ratio; and for the equipment term loan, a minimum liquidity
ratio or debt service coverage.
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under operating lease agreements expiring
through February 2003. Rent expense for all operating leases totaled
approximately $204,000, $319,000 and $918,000 for the years ended March 31,
1995, 1996 and 1997, respectively. Minimum future lease payments under all
noncancellable operating leases were as follows (in thousands):
<TABLE>
<S> <C>
Year Ending March 31,
1998............................................................. $1,108
1999............................................................. 1,140
2000............................................................. 1,164
2001............................................................. 875
2002............................................................. 436
Thereafter....................................................... 105
------
$4,828
======
</TABLE>
On April 10, 1997, Western Imaging, Inc. ("Western Imaging") filed a
complaint in the U.S. District Court for the Northern District of California
against the Company and Corel Corporation ("Corel"), a licensee of the
Company, alleging breach of contract, intentional and negligent
misrepresentation, copyright infringement, trademark infringement,
misappropriation of trade secrets and other related claims.
The lawsuit claims that in a May 1994 agreement with Western Imaging, the
Company sold to Western Imaging all right, title and interest not only to its
Lumena product, but also to its Color Tools, Creative License, Oasis and
Signature products as well. As a result, Western Imaging asserts that the
Company breached the terms of the agreement with Western Imaging when, among
other things, it licensed Creative License, Color Tools, Oasis and Signature
to Corel. Western Imaging is seeking injunctive relief, unspecified damages,
impoundment of the disputed software during the pendency of the litigation,
and punitive damages.
The Company has not sold or marketed the disputed software products since
January 1995. The Company does not utilize this technology in any current
product offering.
F-13
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has agreed to defend Corel pursuant to the terms of its license
to Corel. Neither the Company nor Corel has responded to the complaint. On
August 8, 1997, the Company and Corel filed an answer to the complaint denying
Western Imaging's allegations and believes it has meritorious defenses to such
claims and intends to defend the litigation vigorously. However, due to the
nature of the litigation and because the lawsuit is at an early stage, the
Company cannot determine the total expense or possible loss, if any, that may
ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. Regardless of the ultimate outcome of the litigation,
it could result in significant diversion of time by the Company's technical
and managerial personnel. Because the results of the litigation, including any
potential settlement, are uncertain, there can be no assurance that they will
not have a material adverse effect on the Company's business, operating
results and financial condition.
From time to time the Company is involved in other various disputes which
have arisen in the ordinary course of business. Management believes that the
ultimate resolution of the disputes will not have a material adverse impact on
the Company's financial position or results of operations.
6. CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE NOTES:
In June 1996, the Company's Board of Directors approved a one-for-two
reverse split of its common and preferred stock. All common and preferred
share and per share amounts in the accompanying consolidated financial
statements have been adjusted retroactively to give effect to this reverse
stock split.
The Company's certificate of incorporation, as amended in May 1996,
authorized the issuance of up to 10,000,000 shares of convertible preferred
stock, of which the Company had designated 1,606,000 shares as Series A
preferred stock, 6,000,000 shares as Series B preferred stock and 1,000,000
shares as Series C preferred stock. In conjunction with the initial public
offering of the Company's common stock on August 8, 1996, all outstanding
shares of convertible preferred stock automatically converted into common
stock upon closing of the offering. The Company amended its certificate of
incorporation in August 1996 authorizing the issuance of up to 2,000,000
shares of preferred stock. No preferred shares had been issued as of March 31,
1997.
Issuance of Series C Convertible Preferred Stock and Convertible Notes
On May 24, 1996, the Company sold 444,444 shares of its Series C preferred
stock at a price of $9.00 per share to three investors, for aggregate proceeds
of $4.0 million. Between May 28 and June 7, 1996, the Company issued $2.0
million principal amount of convertible notes to the same three investors,
bearing interest at the rate of 8.25% per annum. Upon the closing of the
Company's initial public offering on August 8, 1996, the principal amount of
each note and all accrued interest automatically converted into shares of the
Company's common stock at $7.50 per share, the offering price per share to the
public, and the Series C preferred stock automatically converted into shares
of the Company's common stock. The Company used a portion of the proceeds from
the sale of the Series C preferred stock and the convertible notes to pay
amounts due in connection with the acquisition of PostModern. (See Note 3)
7. COMMON STOCK:
In June 1996, the Company's Board of Directors approved a one-for-two
reverse split of its common and preferred stock. All common and preferred
share and per share amounts in the accompanying consolidated financial
statements have been adjusted retroactively to give effect to this reverse
stock split.
In August 1996, the Company completed the initial public offering of its
common stock. The Company sold 2,015,000 shares for net proceeds of
approximately $13.2 million. Concurrent with the closing of the initial
F-14
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
public offering, 4,119,069 shares of convertible preferred stock were
converted into an equivalent number of shares of common stock and $2,000,000
of convertible notes plus accrued interest of $31,526 converted into 270,871
shares of common stock. (See Note 6)
In February 1997, the Company completed a second public offering of its
common stock. The Company sold 1,180,000 shares for net proceeds of
approximately $13.3 million.
Prior to July 1993, the Company issued 232,575 shares of common stock to
certain employees and directors of the Company that are subject to certain
repurchase rights. These rights of repurchase lapse over a five-year period.
As of March 31, 1997, 31,728 shares of common stock are subject to repurchase
by the Company at prices ranging from $.08 to $.40 per share.
Stock Purchase Plans
In April 1993 and August 1994, the Company adopted Stock Purchase Plans (the
"Stock Plans") and authorized the issuance of 952,500 shares thereunder to
employees and consultants. Stock purchased under these Stock Plans generally
vests ratably over a five-year period. Unvested shares may be repurchased by
the Company at the original issuance price in the event of the employee's or
consultant's termination.
As of March 31, 1997, 526,287 shares were issued and outstanding under these
Stock Plans at prices ranging from $.20 to $.40 per share, which was the fair
market value of the common stock, as determined by the Board of Directors, on
the date of grant, of which 193,373 shares were subject to repurchase. As of
March 31, 1997, no further shares were available for issuance under the Stock
Plans.
1995 Stock Option Plan
In fiscal 1996, the Company established the 1995 Stock Option Plan (the
"1995 Plan"). As of March 31, 1997, the Company had reserved 2,500,000 shares
of common stock for issuance under the 1995 Plan. In July 1997, the
stockholders approved an increase in the reserve under the 1995 Plan of
1,500,000 shares. Under the 1995 Plan, the Board of Directors may grant
incentive and nonqualified stock options to employees, consultants and
directors of the Company. The exercise price per share for an incentive stock
option cannot be less than the fair market value of the stock on the date of
grant. The exercise price per share for nonqualified stock options cannot be
less than 85% of the fair market value of the stock on the date of grant.
Options generally expire ten years after the date of grant and vest over a
period of four years. Option activity under the 1995 Plan was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
OPTIONS WEIGHTED AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- --------- ----------------
<S> <C> <C> <C>
Authorized............................ 2,000,000 -- --
Granted............................... (820,750) 820,750 $ .40
Exercised............................. -- (54,068) $ .40
Canceled.............................. 12,932 (12,932) $ .40
---------- --------- -----
Balance at March 31, 1996............... 1,192,182 753,750 $ .40
Authorized............................ 500,000 -- --
Granted............................... (1,690,250) 1,690,250 $9.40
Exercised............................. -- (225,611) $ .48
Canceled.............................. 77,967 (77,967) $7.71
---------- --------- -----
Balance at March 31, 1997............... 79,899 2,140,422 $7.23
========== ========= =====
</TABLE>
F-15
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of March 31, 1997, all of the outstanding options were immediately
exercisable in full on the date of grant subject to repurchase of unvested
shares by the Company at cost and at the option of the Company if employment
is terminated. As of March 31, 1997, 115,392 shares were subject to
repurchase.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in June 1996. A total of 450,000
shares of common stock has been reserved for issuance under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock at 85%
of the lower of the fair market value of the Company's common stock on the
first day or the last day of each six-month offering period. As of March 31,
1997, 60,822 shares had been issued under the Purchase Plan. The weighted
average fair value of shares issued in fiscal 1997 was $2.72.
1996 Outside Director's Stock Option Plan
The Company's 1996 Outside Director's Stock Option Plan (the "Director's
Plan") was adopted by the Company's Board of Directors in June 1996. A total
of 200,000 shares of common stock has been reserved for issuance under the
Director's Plan. The Director's Plan provides for the initial grant of
nonstatutory stock options to purchase 15,000 shares of common stock on the
earlier of the first annual meeting following the initial public offering of
the Company's common stock or the date on which the optionee first becomes a
nonemployee director of the Company, and an additional option to purchase
5,000 shares of common stock on the next anniversary to existing and future
nonemployee directors of the Company. The exercise price per share of all
options granted under the Director's Plan will equal the fair market value of
a share of the Company's common stock on the date of grant of the option. No
options have been issued under the Director's Plan as of March 31, 1997.
Stock-Based Compensation
The Company accounts for the 1995 Plan, the Purchase Plan and the Director's
Plan (the "Plans") under APB Opinion No. 25 and related interpretations, under
which no compensation cost has been recognized as the exercise price per share
for stock options was equal to the fair market value of the stock on the date
of grant and the Purchase Plan qualified as a non compensatory plan under APB
Opinion No. 25. Had compensation cost for these Plans been determined
consistent with SFAS No. 123, the Company's net loss and net loss per share
would have been reduced to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------------
1996 1997
------- --------
<C> <S> <C> <C>
Net loss: As reported............................ $(4,408) $(20,268)
Pro forma.............................. $(4,421) $(21,571)
Net loss per share: As reported............................ $ (.39) $ (1.58)
Pro forma.............................. $ (.39) $ (1.68)
</TABLE>
The weighted average fair values of options granted during fiscal 1996 and
fiscal 1997 were $.09 and $5.70 per share, respectively. The fair value of
each stock option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions
used for grants in fiscal 1996 and fiscal 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Volatility...................................................... 0% 75%
Risk-free interest rate......................................... 5.9% 6.8%
Dividend yield.................................................. 0% 0%
Expected lives.................................................. 4 years 4 years
</TABLE>
F-16
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information regarding stock options
outstanding under the 1995 Plan at March 31, 1997 (in thousands, except per
share and life amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND EXERCISABLE
------------------------------------------- ------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER VESTED WEIGHTED
OUTSTANDING REMAINING AVERAGE AND EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES AT 3/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 3/31/97 EXERCISE PRICE
- ------------------------ ----------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.40.................. 508 8.58 $ 0.40 138 $ 0.40
$ 2.00-$ 6.00........... 550 9.16 4.45 104 4.27
$ 8.00-$10.50........... 530 9.55 9.67 36 9.18
$11.25-$16.50........... 552 9.63 13.94 10 11.95
- ----------------------------------------------------------------------------------------------------
$ 0.40-$16.50........... 2,140 9.24 $ 7.23 288 $ 3.30
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Executive Performance Incentive Plan
The Company's Executive Performance Incentive Plan (the "Incentive Plan")
was adopted by the Company's Board of Directors in October 1996. A total of
100,000 shares of common stock has been reserved for issuance under the
Incentive Plan. Under the Incentive Plan, the Compensation Committee of the
Board of Directors may award performance units to designated executives that
will vest and become payable if one or more pre-established performance goals
are attained during a specified performance period and the participant remains
an employee. As of March 31, 1997, 3,615 shares had been issued under the
Incentive Plan.
Common Stock Reserved for Future Issuance
As of March 31, 1997, the Company has reserved 3,252,669 shares of common
stock for future issuance under the Plans, the Incentive Plan, and for options
assumed from PostModern.
8. EMPLOYEE BENEFIT PLAN:
In June 1995, the Company adopted the Visigenic Software, Inc. 401(k) Plan
(the "401(k) Plan"), as allowed under Section 401(k) of the Internal Revenue
Code, which provides for tax deferred salary deductions for eligible employees
of the Company. Employees who are 21 years of age or older are eligible to
participate immediately upon the date of hire and may make voluntary
contributions of their compensation to the 401(k) Plan. The 401(k) Plan does
not provide for Company contributions and the Company is the administrator.
9. INCOME TAXES:
The provision for taxes for 1997, 1996 and 1995 represents taxes related to
the Company's German subsidiary. Income (loss) before taxes is comprised of
the following:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
---------------------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
Domestic........................................... $ (4,629) $(4,379) $(20,330)
Foreign............................................ 104 ( 8) 187
-------- ------- --------
$(4,525) $(4,387) $(20,143)
======== ======= ========
</TABLE>
F-17
<PAGE>
VISIGENIC SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns based upon
enacted tax laws and rates applicable to the periods in which taxes become
payable. A valuation allowance has been recorded for the entire deferred tax
asset as a result of uncertainties regarding realization of the asset,
including the limited operating history of the Company, the lack of
profitability to date and the uncertainty over future operating profitability.
Components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Net operating loss carryforwards.............................. $ 3,398 $ 5,916
Cumulative book to tax differences............................ 994 1,368
General business credit carryforwards......................... 372 981
------- -------
4,764 8,265
Valuation allowance........................................... (4,764) (8,265)
------- -------
Net deferred tax asset........................................ $ -- $ --
======= =======
</TABLE>
As of March 31, 1997, the Company had Federal and state net operating loss
carryforwards of approximately $17.2 million and $1.4 million, respectively,
which expire at various dates through 2012. In addition, as of March 31, 1997,
the Company had general business credit carryforwards of approximately
$981,000 which expire at various dates through 2012.
Under current tax law, net operating loss and credit carryforwards available
in any given year may be limited upon the occurrence of certain events,
including significant changes in ownership interests.
10. GEOGRAPHIC INFORMATION:
The Company markets its products in North America and in foreign countries
(primarily Europe and Japan) through its sales personnel, VARs, ISVs and
distributors. For fiscal 1995, 1996 and 1997, export sales, which consist of
domestic sales to customers in foreign countries, were less than 10% of total
revenue.
The Company's operations by geographic area for the years ended March 31,
1997, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES EUROPE TOTAL
-------- ------ --------
<S> <C> <C> <C>
1997
Revenue............................................ $ 17,018 $2,583 $ 19,601
Income (loss) from operations...................... $(20,681) $ 187 $(20,494)
Identifiable assets................................ $ 32,333 $ 710 $ 33,043
1996
Revenue............................................ $ 5,575 $1,159 $ 6,734
Loss from operations............................... $ (4,464) $ (8) $ (4,472)
Identifiable assets................................ $ 4,820 $ 289 $ 5,109
1995
Revenue............................................ $ 1,115 $ 716 $ 1,831
Income (loss) from operations...................... $ (4,723) $ 104 $ (4,619)
Identifiable assets................................ $ 1,829 $ 364 $ 2,193
</TABLE>
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
BORLAND INTERNATIONAL, INC.,
A DELAWARE CORPORATION,
("ACQUIRER"),
VIXEN ACQUISITION CORPORATION,
A DELAWARE CORPORATION AND WHOLLY-OWNED
SUBSIDIARY OF ACQUIRER,
AND
VISIGENIC SOFTWARE, INC.,
A DELAWARE CORPORATION
("TARGET")
DATED NOVEMBER 17, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I The Merger................................................... 1
Section 1.1 Effective Time of the Merger.......................... 1
Section 1.2 Closing............................................... 1
Section 1.3 Effects of the Merger................................. 1
Section 1.4 Directors and Officers................................ 2
ARTICLE II Conversion of Securities.................................... 2
Section 2.1 Conversion of Capital Stock........................... 2
Section 2.2 Exchange of Certificates.............................. 3
ARTICLE III Representations and Warranties of Target................... 5
Section 3.1 Organization.......................................... 5
Section 3.2 Target Capital Structure.............................. 5
Authority; No Conflict; Required Filings and
Section 3.3 Consents.............................................. 6
Section 3.4 SEC Filings; Financial Statements..................... 7
Section 3.5 Absence of Undisclosed Liabilities.................... 7
Section 3.6 Absence of Certain Changes or Events.................. 8
Section 3.7 Taxes................................................. 8
Section 3.8 Properties............................................ 8
Section 3.9 Intellectual Property................................. 9
Section 3.10 Compliance; Permits; Restrictions..................... 10
Section 3.11 Agreements, Contracts and Commitments................. 10
Section 3.12 Litigation............................................ 11
Section 3.13 Environmental Matters................................. 11
Section 3.14 Employee Benefit Plans................................ 12
Section 3.15 Insurance............................................. 12
Section 3.16 Section 203 of the DGCL Not Applicable................ 13
Section 3.17 Pooling of Interests.................................. 13
Section 3.18 Interested Party Transactions......................... 13
Registration Statement: Joint Proxy
Section 3.19 Statement/Prospectus.................................. 13
Section 3.20 Opinion of Financial Advisor.......................... 13
Section 3.21 No Existing Discussions............................... 13
ARTICLE IV Representations and Warranties of Acquiror and Sub.......... 14
Section 4.1 Organization.......................................... 14
Section 4.2 Acquirer Capital Structure............................ 14
Authority; No Conflict; Required Filings and
Section 4.3 Consents.............................................. 15
Section 4.4 SEC Filings; Financial Statements..................... 16
Section 4.5 Absence of Undisclosed Liabilities.................... 16
Section 4.6 Absence of Certain Changes or Events.................. 16
Section 4.7 Taxes................................................. 17
Section 4.8 Properties............................................ 17
Section 4.9 Intellectual Property................................. 17
Section 4.10 Compliance; Permits; Restrictions..................... 18
Section 4.11 Agreements, Contracts and Commitments................. 18
Section 4.12 Litigation............................................ 19
Section 4.13 Environmental Matters................................. 19
Section 4.14 Employee Benefit Plans................................ 19
Section 4.15 Pooling of Interests.................................. 20
Section 4.16 Interested Party Transactions......................... 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Registration Statement; Joint Proxy
Section 4.17 Statement/Prospectus.................................. 20
Section 4.18 Opinion of Financial Advisor.......................... 20
Section 4.19 Interim Operations of Sub............................. 21
Section 4.20 Acquirer Common Stock................................. 21
ARTICLE V Conduct of Business Prior to the Effective Time.............. 21
Section 5.1 Covenants of Target................................... 21
Section 5.2 Covenants of Acquirer................................. 23
Section 5.3 Cooperation........................................... 24
ARTICLE VI Additional Agreements....................................... 24
Section 6.1 No Solicitation....................................... 24
Section 6.2 Proxy Statement; Registration Statement............... 25
Section 6.3 Consents.............................................. 25
Section 6.4 Current Nasdaq Quotation.............................. 25
Section 6.5 Access to Information................................. 25
Section 6.6 Stockholder Meetings.................................. 26
Section 6.7 Legal Conditions to Merger............................ 26
Section 6.8 Public Disclosure..................................... 26
Section 6.9 Tax-Free Organization................................. 26
Section 6.10 Pooling Accounting.................................... 26
Section 6.11 Affiliate Agreements.................................. 27
Section 6.12 Nasdaq Quotation...................................... 27
Section 6.13 Stock Plans, Options and Employee Benefits............ 27
Section 6.14 Brokers or Finders.................................... 28
Section 6.15 Indemnification....................................... 29
Section 6.16 Additional Agreements; Reasonable Efforts............. 29
ARTICLE VII Conditions to Merger....................................... 30
Conditions to Each Party's Obligation to Effect the
Section 7.1 Merger................................................ 30
Additional Conditions to Obligations of Acquirer and
Section 7.2 Sub................................................... 30
Section 7.3 Additional Conditions to Obligations of Target........ 31
ARTICLE VIII Termination and Amendment................................. 32
Section 8.1 Termination........................................... 32
Section 8.2 Effect of Termination................................. 33
Section 8.3 Fees and Expenses..................................... 33
Section 8.4 Amendment............................................. 34
Section 8.5 Extension; Waiver..................................... 34
ARTICLE IX Miscellaneous............................................... 34
Nonsurvival of Representations, Warranties and
Section 9.1 Agreements............................................ 34
Section 9.2 Notices............................................... 35
Section 9.3 Interpretation........................................ 35
Section 9.4 Counterparts.......................................... 35
Section 9.5 Entire Agreement; No Third Party Beneficiaries........ 36
Section 9.6 Governing Law......................................... 36
Section 9.7 Assignment............................................ 36
</TABLE>
ii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- ---------------
<S> <C>
Acquirer...................................................... Preamble
Acquirer Balance Sheet........................................ Section 4.4
Acquirer Common Stock......................................... Section 2.1
Acquirer Contract............................................. Section 4.11
Article IV
Acquirer Disclosure Schedule.................................. Preamble
Acquirer Employee Plans....................................... Section 4.14
Acquirer Intellectual Property Rights......................... Section 4.9
Acquirer Lease(s)............................................. Section 4.8
Article IV
Acquirer Material Adverse Effect.............................. Preamble
Acquirer Option Plans......................................... Section 4.2
Acquirer Permits.............................................. Section 4.10
Acquirer Preliminary Pooling Letter........................... Section 4.15
Acquirer Purchase Plan........................................ Section 4.2
Acquirer Requisite Vote....................................... Section 7.1
Acquirer Rights Agreement..................................... Section 4.3
Acquirer SEC Reports.......................................... Section 4.4
Acquirer Series A Preferred Stock............................. Section 4.2
Acquirer Series B Agreements.................................. Section 4.2
Acquirer Series B Preferred Stock............................. Section 4.2
Acquirer Stockholders' Meeting................................ Section 3.19
Acquisition Proposal.......................................... Section 6.1
Affiliate..................................................... Section 6.11
Affiliates Agreement.......................................... Section 6.11
Alternative Transaction....................................... Section 8.3
Approval...................................................... Section 6.7
Certificate of Merger......................................... Section 1.1
Certificat(es)................................................ Section 2.2
Closing....................................................... Section 1.2
Closing Date.................................................. Section 1.2
Code.......................................................... Recitals
Confidentiality Agreements.................................... Section 6.1
Constituent Corporations...................................... Section 1.3
DGCL.......................................................... Section 1.1
Effective Time................................................ Section 1.1
Employment Agreements......................................... Section 7.2
Environmental Permits......................................... Section 3.13
ERISA......................................................... Section 3.14
ERISA Affiliate............................................... Section 3.14
Exchange Agent................................................ Section 2.2
Exchange Fund................................................. Section 2.2
Exchange Ratio................................................ Section 2.1
Final Target Purchase Date.................................... Section 6.14
Governmental Entity........................................... Section 3.3
Hazardous Material............................................ Section 3.13
Hazardous Materials Activities................................ Section 3.13
HSR Act....................................................... Section 3.3
Incentive Stock Options....................................... Section 6.13
Indemnified Liabilities....................................... Section 6.15
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- ---------------
<S> <C>
Indemnified Parties........................................... Section 6.15
Insurance Policies............................................ Section 3.15
Licensed Intellectual Property................................ Section 3.9
Material Acquirer Subsidiaries................................ Section 4.1
Matter........................................................ Section 3.12
Merger........................................................ Recitals
Pooling Letter................................................ Section 6.10
Proxy Statement............................................... Section 3.19
Registration Statement........................................ Section 3.19
Returns....................................................... Section 3.7
Rule 145...................................................... Section 6.11
SEC........................................................... Section 3.3
Securities Act................................................ Section 3.3
Stockholder Meetings.......................................... Section 3.19
Sub........................................................... Preamble
Subsidiary.................................................... Section 2.1
Superior Proposal............................................. Section 6.1
Surviving Corporation......................................... Section 1.3
Target........................................................ Preamble
Target Balance Sheet.......................................... Section 3.4
Target Common Stock........................................... Section 2.1
Target Contract............................................... Section 3.11
Target Director Option Plan................................... Section 2.1
Article III
Target Disclosure Schedule.................................... Preamble
Target Employee Option Plan................................... Section 2.1
Target Employee Plans......................................... Section 3.14
Target Incentive Plan......................................... Section 2.1
Target Individual Options..................................... Section 2.1
Target Intellectual Property Rights........................... Section 3.9
Target Leases................................................. Section 3.8
Article III
Target Material Adverse Effect................................ Preamble
Target Option................................................. Section 6.13
Target Permits................................................ Section 3.10
Target Preferred Stock........................................ Section 3.2
Target Preliminary Pooling Letter............................. Section 3.17
Target Products............................................... Section 3.9
Target Purchase Plan.......................................... Section 2.1
Target Requisite Vote......................................... Section 7.1
Target SEC Reports............................................ Section 3.4
Target SPAs................................................... Section 3.2
Target Stockholders' Meeting.................................. Section 3.19
Tax(es)....................................................... Section 3.7
Third Party................................................... Section 8.3
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of November
17, 1997 by and among Borland International, Inc., a Delaware corporation
("Acquirer"), Vixen Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Acquirer ("Sub"), and Visigenic Software, Inc., a
Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Acquirer, Sub and Target deem it advisable and
in the best interests of each corporation and its respective stockholders that
Acquirer and Target combine in order to advance the long-term business
strategies, goals and interests of Acquirer and Target;
B. The combination of Acquirer and Target shall be effected by the terms of
this Agreement through a transaction (the "Merger") in which Sub will merge
with and into Target, Target will become a wholly-owned subsidiary of Acquirer
and the stockholders of Target will become stockholders of Acquirer;
C. Concurrently with the execution of this Agreement, and as a condition and
inducement to Acquirer's willingness to enter into this Agreement, certain
stockholders of Target are entering into Voting Agreements in substantially
the form of Exhibit A hereto;
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under Section 368(a) of the Code; and
E. It is intended that the Merger shall qualify for accounting treatment as
a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
The Merger
Section 1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") in such form
as is required by the relevant provisions of the Delaware General Corporation
Law (the "DGCL") shall be duly prepared, executed and acknowledged by the
Surviving Corporation (as defined in Section 1.3) and thereafter delivered to
the Secretary of State of the State of Delaware for filing, as provided in the
DGCL, as soon as practicable on or after the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
(the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Pacific Standard Time, on a date to be specified by
Acquirer and Target, which shall be no later than the second business day
after satisfaction of the latest to occur of the conditions set forth in
Sections 7.1, 7.2(b) (other than the delivery of the officers' certificate
referred to therein) and 7.3(b) (other than the delivery of the officers'
certificate referred to therein), provided that the other closing conditions
set forth in Article VII have been met or waived as provided in Article VII at
or prior to the Closing (the "Closing Date"), at the offices of Gray Cary Ware
& Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301, unless
another date or place is agreed to in writing by Acquirer and Target.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Target (Sub and Target are sometimes
referred to herein as the "Constituent Corporations" and Target is
<PAGE>
sometimes referred to herein as the "Surviving Corporation"), (ii) the
Certificate of Incorporation of Target shall be amended so that Article III of
such Certificate of Incorporation shall read as follows: "The total number of
shares of all classes of stock which the Corporation shall have authority to
issue is 1,000, all of which shall consist of Common Stock, par value $.001
per share," and, as so amended, such Certificate of Incorporation shall be the
Certificate of Incorporation of the Surviving Corporation, and (iii) subject
to the requirements of Section 6.15, the Bylaws of Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation.
(b) At and after the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of the DGCL. Without limiting the
foregoing, and subject thereto, the Surviving Corporation shall possess all
the rights, privileges, powers and franchises of a public as well as of a
private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, shall be vested in the Surviving
Corporation, and all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise, in either of the
Constituent Corporations, shall not revert or be in any way impaired; but all
rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thereafter attach
to the Surviving Corporation, and may be enforced against it to the same
extent as if such debts and liabilities had been incurred by it.
Section 1.4 Directors and Officers. The initial director(s) of the Surviving
Corporation shall be the directors of Sub immediately prior to the Effective
Time, each of whom will hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed.
ARTICLE II
Conversion of Securities
Section 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Common Stock, $.001 par value, of Target ("Target Common Stock") or capital
stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $.001 par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Acquirer-Owned Stock. Any shares
of Target Common Stock that are owned by Target as treasury stock and any
shares of Target Common Stock that are owned by Acquirer, Sub or any other
wholly-owned Subsidiary (as defined below) of Acquirer shall be canceled
and retired and shall cease to exist and no stock of Acquirer or other
consideration shall be delivered in exchange therefor. All shares of Common
Stock, $.01 par value, of Acquirer ("Acquirer Common Stock") owned by
Target shall remain unaffected by the Merger. As used in this Agreement,
the word "Subsidiary" means, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which (i)
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
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<PAGE>
(c) Exchange Ratio for Target Common Stock. Subject to Section 2.2, each
issued and outstanding share of Target Common Stock (other than shares to
be canceled in accordance with Section 2.1(b)) shall be converted into
0.81988 (which amount will be adjusted for any stock split or stock
dividend effected between the date of this Agreement and the Effective
Time) (the "Exchange Ratio") fully paid and nonassessable shares of
Acquirer Common Stock. All such shares of Target Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive certificates representing
the number of fully paid and nonassessable shares of Acquirer Common Stock
into which such holder's shares of Target Common Stock were converted at
the Effective Time and any cash in lieu of fractional shares of Acquirer
Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.2, without
interest.
(d) Target Stock Options and Employee Stock Purchase Plan. At the
Effective Time, all then outstanding options to purchase Target Common
Stock issued under Target's 1995 Stock Option Plan, as amended (the "Target
Employee Option Plan"), and individual stock options assumed by Target
through Target's prior acquisitions (the "Target Individual Options") will
be assumed by Acquirer in accordance with Section 6.13. At the Effective
Time, all then outstanding options to purchase Target Common Stock issued
under Target's 1996 Outside Directors Stock Option Plan (the "Target
Director Option Plan") will terminate in accordance with the terms of the
Director Option Plan. Immediately prior to the Effective Time, all then
outstanding rights to acquire shares of Target Common Stock under Target's
1996 Employee Stock Purchase Plan (the "Target Purchase Plan") will be
exercised for the purchase of shares of Target Common Stock, as provided in
Section 6.13. Immediately prior to the Effective Time, all awards accrued
as of the Effective Time under Target's Executive Performance Incentive
Plan (the "Target Incentive Plan") shall be paid in cash or stock, as
provided in Section 6.13.
Section 2.2 Exchange of Certificates. The procedures for exchanging
outstanding shares of Target Common Stock for Acquirer Common Stock pursuant
to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Acquirer shall deposit with
a bank or trust company designated by Acquirer with the approval of Target
(the "Exchange Agent"), for the benefit of the holders of shares of Target
Common Stock, for exchange in accordance with this Section 2.2, through the
Exchange Agent, certificates representing the shares of Acquirer Common
Stock (such shares of Acquirer Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of Target Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Target Common Stock (each a "Certificate"
and, collectively, the "Certificates") whose shares were converted pursuant
to Section 2.1 into shares of Acquirer Common Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Acquirer and Target may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Acquirer Common Stock.
Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Acquirer Common Stock which
such holder has the right to receive pursuant to the provisions of this
Article II and cash in lieu of fractional shares in accordance with Section
2.2(f), and the Certificate so surrendered shall immediately be canceled.
In the event of a transfer of ownership of Target Common Stock which is not
registered in the transfer records of Target, a certificate representing
the proper number of shares of Acquirer Common Stock may be issued to a
transferee if the Certificate representing such Target Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such
A-3
<PAGE>
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing the number of shares of Acquirer Common Stock into which the
shares of Target Common Stock represented thereby were converted at the
Effective Time and cash in lieu of any fractional shares of Acquirer Common
Stock as contemplated by this Section 2.2.
(c) Lost or Stolen Certificates. The instructions for effecting the
surrender of the Certificates shall set forth procedures that must be taken
by the holder of any Certificate that has been lost, destroyed or stolen.
It shall be a condition to the right of such holder to receive a
certificate representing shares of Acquirer Common Stock that the Exchange
Agent shall have received, along with the letter of transmittal, a duly
executed lost certificate affidavit, including an agreement to indemnify
Acquirer, signed exactly as the name or names of the registered holder or
holders appeared on the books of Target immediately prior to the Effective
Time, together with a customary bond and such other documents as Acquirer
or the Exchange Agent may reasonably require in connection therewith.
(d) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Acquirer 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 Acquirer Common Stock represented thereby, and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
subsection (f) below until the holder of record 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
record holder of the certificates representing whole shares of Acquirer
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of Acquirer Common Stock to which such holder is entitled pursuant to
subsection (f) below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
such whole shares of Acquirer Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of
Acquirer Common Stock.
(e) No Further Ownership Rights in Target Common Stock. All shares of
Acquirer Common Stock issued pursuant to this Article II (and any cash paid
pursuant to subsection (d) or (f) of this Section 2.2) shall be deemed to
have been issued and paid in full satisfaction of all rights pertaining to
such shares of Target Common Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Target on such shares of Target Common Stock in
accordance with the terms of this Agreement on or prior to the date hereof
and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Target Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this
Section 2.2.
(f) No Fractional Shares. No certificate or scrip representing fractional
shares of Acquirer Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Acquirer. Notwithstanding any other provision of this Agreement, each
holder of shares of Target Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Acquirer Common Stock (after taking into account all Certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in
an amount equal to such fractional part of a share of Acquirer Common Stock
multiplied by the last reported sale prices of Acquirer Common Stock, as
reported on The Nasdaq National Market, on the trading day immediately
preceding the date of the Effective Time.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Target for one year after the
Effective Time shall be delivered to Acquirer, upon
A-4
<PAGE>
demand, and any stockholders of Target who have not previously complied
with this Section 2.2 shall thereafter look only to Acquirer for
certificates evidencing Acquirer Common Stock, cash in lieu of fractional
shares of Acquirer Common Stock, and any dividends or distributions with
respect to Acquirer Common Stock.
(h) No Liability. Neither Acquirer nor Target shall be liable to any
holder of shares of Target Common Stock or Acquirer Common Stock, as the
case may be, for such shares (or dividends or distributions with respect
thereto) properly delivered to a public official as required by any
applicable abandoned property, escheat or similar law.
ARTICLE III
Representations and Warranties of Target
Target represents and warrants to Acquirer and Sub that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure schedule delivered by Target to Acquirer on or before the date of
this Agreement (the "Target Disclosure Schedule"). All disclosures set forth
in the Target Disclosure Schedule shall refer to the corresponding numbered
and lettered Sections of this Article III to which they principally pertain.
For purposes of this Agreement, the phrase "Target Material Adverse Effect"
means a material adverse effect on the business, operations, financial
condition or results of operations of Target and its Subsidiaries, taken as a
whole.
Section 3.1 Organization. Each of Target and its Subsidiaries is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such concept with
respect to such entity) under the laws of the jurisdiction of its
incorporation or organization, has all requisite power to own, lease and
operate its properties and to carry on its business as now being conducted,
and is duly qualified to do business and is in good standing (with respect to
jurisdictions which recognize such concept with respect to such entity) in
each other jurisdiction in which the failure to be so qualified and in good
standing would have a Target Material Adverse Effect. The Target Disclosure
Schedule contains a list of each of Target's Subsidiaries and the jurisdiction
of their organization. Except for their interests in Target Subsidiaries,
neither Target nor any of its Subsidiaries directly or indirectly owns any
equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any such equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity, excluding securities of any publicly traded company held for
investment by Target and comprising less than five percent of the outstanding
stock of such company.
Section 3.2 Target Capital Structure.
(a) The authorized capital stock of Target consists of 50,000,000 shares of
Target Common Stock and 2,000,000 shares of Preferred Stock, $.001 par value
("Target Preferred Stock"). As of November 13, 1997: (i) 14,515,265 shares of
Target Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) no shares of Target Common Stock
were held in the treasury of Target or by Subsidiaries of Target; (iii)
3,662,570 shares of Target Common Stock were reserved for issuance under the
Target Employee Option Plan, 3,153,814 of which were subject to outstanding
options and 508,756 shares of which were reserved for future option grants;
(iv) 291,194 shares of Target Common Stock were reserved for issuance pursuant
to the Target Individual Options; (v) 200,000 shares of Target Common Stock
were reserved for issuance under the Target Director Option Plan, 60,000
shares of which were subject to outstanding options; (vi) 327,579 shares of
Target Common Stock were reserved for future issuance under the Target
Purchase Plan, (vii) 96,385 shares of Target Common Stock were reserved for
future issuance under the Target Incentive Plan and (viii) no shares of Target
Preferred Stock were outstanding. No change in such capitalization has
occurred between November 13, 1997 and the date of this Agreement other than
the exercise and termination of outstanding stock options and the accrual of
rights under the Target Purchase Plan. All shares of Target Common Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the
A-5
<PAGE>
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of Target or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Target Common Stock or the capital
stock or other equity securities of any Target Subsidiary or provide funds to
or make any investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
bank obligations of such Subsidiaries entered into in the ordinary course of
business. All of the outstanding shares of capital stock and all other
outstanding equity securities of each of Target's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable, and all such shares
and other equity securities (other than directors' qualifying shares in the
case of foreign Subsidiaries) are owned by Target or another Target Subsidiary
free and clear of all security interests, liens, claims, pledges, agreements,
limitations on Target's voting rights, charges or other encumbrances of any
nature, except as imposed by law, rule or regulation.
(b) Except as set forth in this Section 3.2 or as reserved for future grants
of options or rights under the Target Employee Option Plan, the Target
Individual Options, the Target Director Option Plan, the Target Incentive Plan
or the Target Purchase Plan, and except for Target Common Stock issued
subsequent to November 13, 1997, there are no equity securities of any class
of Target or any of its Subsidiaries, or any security exchangeable or
convertible into such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.2, and except for: (i)
options to purchase shares of Target Common Stock granted pursuant to Section
5.1(e); (ii) rights to purchase Target Common Stock outstanding under the
Target Purchase Plan and the Target Individual Options; (iii) rights under the
Target Incentive Plan; and (iv) rights of acceleration or early vesting or
termination of repurchase options under (A) option agreements executed in
connection with the Target Employee Option Plan, (B) the Target Director
Option Plan, (C) the Target Incentive Plan or (D) stock purchase agreements
under Target's 1993 and 1994 Purchase Plans (the "Target SPAs"), there are no
options, warrants, calls, rights or contracts of any character to which Target
or any of its Subsidiaries is a party or by which it is bound obligating
Target or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold (excluding, in each case, upon exchange or
conversion of an equity security), additional shares of capital stock of
Target or any of its Subsidiaries or obligating Target or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, call, right or contract. To the knowledge of Target,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of Target, except as contemplated in
connection with this Agreement.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Target has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Target, subject only to the
adoption of this Agreement and the approval of the Merger by Target's
stockholders under applicable provisions of the DGCL. This Agreement has been
duly executed and delivered by Target and, assuming its due authorization,
execution, and delivery by Acquirer and, if applicable, Sub, constitutes the
valid and binding obligation of Target, enforceable in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy laws and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law.
(b) The execution and delivery of this Agreement by Target does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Target, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both)
a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Target or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) conflict with or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its Subsidiaries
or any of their properties
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<PAGE>
or assets, except in the case of (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which would
not be reasonably likely to have a Target Material Adverse Effect or a
material adverse effect on the parties' ability to consummate the transactions
contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required to be made or obtained by Target or any of its Subsidiaries at or
before the Effective Time in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of a pre-merger notification report under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and any applicable filings under the antitrust laws of any foreign country,
(ii) the filing by Acquirer of the Registration Statement (as defined in
Section 3.19) with the Securities and Exchange Commission (the "SEC") in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
(iii) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with the DGCL, (iv) the filing of the
Proxy Statement (as defined in Section 3.19) and related proxy materials with
the SEC in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country and (vi)
such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not be reasonably likely to have a
Target Material Adverse Effect or a material adverse effect on the parties'
ability to consummate the transactions contemplated by this Agreement.
Section 3.4 SEC Filings; Financial Statements.
(a) Target has filed and made available to Acquirer all forms, reports and
documents required to be filed by Target with the SEC, other than registration
statements on Form S-8 (collectively, the "Target SEC Reports"). The Target
SEC Reports (excluding the exhibits thereto and the preliminary Proxy
Statement) at the time filed (or, if amended or superseded by a subsequent
filing, then on the date of such filing), (i) complied in all material
respects with the applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Target SEC Reports or necessary in order to make the statements
in such Target SEC Reports, in the light of the circumstances under which they
were made, not misleading. None of Target's Subsidiaries is required to file
any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Target SEC Reports, including any Target
SEC Reports filed after the date of this Agreement until the Closing
(excluding the Preliminary Proxy Statement), complied or will comply as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was or will be prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted for presentation in quarterly reports on by Form 10-
Q) and fairly presented, or will fairly present, in all material respects, the
consolidated financial position of Target and its Subsidiaries as of the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
consolidated balance sheet of Target as of September 30, 1997 is referred to
herein as the "Target Balance Sheet."
Section 3.5 Absence of Undisclosed Liabilities. Except as disclosed in the
Target SEC Reports, Target and its Subsidiaries do not have any liabilities,
either accrued or contingent (whether or not required to be reflected in
financial statements in accordance with generally accepted accounting
principles), which individually or in the aggregate, would be reasonably
likely to have a Target Material Adverse Effect, other than (i) liabilities
reflected on the Target Balance Sheet, (ii) liabilities specifically described
in this Agreement, or in the Target Disclosure Schedule, (iii) liabilities for
future performance under contracts entered into by Target or its Subsidiaries
or by which any of them or any of their assets or properties may be bound and
(iv) normal or
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recurring liabilities incurred since September 30, 1997 in the ordinary course
of business consistent with past practices.
Section 3.6 Absence of Certain Changes or Events. Since the date of the
Target Balance Sheet, Target and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been: (i) any damage, destruction
or loss (whether or not covered by insurance) with respect to Target or any of
its Subsidiaries having a Target Material Adverse Effect; (ii) any material
change by Target in its accounting methods, principles or practices; (iii) any
material revaluation by Target of any of its assets, including, without
limitation, writing down the value of capitalized software or inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; or (iv) any other event that constitutes a Target Material Adverse
Effect.
Section 3.7 Taxes.
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
refers to any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use
and occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Target has prepared and timely filed all federal, state, local and
foreign returns, estimates, information statements and reports ("Returns")
relating to Taxes required to be filed by Target or any of its Subsidiaries,
and such Returns are true and correct in all material respects and have been
completed in all material respects in accordance with applicable law, except
where failure of such Returns to be prepared and timely filed or to be so
accurate would not be reasonably likely to have a Target Material Adverse
Effect.
(c) Target and each of its Subsidiaries as of the Effective Time: (i) will
have paid all Taxes it is required to pay prior to the Effective Time and (ii)
will have withheld with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld, except where any
failure to make such payment or withholding would not be reasonably likely to
have a Target Material Adverse Effect.
(d) There is no material Tax deficiency outstanding, proposed or assessed
against Target or any of its Subsidiaries that is not reflected as a liability
on the Target Balance Sheet nor has Target or any of its Subsidiaries executed
any waiver of any statute of limitations on or extending the period for the
assessment or collection of any material Tax.
(e) No audit or other examination of any Return of Target or any of its
Subsidiaries by any Tax authority is presently in progress, nor has Target or
any of its Subsidiaries been notified of any request for such an audit or
other examination excluding audits, examinations or notifications that are not
reasonably likely to result in a Target Material Adverse Effect.
(f) No material adjustment relating to any Returns filed by Target or any of
its Subsidiaries has been proposed in writing by any Tax authority to Target
or any of its Subsidiaries or any representative thereof.
(g) Neither Target nor any of its Subsidiaries has any liability for unpaid
Taxes which has not been accrued for or reserved on the Target Balance Sheet,
whether asserted or unasserted, contingent or otherwise, which is material to
Target and its Subsidiaries, taken as a whole, other than any liability for
unpaid Taxes accrued since the date of the Target Balance Sheet in connection
with the operation of the business of Target and its Subsidiaries in the
ordinary course.
Section 3.8 Properties. All leases of Target and its Subsidiaries ("Target
Leases") are in good standing, valid and enforceable in accordance with their
respective terms, except as such enforceability may be
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limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law, and neither Target nor its
Subsidiaries is in default under any of such leases, except where the lack of
such good standing, validity and enforceability or the existence of such
default would not be reasonably likely to have a Target Material Adverse
Effect.
Section 3.9 Intellectual Property.
(a) Target and its Subsidiaries own, or are licensed to use, all trademarks,
trade names, service marks, and copyrights and, to the knowledge of Target,
all patents, together with any applications for and registrations of such
trademarks, trade names, service marks, copyrights and, to the knowledge of
Target, all patents, and all processes, formulae, methods, schematics,
technology, know-how, software programs or applications and tangible or
intangible proprietary information or materials that are necessary to conduct
the business of Target and its Subsidiaries as currently conducted, the
absence of which rights could reasonably be expected to have a Target Material
Adverse Effect (the foregoing collectively referred to as "Target Intellectual
Property Rights").
(b) The Target Disclosure Schedule contains an accurate list as of the date
of this Agreement of (i) all patents and patent applications and all
registered trademarks, and trademark applications and all registered
copyrights included in the Target Intellectual Property Rights, including the
jurisdictions in which each such Target Intellectual Property Right has been
issued or registered or in which any such application for such issuance and
registration has been filed, and (ii) the following agreements relating to
each of the products of Target or its Subsidiaries (the "Target Products") or
other Target Intellectual Property: all (A) agreements granting any right to
distribute or sublicense a Target Product on any exclusive basis, (B)
agreements pursuant to which the amounts actually paid or payable under firm
commitments to Target or its Subsidiaries are $250,000 or more, and (C)
agreements pursuant to which any party is granted any rights to access source
code or to use source code to create derivative works of Target Products
(other than source code escrow agreements, porting agreements, localization or
translation agreements and licenses pursuant to which such access is permitted
principally to enable the licensee to develop products ancillary to the Target
Products, in each case entered into in the ordinary course of business). The
licenses and agreements listed in the Target Disclosure Schedule pursuant to
clause (ii) of the preceding sentence shall not include agreements reflected
solely by purchase orders.
(c) The Target Disclosure Schedule contains an accurate list as of the date
of this Agreement of all licenses, sublicenses and other agreements to which
Target or its Subsidiaries are a party and pursuant to which Target or its
Subsidiaries are authorized to use any third party technology, trade secret,
know-how, process, patent, trademark or copyright, including software, which
is incorporated in or forms a part of any Target Product, excluding "off the
shelf" or other software at a cost of less than $10,000 which is widely
available through regular commercial distribution channels on standard terms
and conditions, or which if required to be replaced, such replacement could
not reasonably be expected to have a Material Adverse Effect ("Licensed
Intellectual Property").
(d) Target and its Subsidiaries are not, and will not be as a result of the
execution and delivery of this Agreement or the performance of their
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Target Intellectual Property Rights or
Licensed Intellectual Property, the breach of which could reasonably be
expected to have a Target Material Adverse Effect.
(e) To Target's knowledge, all patents and registered trademarks, service
marks and copyrights claimed by or issued to Target which relate to any Target
Product are valid and subsisting. The operation of the businesses of Target
and its Subsidiaries as such businesses are currently conducted, including
Target's design, development, manufacture, marketing and the sale of the
Target Products has not and does not infringe or misappropriate any copyright,
trademark, service mark or trade secret of any third party or, to its
knowledge, infringe any patent or constitute unfair competition or trade
practices under the laws of any jurisdiction, except where any of the
foregoing could not reasonably be expected to have a Target Material Adverse
Effect. Except for notices delivered prior to January 1, 1995 regarding
matters which were subsequently resolved or are no
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longer pending, Target (i) has not received written notice that it has been
sued in any suit, action or proceeding which involves a claim of infringement
of any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, and (ii) has no knowledge of any written
claim challenging or questioning the validity or effectiveness of any license
or agreement relating to any Target Intellectual Property Rights or Licensed
Intellectual Property.
(f) Target and its Subsidiaries are not subject to any proceeding or
outstanding decree, order, judgment, or stipulation restricting in any manner
the use, transfer, or licensing thereof by Target or its Subsidiaries, or
which may affect the validity, use or enforceability of such Target
Intellectual Property. Target and its Subsidiaries are not subject to any
agreement which restricts in any material respect the use, transfer, or
licensing by Target and its Subsidiaries of the Target Intellectual Property
and Target Products where such restriction would be likely to have a Target
Material Adverse Effect.
(g) Target and its Subsidiaries have taken reasonable steps to protect their
rights in their material confidential information and trade secrets or any
trade secrets or confidential information of third parties provided to them,
and, without limiting the foregoing, Target has and enforces a policy
requiring each employee and independent contractor developing Target
Intellectual Property or having access to confidential information regarding
Target Intellectual Property to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Acquirer and all such current and former employees and contractors of Target
and its Subsidiaries have executed such an agreement, except where the failure
to do so is not reasonably likely to have a Target Material Adverse Effect.
Section 3.10 Compliance; Permits; Restrictions.
(a) Neither Target nor any of its Subsidiaries is in conflict with or in
violation of any law, rule, regulation, order, judgment or decree applicable
to Target or any of its Subsidiaries or by which Target or any of its
Subsidiaries or any of their respective properties is bound or affected,
except for conflicts and violations that (individually or in the aggregate)
would not be reasonably likely to have a Target Material Adverse Effect. No
investigation or review by any Governmental Entity is pending or, to Target's
knowledge, has been threatened in a writing delivered to Target against Target
or any of its Subsidiaries (except for such threats delivered prior to January
1, 1995 regarding matters which were subsequently resolved or are no longer
pending). There is no material judgment, injunction, order or decree binding
upon 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 Target or any its Subsidiaries, any acquisition of
material property by Target or any of its Subsidiaries, or the conduct of
business by Target as currently conducted.
(b) Target and its Subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from
governmental authorities that are material to and required for the operation
of their businesses as currently conducted (collectively, the "Target
Permits"), except where the failure to hold any such Target Permit would be
reasonably likely to have a Target Material Adverse Effect. Target and its
Subsidiaries are in compliance in all material respects with the terms of the
Target Permits, except where the failure to be in compliance with the terms of
the Target Permits would not be reasonably likely to have a Target Material
Adverse Effect.
Section 3.11 Agreements, Contracts and Commitments. As of the date of this
Agreement, neither Target nor any of its Subsidiaries is a party to or is
bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or member of Target's Board of Directors, other than those that
are terminable by Target or any of its Subsidiaries on no more than 30 days
notice without liability or financial obligation, except to the extent
general principles of wrongful termination law may limit Target's or any of
its Subsidiaries' ability to terminate employees at will;
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(b) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or
license of software products in the ordinary course of business where such
agreement or guarantee might reasonably result in a Target Material Adverse
Effect;
(c) any agreement, contract or commitment containing any covenant
limiting in any material respect the right of Target or any of its
Subsidiaries to engage in any line of business or to compete with any
person; or
(d) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Target or any of its Subsidiaries after
the date of this Agreement of any material assets not in the ordinary
course of business or pursuant to which Target has any ownership interest
in any corporation, partnership, joint venture or other business enterprise
other than Target's Subsidiaries.
Neither Target nor any of its Subsidiaries, nor to Target's knowledge any
other party to a Target Contract (as defined below), is in breach, violation
or default under, and neither Target nor any of its Subsidiaries has received
written notice (except for notices delivered prior to January 1, 1995
regarding matters which were subsequently resolved or are no longer pending)
that it has breached, violated or defaulted under, any of the material terms
or conditions of any of the agreements, contracts or commitments to which
Target or any of its Subsidiaries is a party or by which it is bound that are
required to be filed as an exhibit to a Target SEC Report or to be disclosed
in the Target Disclosure Schedule (any such agreement, contract or commitment,
a "Target Contract") in such a manner as would permit any other party to
cancel or terminate any such Target Contract, or would permit any other party
to seek damages or other remedies, which cancellation, termination, damages or
other remedies would be reasonably likely to have a Target Material Adverse
Effect.
Section 3.12 Litigation. There is no action, suit or proceeding, arbitration
or, to Target's knowledge, investigation (collectively, "Matter") against
Target or any of its Subsidiaries pending or as to which Target has received
any written notice of assertion (except for notices delivered prior to January
1, 1995 regarding Matters which were subsequently resolved or are no longer
pending).
Section 3.13 Environmental Matters.
(a) To the knowledge of Target, no underground storage tanks are present
under any property that Target or any of its Subsidiaries has at any time
owned, operated, occupied or leased. No amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state or local
law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, urea-
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws (a "Hazardous Material"), is
present as a result of the actions of Target or any of its Subsidiaries, or,
to Target's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that Target or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such Hazardous Material is reasonably likely to have a Target
Material Adverse Effect.
(b) At no time has Target or any of its Subsidiaries transported, stored,
used, manufactured, disposed of, released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has Target or any of its Subsidiaries disposed of,
transported, sold, or manufactured any product containing a Hazardous Material
(collectively, "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity, with the exception of violations that have not had or are not
reasonably likely to have a Target Material Adverse Effect.
(c) Target and its Subsidiaries currently hold all environmental approvals,
permits, licenses, clearances and consents from Governmental Entities
necessary for the conduct of their Hazardous Materials Activities as such
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Hazardous Materials Activities are currently being conducted (the
"Environmental Permits"), the absence of which would be reasonably likely to
have a Target Material Adverse Effect.
(d) No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Target, threatened
concerning any Environmental Permit or any Hazardous Materials Activity of
Target or any of its Subsidiaries. Target is not aware of any fact or
circumstance which could involve Target in any environmental litigation or
impose upon Target any environmental liability which would be reasonably
likely to have a Target Material Adverse Effect.
Section 3.14 Employee Benefit Plans.
(a) Set forth in the Target Disclosure Schedule is a list of all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar employee benefit plans, and all unexpired severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of Target or any trade or business (whether or not
incorporated) which is a member or which is under common control with Target
within the meaning of Section 414 of the Code (an "ERISA Affiliate")
(together, the "Target Employee Plans").
(b) With respect to the Target Employee Plans, individually and in the
aggregate, to the knowledge of Target, no event has occurred, and there exists
no condition or set of circumstances reasonably likely to have a Target
Material Adverse Effect.
(c) With respect to the Target Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting
principles, on the financial statements of Target, which obligations are
reasonably likely to have a Target Material Adverse Effect.
(d) Except as disclosed in Target SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Target
nor any of its Subsidiaries is a party to any oral or written (i) union or
collective bargaining agreement, (ii) agreement with any officer or other key
employee of Target or any of its Subsidiaries, the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving Target of the nature contemplated by this
Agreement, other than with respect to (A) options granted under the Target
Employee Option Plan (including the lapse of repurchase options for the
benefit of Target thereunder) or the Target Director Option Plan, (B) rights
granted under Target Purchase Plan, (C) the Target Incentive Plan or (D) the
Target SPAs, (iii) agreement with any officer of Target providing any term of
employment or compensation guarantee extending for a period longer than one
year from the date hereof or for the payment of compensation in excess of
$100,000 per annum, or (iv) agreement or plan, including any stock option
plan, stock appreciation rights plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement, other than with respect to (A) options granted
under the Target Employee Option Plan (including the lapse of repurchase
options for the benefit of Target thereunder) or the Target Director Option
Plan, (B) the lapse of repurchase options for the benefit of Target under the
Target SPAs, (C) rights granted under Target Purchase Plan or (D) the Target
Incentive Plan.
Section 3.15 Insurance. Target maintains insurance policies (the "Insurance
Policies") against all risks of a character and in such amounts as are usually
insured against by similarly situated companies in the same or similar
businesses. Each Insurance Policy is in full force and effect and is valid,
outstanding and enforceable, except as such enforceability may be limited by
(i) bankruptcy laws and other similar laws affecting creditors' rights
generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law, and all premiums due thereon
have been paid in full. None of the Insurance Policies will terminate or lapse
(or be affected in any other materially adverse manner) by reason of the
transactions
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contemplated by this Agreement. Target and its Subsidiaries have complied in
all material respects with the provisions of each Insurance policy under which
it is the insured party. No insurer under any Insurance Policy has canceled or
generally disclaimed liability under any such policy or, to Target's
knowledge, indicated in writing any intent to do so or not to renew any such
policy. All claims under the Insurance Policies have been filed in a timely
fashion, except where the failure to so file has not had and is not reasonably
likely to have a Target Material Adverse Effect.
Section 3.16 Section 203 of the DGCL Not Applicable. The Board of Directors
of Target has taken all necessary action so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
said Section 203) will not apply to the execution, delivery or performance of
this Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
Section 3.17 Pooling of Interests.
(a) To its knowledge, neither Target nor any of its Affiliates (as defined
in Section 6.11) has, through the date of this Agreement, taken or agreed to
take any action which would prevent Acquirer from accounting for the business
combination to be effected by the Merger as a pooling of interests.
(b) Target has received a letter from Arthur Andersen LLP, dated the date of
this Agreement, stating that it will deliver at Closing a letter to the effect
that it believes that Target could be a combining entity in a transaction
accounted as a pooling of interests (the "Target Preliminary Pooling Letter").
Section 3.18 Interested Party Transactions. Except as set forth in the
Target SEC Reports, since the date of Target's last proxy statement to its
stockholders, no event has occurred that would be required to be reported by
Target as a Certain Relationship or Related Transaction, pursuant to Item 404
of Regulation S-K promulgated by the SEC.
Section 3.19 Registration Statement: Joint Proxy Statement/Prospectus. The
information supplied by Target for inclusion in the registration statement on
Form S-4 pursuant to which shares of Acquirer Common Stock to be issued in the
Merger will be registered with the SEC (the "Registration Statement") shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Target for inclusion in the joint proxy statement/prospectus (the
"Proxy Statement") to be sent to the stockholders of Target and Acquirer in
connection with the meetings of their stockholders to consider this Agreement
and the Merger (the "Target Stockholders' Meeting" and the "Acquirer
Stockholders' Meeting," respectively, and, collectively, the "Stockholder
Meetings") shall not, on the date the Proxy Statement is first mailed to
stockholders of Target or at the time of the Stockholders' Meetings, contain
any statement which, at such time and in light of the circumstances under
which it was made, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
made in the Proxy Statement not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders' Meetings
which has become materially false or misleading. If at any time prior to the
Stockholders' Meetings any event relating to Target or any of its Affiliates,
officers or directors should be discovered by Target which is required to be
set forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement, Target shall promptly inform Acquirer.
Section 3.20 Opinion of Financial Advisor. The financial advisor of Target,
BancAmerica Robertson Stephens, has delivered to Target an opinion, dated the
date of this Agreement, to the effect that the aggregate Merger consideration
is fair to Target from a financial point of view.
Section 3.21 No Existing Discussions. As of the date hereof, Target is not
engaged, directly or indirectly, in any negotiations with any other party with
respect to an Acquisition Proposal (as defined in Section 6.1).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND SUB
Acquirer and Sub represent and warrant to Target that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure schedule delivered by Acquirer to Target on or before the date of
this Agreement (the "Acquirer Disclosure Schedule"). All disclosures set forth
in the Acquirer Disclosure Schedule shall refer to the corresponding numbered
and lettered Sections of this Article IV to which they principally pertain.
For purposes of this Agreement, the phrase "Acquirer Material Adverse Effect"
means a material adverse effect on the business, operations, financial
condition, or results of operations of Acquirer and its Subsidiaries, taken as
a whole.
Section 4.1 Organization. Each of Acquirer and Sub and Acquirer's other
Subsidiaries that are material to the business of Acquirer and all of its
Subsidiaries, taken as a whole (the "Material Acquirer Subsidiaries") is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such concept with
respect to such entity) under the laws of the jurisdiction of its
incorporation or organization, has all requisite power to own, lease and
operate its property and to carry on its business as now being conducted, and
is duly qualified to do business and is in good standing (with respect to
jurisdictions which recognize such concept with respect to such entity) in
each jurisdiction in which the failure to be so qualified and in good standing
would have an Acquirer Material Adverse Effect. Except for their interests in
Acquirer Subsidiaries, neither Acquirer nor any of its Subsidiaries directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity, excluding
securities of any publicly traded company held for investment by Acquirer and
comprising less than five percent of the outstanding stock of such company.
Section 4.2 Acquirer Capital Structure.
(a) The authorized capital stock of Acquirer consists of 100,000,000 shares
of Acquirer Common Stock and 1,000,000 shares of Preferred Stock, $.01 par
value, of which 100,000 shares are designated as Series A Junior Participating
Preferred Stock ("Acquirer Series A Preferred Stock") and 1,470 shares are
designated as Series B Convertible Preferred Stock ("Acquirer Series B
Preferred Stock"). As of November 13, 1997: (i) 38,597,404 shares of Acquirer
Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable; (ii) no shares of Acquirer Common Stock were
held in the treasury of Acquirer or by Subsidiaries of Acquirer; (iii)
9,609,598 shares of Acquirer Common Stock were reserved for issuance pursuant
to stock options granted and outstanding under Acquirer's employee and
director option plans (collectively, the "Acquirer Option Plans"); (iv)
200,000 shares of Acquirer Common Stock were reserved for issuance under
Acquirer's Employee Stock Purchase Plan (the "Acquirer Purchase Plan"); (v)
198,000 shares of Acquirer Common Stock were reserved for issuance pursuant to
outstanding warrants; (vi) no shares of Acquirer Series A Preferred Stock were
outstanding; and (vii) 495 shares of Acquirer Series B Preferred Stock were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable. No change in such capitalization has occurred between November
13, 1997 and the date of this Agreement other than the exercise and
termination of outstanding stock options and the accrual of rights under the
Acquirer Purchase Plan. All shares of Acquirer Common Stock subject to
issuance as specified above, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall be
duly authorized, validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of Acquirer or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of Acquirer Common Stock
or Acquirer Series B Preferred Stock (except as provided in the Acquirer's
Restated Certificate of Incorporation) or the capital stock or other
securities of any Acquirer Subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations
of such Subsidiaries entered into in the ordinary course of business. All of
the outstanding shares of capital stock and all other outstanding equity
securities of each of Acquirer's Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable, and all such shares and other equity
securities (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by Acquirer or another Acquirer Subsidiary free and
clear
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of all security interests, liens, claims, pledges, agreements, limitations on
Acquirer's voting rights, charges or other encumbrances of any nature, except
as imposed by law, rule or regulation.
(b) Except as set forth in this Section 4.2 or as reserved for future grants
of options or rights under the Acquirer Option Plans or the Acquirer Purchase
Plan, and except for Acquirer Common Stock issued subsequent to November 13,
1997, there are no equity securities of any class of Acquirer or any of its
Subsidiaries, or any security exchangeable or convertible into such equity
securities, issued, reserved for issuance or outstanding. Except as set forth
in this Section 4.2 and except for up to 975 shares of Acquirer Series B
Preferred Stock and warrants for the purchase of up to 390,000 shares of
Acquirer Common Stock issuable in connection with Acquirer's Series B
Preferred Stock Subscription Agreements (the "Acquirer Series B Agreements"),
there are no options, warrants, calls, rights or contracts of any character to
which Acquirer or any of its Subsidiaries is a party or by which it is bound
obligating Acquirer or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold (excluding, in each case, upon exchange
or conversion of an equity security), additional shares of capital stock of
Acquirer or any of its Subsidiaries or obligating Acquirer or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, call, right or contract. To the knowledge of Acquirer,
there are no voting trusts, proxies or other agreements or understandings with
respect to the shares of capital stock of Acquirer.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Acquirer and Sub have all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Acquirer and Sub,
subject only to the approval of the issuance of Acquirer Common Stock in the
Merger by Acquirer's stockholders under applicable rules of the Nasdaq Stock
Market and provisions of the DGCL. This Agreement has been duly executed and
delivered by Acquirer and Sub and, assuming its due authorization, execution
and delivery by Target, constitutes the valid and binding obligation of
Acquirer and Sub, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. The Board
of Directors of Acquirer has taken all necessary steps to ensure that the
Merger and other transactions contemplated hereby will not result in the
distribution or exercisability of any rights under the Rights Agreement
between Acquirer and Manufacturers Hanover Trust Company of California, as
rights agent, dated as of December 20, 1991 (the "Acquirer Rights Agreement").
(b) The execution and delivery of this Agreement by Acquirer does not, and
the consummation of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of any provision of
the Certificate of Incorporation or Bylaws of Acquirer or Sub, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, contract or other agreement, instrument or obligation to which Acquirer
or any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) conflict with or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquirer or any of its
Subsidiaries or any of its or their properties or assets, except in the case
of (ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not be reasonably likely to have an
Acquirer Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be made or
obtained by Acquirer or any of its Subsidiaries at or before the Effective
Time in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of a pre-merger notification report under the HSR Act and any
applicable filings under the antitrust laws of any foreign country, (ii) the
filing of the Registration
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Statement with the SEC in accordance with the Securities Act, (iii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL, (iv) the filing of the Proxy Statement
with the SEC in accordance with the Exchange Act, (v) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the
laws of any foreign country and (vi) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
be reasonably likely to have an Acquirer Material Adverse Effect or a material
adverse effect on the parties' ability to consummate the transactions
contemplated by this Agreement.
Section 4.4 SEC Filings; Financial Statements.
(a) Acquirer has filed and made available to Target all forms, reports and
documents required to be filed by Acquirer with the SEC since January 1, 1996
other than registration statements on Form S-8 (collectively, the "Acquirer
SEC Reports"). The Acquirer SEC Reports (excluding the exhibits thereto and
the preliminary Proxy Statement) at the time filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date
of such filing), (i) complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Acquirer SEC Reports or
necessary in order to make the statements in such Acquirer SEC Reports, in the
light of the circumstances under which they were made, not misleading. None of
Acquirer's Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Acquirer SEC Reports, including any
Acquirer SEC Reports filed after the date of this Agreement until the Closing
(excluding the Preliminary Proxy Statement), complied or will comply as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was or will be prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted for presentation in quarterly reports on Form 10-Q)
and fairly presented, or will present, in all material respects, the
consolidated financial position of Acquirer and its Subsidiaries as of the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The unaudited
consolidated balance sheet of Acquirer as of September 30, 1997 is referred to
herein as the "Acquirer Balance Sheet."
Section 4.5 Absence of Undisclosed Liabilities. Except as disclosed in the
Acquirer SEC Reports, Acquirer and its Subsidiaries do not have any
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate would be
reasonably likely to have an Acquirer Material Adverse Effect, other than (i)
liabilities reflected on the Acquirer Balance Sheet, (ii) liabilities
specifically described in this Agreement, or in the Acquirer Disclosure
Schedule, (iii) liabilities for future performance under contracts entered
into by Acquirer or its Subsidiaries or by which any of them or their assets
or properties may be bound, and (iv) normal or recurring liabilities incurred
since September 30, 1997 in the ordinary course of business consistent with
past practices.
Section 4.6 Absence of Certain Changes or Events. Since the date of the
Acquirer Balance Sheet, Acquirer and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been: (i) any damage, destruction
or loss (whether or not covered by insurance) with respect to Acquirer or any
of its Subsidiaries having an Acquirer Material Adverse Effect; (ii) any
material change by Acquirer in its accounting methods, principles or
practices; (iii) any material revaluation by Acquirer of any of its assets,
including, without limitation, writing down the value of capitalized software
or inventory or writing off notes or accounts receivable other than in the
ordinary course of business; or (iv) any other event that constitutes an
Acquirer Material Adverse Effect.
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Section 4.7 Taxes.
(a) Acquirer has prepared and timely filed all material required Returns
relating to Taxes required to be filed by Acquirer or any of the Material
Acquirer Subsidiaries, and such Returns are true and correct in all material
respects and have been completed in all material respects in accordance with
applicable law, except where failure of such Returns to be prepared and timely
filed or to be so accurate would not be reasonably likely to have a Target
Material Adverse Effect.
(b) Acquirer and each of its Subsidiaries as of the Effective Time: (i) will
have paid all Taxes it is required to pay prior to the Effective Time and (ii)
will have withheld with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld, except where any
failure to make such payment or withholding would not be reasonably likely to
have an Acquirer Material Adverse Effect.
(c) There is no material Tax deficiency outstanding, proposed or assessed
against Acquirer or any of the Material Acquirer Subsidiaries that is not
reflected as a liability on the Acquirer Balance Sheet nor has Acquirer or any
of the Material Acquirer Subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
material Tax.
(d) Neither Acquirer nor any of its Subsidiaries has any liability for
unpaid Taxes which have not been accrued for or reserved on Acquirer Balance
Sheet, whether asserted or unasserted, contingent or otherwise, which is
material to Acquirer and its Subsidiaries, taken as a whole, other than any
liability for unpaid Taxes accrued since the date of the Acquirer Balance
Sheet in connection with the operation of the business of Acquirer or its
Subsidiaries in the ordinary course.
Section 4.8 Properties. Acquirer and its Subsidiaries own and have good and
marketable title to all the real property that they purport to own (including
all reflected in the Acquirer Balance Sheet), free and clear of any liens,
claims or encumbrances other than those described or set forth in the Acquirer
SEC reports or the exhibits thereto, and none of such real properties are
subject to any rights of way, building use restrictions, exceptions,
variances, reservations or limitations except where any imperfection of title
or any such liens, claims, encumbrances, restrictions, variances, reservations
or limitations are not reasonably likely to have an Acquirer Material Adverse
Effect. All leases under which Acquirer or any of its Subsidiaries lease real
property ("Acquirer Lease(s)") are in good standing, valid and enforceable in
accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy laws or other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law, and neither Acquirer nor its
Subsidiaries is in default under any of such Acquirer Material Leases, except
where the lack of such good standing, validity and enforceability or the
existence of such default would not be reasonably likely to have an Acquirer
Material Adverse Effect.
Section 4.9 Intellectual Property.
(a) Acquirer and its Subsidiaries own, or are licensed to use, all
trademarks, trade names, service marks, copyrights, and to the knowledge of
Acquirer, all patents, together with any applications for and registrations of
such trademarks, trade names, service marks, copyrights and, to the knowledge
of Acquirer, all patents, and all processes, formulae, methods, schematics,
technology, know-how, software programs or applications and tangible or
intangible proprietary information or materials that are necessary to conduct
the business of Acquirer and its Subsidiaries as currently conducted, the
absence of which rights could reasonably be expected to have an Acquirer
Material Adverse Effect (the foregoing collectively referred to as "Acquirer
Intellectual Property Rights").
(b) Acquirer and its Subsidiaries are not, and will not be as a result of
the execution and delivery of this Agreement or the performance of their
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Acquirer Intellectual Property Rights or
licensed intellectual property rights, the breach of which could reasonably be
expected to have a Acquirer Material Adverse Effect.
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(c) To Acquirer's knowledge, all patents and registered trademarks, service
marks and copyrights claimed by or issued to Acquirer which relate to any
Acquirer product are valid and subsisting. The operation of the businesses of
Acquirer and its Subsidiaries as such businesses are currently conducted,
including Acquirer's design, development, manufacture, marketing and the sale
of its products has not and does not infringe or misappropriate any copyright,
trademark, service mark or trade secret of any third party or, to its
knowledge, infringe any patent or constitute unfair competition or trade
practices under the laws of any jurisdiction, except where any of the
foregoing might not reasonably likely have a Acquirer Material Adverse Effect.
Except for notices delivered prior to January 1, 1995 regarding matters which
were subsequently resolved or are no longer pending and except where such
matter could not reasonably be expected to have an Acquirer Material Adverse
Effect, Acquirer (i) has not received written notice that it has been sued in
any suit, action or proceeding which involves a claim of infringement of any
patent, trademark, service mark, copyright, trade secret or other proprietary
right of any third party, and (ii) has no knowledge of any written claim
challenging or questioning the validity or effectiveness of any license or
agreement relating to any Acquirer Intellectual Property Rights or licensed
intellectual property rights.
(d) Acquirer and Acquirer Subsidiaries are not subject to any proceeding or
outstanding decree, order, judgment, or stipulation restricting in any manner
the use, transfer, or licensing thereof by Acquirer or Acquirer Subsidiaries,
or which may affect the validity, use or enforceability of such Acquirer
Intellectual Property.
(e) Acquirer and its Subsidiaries have taken reasonable steps to protect
their rights in their material confidential information and trade secrets or
any trade secrets or confidential information of third parties provided to
them, and, without limiting the foregoing, Acquirer has and enforces a policy
requiring each employee and independent contractor developing Acquirer
Intellectual Property or having access to confidential information regarding
Acquirer Intellectual Property to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Acquirer and all such current and former employees and contractors of Acquirer
and its Subsidiaries have executed such an agreement, except where the failure
to do so is not reasonably likely to have an Acquirer Material Adverse Effect.
Section 4.10 Compliance; Permits; Restrictions.
(a) Neither Acquirer nor any of its Subsidiaries is in conflict with, or in
default or in violation of any law, rule, regulation, order, judgment or
decree applicable to Acquirer or any of its Subsidiaries or by which Acquirer
or any of its Subsidiaries or any of their respective properties is bound or
affected, except for conflicts and violations that (individually or in the
aggregate) would not be reasonably likely to have an Acquirer Material Adverse
Effect. No investigation or review by any Governmental Entity is pending or,
to Acquirer's knowledge, has been threatened in a writing delivered to
Acquirer against Acquirer or any of the Material Acquirer Subsidiaries (except
for threats delivered prior to January 1, 1995 regarding matters which were
subsequently resolved or are no longer pending). There is no material
agreement, judgment, injunction, order or decree binding upon Acquirer or any
of the Material Acquirer Subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any
business practice of Acquirer or any the Material Acquirer Subsidiaries, any
acquisition of material property by Acquirer or any of the Material Acquirer
Subsidiaries or the conduct of business by Acquirer or any of the Material
Acquirer Subsidiaries as currently conducted.
(b) Acquirer and the Material Acquirer Subsidiaries hold, to the extent
legally required, all permits, licenses, variances, exemptions, orders and
approvals from governmental authorities that are material to and required for
the operation of their businesses as currently conducted, except where the
failure to hold any such Acquirer Permit would be reasonably likely to have an
Acquirer Target Adverse Effect (collectively, the "Acquirer Permits").
Acquirer and the Material Acquirer Subsidiaries are in compliance in all
material respects with the terms of the Acquirer Permits, except where the
failure to be in compliance with the terms of the Acquirer Permits would not
be reasonably likely to have a Acquirer Material Adverse Effect.
Section 4.11 Agreements, Contracts and Commitments. Neither Acquirer nor any
of the Material Acquirer Subsidiaries, nor to Acquirer's knowledge any other
party to an Acquirer Contract (as defined below),
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is in breach, violation or default under, and neither Acquirer nor any of the
Material Acquirer Subsidiaries has received written notice (except for notices
delivered prior to January 1, 1995 regarding matters which were subsequently
resolved and are no longer pending) that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Acquirer or any of the Material
Acquirer Subsidiaries is a party or by which it is bound that are required to
be filed as an exhibit to an Acquirer SEC Report (any such agreement, contract
or commitment, an "Acquirer Contract") in such a manner as would permit any
other party to cancel or terminate any such Acquirer Contract, or would permit
any other party to seek damages or other remedies, which cancellation,
termination, damages or other remedies would be reasonably likely to have an
Acquirer Material Adverse Effect.
Section 4.12 Litigation. Except as disclosed in the Acquirer SEC Reports,
there is no action, suit or proceeding, or arbitration or investigation
against Acquirer or any of its Subsidiaries pending or as to which Acquirer
has received any written notice of assertion, which is reasonably likely to
have an Acquirer Material Adverse Effect, or a material adverse effect on the
ability of Acquirer to consummate the transactions contemplated by this
Agreement.
Section 4.13 Environmental Matters.
(a) To the knowledge of Acquirer, no underground storage tanks are present
under any property that Acquirer or any of its Subsidiaries has at any time
owned, operated, occupied or leased. No amount of any Hazardous Material is
present as a result of the actions of Acquirer or any of its Subsidiaries, or,
to Acquirer's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that Acquirer or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such Hazardous Material is reasonably likely to have an Acquirer
Material Adverse Effect.
(b) At no time has Acquirer or any of its Subsidiaries transported, stored,
used, manufactured, disposed of, released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has Acquirer or any of its Subsidiaries conducted any
Hazardous Materials Activities in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity, with the
exception of violations that have not had or are not reasonably likely to have
an Acquirer Material Adverse Effect.
(c) Acquirer and its Subsidiaries currently hold all Environmental Permits
the absence of which would be reasonably likely to have an Acquirer Material
Adverse Effect.
(d) No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Acquirer, threatened
concerning any Environmental Permit or any Hazardous Materials Activity of
Acquirer or any of its Subsidiaries. Acquirer is not aware of any fact or
circumstance which could involve Acquirer in any environmental litigation or
impose upon Acquirer any environmental liability which would be reasonably
likely to have an Acquirer Material Adverse Effect.
Section 4.14 Employee Benefit Plans.
(a) Acquirer has made available to Target all employee benefit plans (as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar employee benefit plans, and all unexpired severance agreements,
written or otherwise, for the benefit of, or relating to, any current or
former employee of Acquirer or any ERISA Affiliate of Acquirer (together, the
"Acquirer Employee Plans").
(b) With respect to the Acquirer Employee Plans, individually and in the
aggregate, to the knowledge of Acquirer, no event has occurred, and there
exists no condition or set of circumstances in connection with which Acquirer
could be subject to any liability that is reasonably expected to have an
Acquirer Material Adverse Effect.
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(c) With respect to the Acquirer Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting
principles, on the financial statements of Acquirer, which obligations are
reasonably likely to have an Acquirer Material Adverse Effect.
(d) Except as disclosed in Acquirer SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Acquirer
nor any of its Subsidiaries is a party to any oral or written (i) union or
collective bargaining agreement, (ii) agreement with any officer or other key
employee of Acquirer or any of its Subsidiaries, the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving Acquirer of the nature contemplated by this
Agreement, (iii) agreement with any officer of Acquirer providing any term of
employment or compensation guarantee extending for a period longer than one
year from the date hereof, or (iv) agreement or plan, including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Section 4.15 Pooling of Interests.
(a) To its knowledge, neither Acquirer nor any of its Affiliates (as defined
in Section 6.11) has, through the date of this Agreement, taken or agreed to
take any action which would prevent Acquirer from accounting for the business
combination to be effected by the Merger as a pooling of interests.
(b) Acquirer has received a letter from Price Waterhouse LLP, dated the date
of this Agreement, stating that it will deliver at Closing a letter to the
effect that it concurs with Acquirer's management as to the appropriateness of
pooling of interests accounting for the Merger under Accounting Principles
Board Opinion No. 16, if the Merger is consummated in accordance with this
Agreement (the "Acquirer Preliminary Pooling Letter").
Section 4.16 Interested Party Transactions. Except as set forth in the
Acquirer SEC Reports, since the date of Acquirer's last proxy statement to its
stockholders, no event has occurred that would be required to be reported by
Acquirer as a Certain Relationship or Related Transaction, pursuant to Item
404 of Regulation S-K promulgated by the SEC.
Section 4.17 Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by Acquirer for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Acquirer for inclusion in the Proxy Statement shall not, on the
date the Proxy Statement is first mailed to stockholders of Target, at the
time of the Target Stockholder's Meeting, contain any statement which, at such
time and in light of the circumstances under which it shall be made, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made in the Proxy Statement not
false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Target Stockholders' Meeting which has become materially false
or misleading. If at any time prior to the Stockholders' Meetings any event
relating to Acquirer or any of its Affiliates, officers or directors should be
discovered by Acquirer which is required to be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, Acquirer
shall promptly inform Target.
Section 4.18 Opinion of Financial Advisor. The financial advisor of
Acquirer, Hambrecht & Quist LLC, has delivered to Acquirer an opinion, dated
the date of this Agreement, to the effect that the Exchange Ratio is fair to
Acquirer from a financial point of view.
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Section 4.19 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement. Acquirer, in its capacity as sole
stockholder of Sub, has adopted this Agreement and approved the Merger.
Section 4.20 Acquirer Common Stock. The Acquirer Common Stock to be issued
in accordance with Article II and the Acquirer Common Stock to be issued in
accordance with Section 6.13 of this Agreement will be validly issued, fully
paid and nonassessable and not subject to preemptive rights, and will be
freely tradable, except for restrictions on transfer imposed by law or
required in order to preserve pooling of interests accounting treatment of the
Merger.
ARTICLE V
Conduct of Business Prior to the Effective Time
Section 5.1 Covenants of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Target agrees as to itself and its
Subsidiaries, except to the extent that Acquirer shall otherwise consent in
writing (which consent will not be unreasonably withheld or delayed), to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and taxes when due,
subject to good faith disputes over such debts or taxes, to pay or perform its
other obligations when due, and, to the extent consistent with such business,
to use all reasonable efforts consistent with past practices and policies to
(i) preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it. Target shall promptly notify
Acquirer of any event or occurrence not in the ordinary course of business of
Target of which Target has knowledge where such event or occurrence would
result in a breach of any covenant of Target set forth in this Agreement or
cause any representation or warranty of Target set forth in this Agreement to
be inaccurate in any material respect as of the date made or (except in the
case of representations and warranties that speak specifically as of the date
hereof or as of another specific date) as of the Effective Time. Except as
expressly contemplated by this Agreement, subject to Section 6.1, Target shall
not (and shall not permit any of its Subsidiaries to), without the prior
written consent of Acquirer (which consent will not be unreasonably withheld
or delayed):
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock granted under any
employee stock plan of Target or authorize cash payments in exchange for
any options granted under any of such plans except as required by the terms
of such plans or any related agreements in effect as of the date of this
Agreement;
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Target Intellectual Property Rights other
than (i) the grant of non-exclusive licenses in the ordinary course of
business consistent with past practices and (ii) the grant of exclusive
licenses in connection with [describe type of transaction] transactions
entered into in the ordinary course of business consistent with past
practices;
(c) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(d) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service by such party;
(e) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or
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options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or convertible securities, other
than the issuance, delivery and/or sale of (i) rights to purchase shares of
Target Common Stock under the Target Purchase Plan, (ii) options to
purchase up to an aggregate of 150,000 shares of Target Common Stock in
connection with the hiring, retention and/or promotion of employees of or
consultants to the Target or its Subsidiaries (other than officers and
directors of Target) in the ordinary course of business consistent with
Target's past policies, or (iii) shares of Target Common Stock issuable
upon the exercise of options granted under the Target Employee Option Plan
or the Target Director Option Plan or the Target Individual Options or
pursuant to rights under the Target Purchase Plan or pursuant to the Target
Incentive Plan;
(f) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation or other
business organization or division;
(g) Sell, lease, license, encumber or otherwise dispose of (by merger,
consolidation, sale of assets or otherwise) any of its properties or assets
which are material, individually or in the aggregate, to the business of
Target and its Subsidiaries, taken as a whole, except for licenses and
sales in the ordinary course of business consistent with past practices;
(h) Take any action to: (i) increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any additional severance
or termination pay to, or enter into any employment or severance agreement,
with any employee, except in accordance with past practices, (iv) enter
into any collective bargaining agreement, or (v) establish, adopt, enter
into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust,
fund, policy or arrangement for the benefit of any directors, officers or
employees;
(i) Revalue any material amount of its assets, including writing down the
value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business consistent with past practices;
(j) Incur any material indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities or guarantee any debt securities of
others, other than indebtedness incurred under outstanding lines of credit;
(k) Amend or propose to amend its Certificate of Incorporation or Bylaws,
except as contemplated by this Agreement;
(l) Incur or commit to incur capital expenditures in excess of $200,000
during any calendar month;
(m) Enter into or amend any agreement pursuant to which any third party
is granted exclusive marketing, distribution or manufacturing rights with
respect to any Target product or any agreement pursuant to which any third
party is granted any right to source code or to use source code to make or
create derivative works other than pursuant to (i) agreements relating to
the porting of Target's software with specific products of third parties,
(ii) customary source code escrow agreements with customers,
(iii) agreements for the development of ancillary products, and (iv)
agreements relating to the localization or translation of software, in each
case entered into in the ordinary course of business consistent with past
practice;
(n) Amend or terminate any material contract, agreement or license to
which it is a party except in the ordinary course of business;
(o) Waive or release any material right or claim, except in the ordinary
course of business;
(p) Initiate any litigation or arbitration proceeding, other than a
proceeding relating to the enforcement or interpretation of its rights
under this Agreement or relating to the transactions contemplated hereby;
(q) Agree in writing or otherwise to take any of the actions described in
Sections (a) through (p) above; or
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(r) Take any other action which is reasonably likely to make any of
Target's representations or warranties contained in this Agreement
inaccurate in any material respect as of the date made or (except in the
case of representations or warranties that speak specifically as of the
date hereof or as of another specific date) as of the Effective Time.
Section 5.2 Covenants of Acquirer. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Acquirer agrees as to itself and its
Subsidiaries, except to the extent that Target shall otherwise consent in
writing (which consent will not be unreasonably withheld or delayed), to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and taxes when due
subject to good faith disputes over such debts or taxes, to pay or perform its
other obligations when due, and, to the extent consistent with such business,
use all reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it. Acquirer shall promptly notify
Target of any event or occurrence not in the ordinary course of business of
Acquirer of which Acquirer has knowledge where such event or occurrence would
result in a breach of any covenant of Acquirer set forth in this Agreement or
cause any representation or warranty of Acquirer to be inaccurate in any
material respect as of the date made or (except in the case of representations
and warranties that speak as of a specific date) as of the Effective Time.
Except as expressly contemplated by this Agreement, Acquirer shall not (and
shall not permit any of its Subsidiaries to), without the prior written
consent of Target (which consent shall not be unreasonably withheld or
delayed):
(a) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any of its capital stock, or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock;
(b) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service by such party;
(c) Issue, deliver or sell to any of its directors, officers, employees
or consultants any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or convertible securities, other
than the issuance, delivery and/or sale of (i) rights to purchase shares of
Acquirer Common Stock under the Acquirer Purchase Plan, (ii) options to
purchase shares of Acquirer Common Stock granted under the Acquirer Option
Plans in the ordinary course of business consistent with Acquirer's past
policies or (iii) shares of Acquirer Common Stock issuable upon the
exercise of options granted under the Acquirer Option Plans or pursuant to
rights under the Acquirer Purchase Plan;
(d) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or options
to acquire any such shares or convertible securities (i) by means of any
public offering registered under the Securities Act (other than an offering
registered pursuant to a registration statement on Form S-8) or (ii) in any
transaction exempt from such registration where the gross proceeds from
such transaction are reasonably expected to exceed $50,000,000 (other than
Acquirer Series B Preferred Stock and warrants issuable pursuant to the
Acquirer Series B Agreements, the securities of Acquirer issuable upon
conversion of Acquirer Series B Preferred Stock or upon the exercise of
warrants issuable pursuant to the Acquirer Series B Agreements), in any
such case unless Acquirer has advised Target in advance of its intention to
effect such offering or enter into such transaction and, if Target so
requests, consulted with Target regarding the advisability of such proposed
offering or transaction;
(e) Acquire or agree to acquire by merging or consolidating with, or by
purchasing an equity interest in or a substantial portion of the assets of,
or by any other manner, any business or any corporation or other business
organization or division where the consideration to be paid by Acquirer
therefor consists of voting
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securities, cash and/or other assets having an aggregate value (as
determined in good faith by the Board of Directors of Acquirer at the time
such acquisition is approved by such Board) of more than $125,000,000
unless Acquirer has advised Target in advance of its intention to effect
such acquisition and, if Target so requests, consulted with Target
regarding the advisability of such proposed acquisition;
(f) Sell, lease, license or otherwise dispose of (by merger,
consolidation, sale of assets or otherwise) any of its properties or assets
which are material, individually or in the aggregate, to the business of
Acquirer and its Subsidiaries, taken as a whole, except for licenses and
sales in the ordinary course of business;
(g) Amend or propose to amend its Certificate of Incorporation or Bylaws,
except as contemplated by this Agreement;
(h) Agree in writing or otherwise to take any of the actions described in
Sections (a) through (g) above; or
(i) Take any other action which is reasonably likely to make any of
Acquirer's representations or warranties contained in this Agreement
inaccurate in any material respect as of the date made or (except in the
case of representations or warranties that speak specifically as of the
date hereof or as of another specific date) as of the Effective Time.
Section 5.3 Cooperation. Subject to compliance with applicable law, from the
date hereof until the Effective Time, each of Acquirer and Target shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
Additional Agreements
Section 6.1 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
termination of this Agreement or the Effective Time, Target shall not,
directly or indirectly, through any officer, director, employee, affiliate,
agent or representative, (i) solicit, initiate, seek, entertain, or knowingly
encourage or support any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, sale of any material portion of assets, sale of shares of
capital stock of Target (including without limitation by way of a tender
offer) constituting more than 10% of the total outstanding voting securities
of Target (excluding sales permitted pursuant to Section 5.1), other than the
transactions contemplated by this Agreement (any of such proposals or offers
being referred to in this Agreement as an "Acquisition Proposal"), (ii) engage
or participate in negotiations or discussions concerning, or provide any non-
public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal;
provided, however, that nothing contained in this Agreement shall prevent
Target or its Board of Directors from (A) providing non-public information to,
or engaging or participating in discussions or negotiations with, any person
or entity in connection with an unsolicited bona fide written Acquisition
Proposal by such person or entity (including a new and unsolicited Acquisition
Proposal received by Target after the execution of this Agreement from a
person or entity whose initial contact with Target may have been solicited by
Target prior to the execution of this Agreement) or recommending such an
unsolicited bona fide written Acquisition Proposal to the stockholders of
Target, if and only to the extent that (1) the Board of Directors of Target
determines in good faith (after consultation with its financial advisor) that
such Acquisition Proposal would, if consummated, result in a transaction more
favorable to Target's stockholders from a financial point of view than the
transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal") and that the party making such Superior Proposal has the financial
means,
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or the ability to obtain the necessary financing, to conclude such
transaction, (2) the Board of Directors of Target determines in good faith
(after consultation with its outside legal counsel) that the failure to take
such action would create a substantial risk of liability for breach of its
fiduciary duties to Target's stockholders under applicable law and (3) prior
to furnishing such non-public information to such person or entity, such Board
of Directors receives from such person or entity an executed confidentiality
agreement with terms no less favorable to Target than those contained in the
nondisclosure letter agreements dated October 28, 1997 between Acquirer and
Target (the "Confidentiality Agreements"); or (B) complying with Rules 14d-9
or 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal or making any disclosure to Target's stockholders if, in the good
faith judgment of the Board of Directors at Target (after consultation with
its outside legal counsel), failure to do so would be inconsistent with any
law, rule, regulation or duty applicable to Target or its Board of Directors.
(b) Target shall notify Acquirer no later than 24 hours after receipt by
Target (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of Target by any person or entity that
informs Target that it is considering making, or has made, an Acquisition
Proposal. Such notice shall be made orally and in writing and shall indicate
in reasonable detail the identity of the offeror and the terms and conditions
of such proposal, inquiry or contact.
Section 6.2 Proxy Statement; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
Acquirer and Target shall prepare and file with the SEC the Proxy Statement,
and Acquirer shall prepare and file with the SEC the Registration Statement,
in which the Proxy Statement will be included as a prospectus. Acquirer and
Target shall use all reasonable efforts to cause the Registration Statement to
become effective as soon after such filing as practicable. The Proxy Statement
shall include the recommendation of the Board of Directors of Target in favor
of this Agreement and the Merger and the recommendation of the Board of
Directors of Acquirer in favor of the issuance of shares of Acquirer Common
Stock pursuant to the Merger; provided that, notwithstanding anything to the
contrary in Sections 6.1, 6.2, 6.6 or other provisions of this Agreement, the
Board of Directors of Target may withdraw such recommendation if such Board of
Directors determines in good faith (after consultation with its outside legal
counsel) that the failure to withdraw such recommendation would create a
substantial risk of liability for breach of its fiduciary duties to its
stockholders under applicable law.
(b) Acquirer and Target shall make all necessary filings with respect to the
Merger under the Securities Act and the Exchange Act and applicable state blue
sky laws and the rules and regulations thereunder.
Section 6.3 Consents. Each of Acquirer and Target shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under any of
Acquirer's or Target's material agreements, contracts, licenses or leases as
may be necessary to consummate the Merger and the other transactions
contemplated by this Agreement.
Section 6.4 Current Nasdaq Quotation. Each of Acquirer and Target agrees to
continue the quotation of Acquirer Common Stock and Target Common Stock,
respectively, on The Nasdaq National Market during the period from the date of
this Agreement until the earlier of the termination of this Agreement or the
Effective Time.
Section 6.5 Access to Information. Upon reasonable notice, Target and
Acquirer shall each (and shall cause each of its Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time or the termination of this Agreement, to all its properties,
books, contracts, commitments and records and, during such period, each of
Target and Acquirer shall (and shall cause each of its Subsidiaries to)
furnish promptly to the other (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (ii) all
other information concerning its business, properties and personnel as such
other party may reasonably request. Unless otherwise required by law, the
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parties will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreements. No information or knowledge
obtained in any investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
Section 6.6 Stockholder Meetings. Acquirer and Target each shall call a
meeting of its respective stockholders, subject to the provisions of
applicable law, to be held as promptly as reasonably practicable for the
purpose of voting upon, in the case of Target, the adoption of this Agreement
and the approval of the Merger and, in the case of Acquirer, the issuance of
shares of Acquirer Common Stock pursuant to the Merger. Subject to Sections
6.1 and 6.2, Acquirer and Target will, through their respective Board of
Directors, recommend to their respective stockholders approval of such matters
and will coordinate and cooperate with respect to the timing of such meetings
and shall use all reasonable efforts to hold such meetings on the same day and
as soon as reasonably practicable after the date hereof. Subject to applicable
law and the provisions of Sections 6.1 and 6.2(a), each party shall use its
reasonable efforts to solicit from its stockholders proxies in favor of such
matters.
Section 6.7 Legal Conditions to Merger. Each of Acquirer and Target will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
under the HSR Act and in connection with approvals of or filings with any
other Governmental Entity) and will promptly cooperate with and use its best
efforts to furnish information to each other in connection with any such
requirements imposed upon either of them or any of their Subsidiaries in
connection with the Merger. Each of Acquirer and Target will, and will cause
its Subsidiaries to, (i) take all reasonable actions necessary to obtain (and
will cooperate with each other in obtaining) any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity required to be
obtained or made by Target, Acquirer or any of their Subsidiaries in
connection with the Merger (any of the foregoing an "Approval") or the taking
of any action contemplated thereby or by this Agreement, (ii) diligently
oppose or pursue any rehearing, appeal or other challenge which may be
available to it of any refusal to issue any Approval or of any order or ruling
of any Governmental Entity which may adversely affect the ability of the
parties hereto to consummate the Merger or, except as permitted by Sections
6.1, 6.2 and 6.6, to take any action contemplated by any Approval or by this
Agreement until such time as such refusal to issue any Approval or any order
or ruling has become final and non-appealable, and (iii) diligently oppose any
objections to, appeals from or petitions to reconsider or reopen any Approval
or the taking of any action contemplated thereby or by this Agreement.
Notwithstanding the foregoing, neither Target nor Acquirer shall be required
to agree, as a condition to any Approval, to divest itself of or hold separate
any Subsidiary, division or business unit which is material to the business of
such party and its Subsidiaries, taken as a whole, or the divestiture or
holding separate of which would be reasonably likely to have a material
adverse effect on (A) the business, financial condition or results of
operations of such party and its Subsidiaries, taken as a whole or (B) the
benefits intended to be derived as a result of the Merger.
Section 6.8 Public Disclosure. Acquirer and Target shall consult with each
other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by law or by the rules of the NASD.
Section 6.9 Tax-Free Organization. Both before and after the Effective Time,
Acquirer and Target shall each use all reasonable efforts to cause the Merger
to be treated as a reorganization within the meaning of Section 368(a) of the
Code.
Section 6.10 Pooling Accounting. Acquirer and Target shall each use all
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of Acquirer and
Target shall use all reasonable efforts (i) to cause its respective Affiliates
(as defined in Section 6.11) not to take any action that would adversely
affect the ability of Acquirer to account for the business combination to be
effected by the Merger as a pooling of interests and (ii) to cause its
respective Affiliates to sign and deliver to
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Acquirer a customary "pooling letter" in form and substance agreed upon by
Target and Acquirer to the extent that receipt of such letter is required to
assure the availability of pooling of interests accounting treatment.
Section 6.11 Affiliate Agreements. Acquirer and Target have provided each
other with a list of those persons who are, in Acquirer's or Target's
respective reasonable judgment, "affiliates" of Acquirer or Target,
respectively, within the meaning of Rule 145 under the Securities Act ("Rule
145"). Each such person who is an "affiliate" of Acquirer or Target within the
meaning of Rule 145 is referred to herein as an "Affiliate." Acquirer and
Target shall provide each other such information and documents as Target or
Acquirer shall reasonably request for purposes of reviewing such list and
shall notify the other party in writing regarding any change in the identity
of its Affiliates prior to the Closing Date. Target shall use all reasonable
efforts to deliver or cause to be delivered to Acquirer at least 30 days prior
to Closing Date from each of the Affiliates of Target, an executed Affiliate
Agreement, in form and substance reasonably satisfactory to Acquirer and
Target, by which such Affiliate of Target agrees to comply with the applicable
requirements of Rule 145 ("Affiliates Agreement"). Acquirer shall be entitled
to place appropriate legends on the certificates evidencing any Acquirer
Common Stock to be received by such Affiliates of Target pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Acquirer Common Stock, consistent with the terms of the
Affiliates Agreements.
Section 6.12 Nasdaq Quotation. Acquirer shall use its best efforts to cause
the shares of Acquirer Common Stock to be issued in the Merger to be approved
for quotation on The Nasdaq National Market, subject to official notice of
issuance, prior to the Closing Date.
Section 6.13 Stock Plans, Options and Employee Benefits.
(a) At the Effective Time, each outstanding option to purchase Target Common
Stock (a "Target Option") under the Target Employee Option Plan or the Target
Individual Options shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Target Option, the
same number of shares of Acquirer Common Stock as the holder of such Target
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time
(rounded down to the nearest whole number), at a price per share (rounded up
to the nearest tenth of a cent) equal to (i) the aggregate exercise price for
the shares of Target Common Stock otherwise purchasable pursuant to such
Target Option divided by (ii) the number of full shares of Acquirer Common
Stock deemed purchasable pursuant to such Target Option in accordance with the
foregoing; provided, however, that in the case of any Target Options to which
Section 422 of the Code applies ("incentive stock options"), the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 425(a) of the Code.
(b) As soon as practicable after the Effective Time, Acquirer shall deliver
to the participants in the Target Employee Option Plan and the holders of the
Target Individual Options an appropriate notice setting forth such
participants' rights pursuant thereto and the Target Options shall continue in
effect on the same terms and conditions (subject to the adjustments required
by this Section 6.13 after giving effect to the Merger). Acquirer shall comply
with the terms of the Target Employee Option Plan and the Target Individual
Options and ensure, to the extent required by, and subject to the provisions
of, such plan, that Target Options which qualified as incentive stock options
prior to the Effective Time will continue to qualify as incentive stock
options after the Effective Time.
(c) Acquirer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquirer Common Stock for delivery
upon the exercise of the Target Options assumed in accordance with this
Section 6.13. On the first business day after the date of the Effective Time,
Acquirer shall file a registration statement on Form S-8 (or any successor or
other appropriate form) with respect to the shares of Acquirer Common Stock
subject to the Target Options assumed pursuant to this Section 6.13 and shall
use its best efforts to maintain the effectiveness of such registration
statement (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as the Target Options remain outstanding. With
respect to those
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individuals, if any, who subsequent to the Merger will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Acquirer shall administer Target Options assumed pursuant to this
Section 6.13 in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the Target Employee Option Plan and the Target
Individual Options complied with such rule prior to the Merger.
(d) Target shall take such action as is necessary to cause the ending date
of the then current offering period under of the Target Purchase Plan to be
the last trading day on which the Target Common Stock is traded on The Nasdaq
National Market immediately prior to the Effective Time (the "Final Target
Purchase Date"); provided, that, such change in such current offering period
shall be conditioned upon the consummation of the Merger. On the Final Target
Purchase Date, Target shall apply the funds credited as of such date under the
Target Purchase Plan within each participant's payroll withholding account to
the purchase of whole shares of Target Common Stock in accordance with the
terms of the Target Purchase Plan.
(e) Employees of Target or its Subsidiaries as of the Effective Time shall
be permitted to participate in the Acquirer Purchase Plan commencing on the
first enrollment date of such plan following the Effective Time, subject to
the eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with Target or Acquirer).
(f) Immediately prior to the Effective Time, all awards accrued as of the
Effective Time under the Target Incentive Plan shall be paid in accordance
with the terms of the Target Incentive Plan. Such awards shall be paid in cash
or stock, as provided in the Target Incentive Plan, upon the election of the
employees of Target or its Subsidiaries receiving the awards.
(g) Acquirer shall cause the Registration Statement to cover any shares of
Acquirer Common Stock issuable in the Merger upon conversion of Target Common
Stock issued prior to the Effective Time upon any exercise of any option or
right, or the delivery of any award, or the purchase of any shares under the
Target Employee Option Plan, the Target Individual Options, the Target
Director Option Plan, the Target Incentive Plan or the Target Purchase Plan.
(h) Acquirer shall, and shall cause the Surviving Corporation and its
Subsidiaries to, provide employees of the Surviving Corporation and its
Subsidiaries with benefits (other than those described in Section 6.15),
including 401(k), deferred compensation, health and welfare and paid-time off
benefits, which are no less favorable in the aggregate than those generally
provided by Acquirer to its U.S. employees.
(i) To the extent that any employee of Target or any of Target's
Subsidiaries becomes eligible to participate in any employee benefit plan of
Acquirer after the Effective Time, Acquirer, the Surviving Corporation and
their Subsidiaries, to the extent such employee benefit plan permits, shall
credit such employee's service with Target or its Subsidiaries for purposes of
determining such employee's eligibility to participate in and vesting under,
and for purposes of calculating the benefits under, such employee benefit
plan. To the extent permitted by such employee benefit plan of Acquirer and
applicable law, Acquirer, the Surviving Corporation and its Subsidiaries shall
waive any pre-existing condition limitations, waiting periods or similar
limitations under such employee benefit plan. If Acquirer can amend any
employee benefit plan without significant cost or expense to implement such
service credit or waiver, it shall do so.
(j) This Section 6.13 will survive the termination of the Merger, is
intended to benefit and may be enforced by each of the persons who participate
in any of the employee benefits plans referred to in this Section 6.13, and
will be binding on all successors and assigns of Acquirer and Surviving
Corporation.
Section 6.14 Brokers or Finders. Each of Acquirer and Target represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement
except Hambrecht & Quist LLC, whose fees and expenses will be paid by Acquirer
in accordance with Acquirer's agreement with such firm (a copy of which has
been delivered
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by Acquirer to Target prior to the date of this Agreement), and BancAmerica
Robertson Stephens, whose fees and expenses will be paid by Target in
accordance with Target's agreement with such firm (a copy of which has been
delivered by Target to Acquirer prior to the date of this Agreement), and each
of Acquirer and Target agrees to indemnify and hold the other harmless from
and against any and all claims, liabilities or obligations with respect to any
other fees, commissions or expenses asserted by any person on the basis of any
act or statement alleged to have been made by such party or its Affiliate.
Section 6.15 Indemnification.
(a) From and after the Effective Time, Acquirer shall indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the
date of this Agreement or who becomes prior to the Effective Time, an officer
or director of Target or any of its Subsidiaries (the "Indemnified Parties")
against all losses, claims, damages, costs, fines, penalties, expenses, fees
(including reasonable attorneys' fees), liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on
or arising in whole or in part out of the fact that such person is or was a
director or officer of Target or any of its Subsidiaries, whether pertaining
to any matter existing or occurring prior to or after the Effective Time and
whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities") including, without limitation, all losses, claims,
damages, costs, fines, penalties, expenses, fees, liabilities or judgments
based in whole or in part on, or arising in whole or in part out of, or
pertaining to this Agreement or the transactions contemplated hereby. Acquirer
and the Surviving Corporation, as the case may be, will pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the full extent permitted by law. Any Indemnified Party
wishing to claim indemnification under this Section 6.15, upon learning of any
such claim, action, suit, proceeding or investigation, shall promptly notify
Target, Acquirer or the Surviving Corporation (but the failure so to notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this Section 6.15 except to the extent such failure prejudices such
party).
(b) Without limiting any commitment under Section 6.15(a), from and after
the Effective Time, the Surviving Corporation and Acquirer will fulfill and
honor in all respects the obligations of Target pursuant to Target's
Certificate of Incorporation and Bylaws, as in effect as of the date hereof
and any indemnification agreement between Target and any Indemnified Party
existing and in force as of the date of this Agreement and identified in the
Target Disclosure Schedule.
(c) Acquirer shall maintain, or shall cause the Surviving Corporation to
maintain, in effect a policy or policies of directors and officers liability
insurance with coverage substantially comparable to policies in force as of
the date of this Agreement (copies of which have been provided to Acquirer)
covering the Indemnified Parties for a period of not less than six years
following the Effective Time; provided, however, that in no event shall
Acquirer or the Surviving Corporation be required to expend in any one year an
amount in excess of 150% of the annual premiums currently paid by Target for
such insurance; and, provided, however, that if during such period the annual
premiums for such comparable insurance coverage exceed such amount, Acquirer
or the Surviving Corporation shall be obligated to obtain a policy which, in
the reasonable judgment of Acquirer, provides the best coverage available for
a cost not exceeding such amount.
(d) The provisions of this Section 6.15 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives, and may not be amended, altered or repealed without the
written consent of any affected Indemnified Party.
Section 6.16 Additional Agreements; Reasonable Efforts. Subject to the terms
and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the appropriate vote of
stockholders of Target described in Section 6.6. In case at any time after the
Effective Time any further action
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is necessary or desirable to carry out the purposes of this Agreement or to
vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of either of the Constituent
Corporations, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
ARTICLE VII
Conditions to Merger
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. This Agreement shall have been adopted and the
Merger shall have been approved by the affirmative vote of the holders of a
majority of the shares of Target Common Stock outstanding as of the record
date for the Target Stockholders Meeting (the "Target Requisite Vote"), and
the issuance of shares of Acquirer Common Stock in the Merger shall have
been approved by the minimum vote required under Rule 4460(i)(b) of the
National Association of Securities Dealers, Inc. (the "Acquirer Requisite
Vote").
(b) HSR Waiting Period. The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
(c) Approvals. Other than the filing provided for by Section 1.1, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the absence or nonoccurrence of which would be
reasonably likely to have a Target Material Adverse Effect or an Acquirer
Material Adverse Effect shall have been filed, occurred or been obtained.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting Acquirer's operation of the business of Target after the Merger
shall have been issued by any Governmental Entity, nor shall there be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of
the Merger illegal in any jurisdiction in the United States.
(f) Pooling Letters. Acquirer shall have received a letter from Price
Waterhouse LLP, dated as of the Closing Date, confirming the statements
contained in the Acquirer Preliminary Pooling Letter, and Target shall have
received a letter from Arthur Andersen LLP, dated as of the Closing Date,
confirming the statements contained in the Target Preliminary Pooling
Letter.
(g) Nasdaq. The shares of Acquirer Common Stock to be issued in the
Merger and upon exercise of options under the Target Employee Option Plan
shall have been approved for quotation on The Nasdaq National Market.
Section 7.2 Additional Conditions to Obligations of Acquirer and Sub. The
obligations of Acquirer and Sub to effect the Merger are subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Acquirer
and Sub:
(a) Representations and Warranties. The representations and warranties of
Target set forth in this Agreement shall be true and correct as of the
Closing Date as though made on and as of the Closing Date (except for such
representations and warranties that speak specifically as of the date
hereof or as of another specific date, which shall be true and correct as
of such date), except for (i) changes contemplated by this
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Agreement and (ii) where the failure to be true and correct would not be
reasonably likely to have a Target Material Adverse Effect (it being
understood that, for purposes of determining whether such representations
and warranties are true and correct as of the Closing Date, (i) any
inaccuracy that primarily results from or relates to general business,
economic or industry conditions shall be disregarded, (ii) any inaccuracy
that directly or indirectly results from or relates to the announcement or
pendency of the Merger or any of the other transactions contemplated by
this Agreement shall be disregarded, and (iii) any inaccuracy that directly
or indirectly results from or relates to the taking of any action
contemplated or permitted by this Agreement shall be disregarded); and
Acquirer shall have received a certificate signed on behalf of Target by
the chief executive officer and the chief financial officer of Target to
such effect.
(b) Performance of Obligations of Target. Target shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date (except, in the case of
Target's obligations under the second sentence of Section 5.1 and under
Section 5.1(r), where such failure of performance would not be reasonably
likely to have a Target Material Adverse Effect); and Acquirer shall have
received a certificate signed on behalf of Target by the chief executive
officer and the chief financial officer of Target to such effect.
(c) Tax Opinion. Acquirer shall have received a written opinion from Gray
Cary Ware & Freidenrich, A Professional Corporation, counsel to Acquirer,
to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code; provided, however, that if Gray Cary Ware & Freidenrich, A
Professional Corporation, does not render such opinion or withdraws or
modifies such opinion, this condition shall nonetheless be deemed to be
satisfied if special counsel to Target renders such opinion to Acquirer.
(d) Employment Agreements. Roger Sippl and Jens Christensen shall have
executed and delivered to Acquirer Employment Agreements in the form of
Exhibit B and Exhibit C hereto, respectively (the "Employment Agreements").
(e) Non-Competition Agreements. Each person listed in the preamble of
Exhibit D hereto shall have executed and delivered to Acquirer a Non-
Competition Agreement substantially in the form of Exhibit D hereto.
(f) No Material Adverse Change. After the date of this Agreement, there
shall not have occurred any material adverse change in the business,
operations, financial condition or results of operations of Target and its
Subsidiaries, taken as a whole (it being understood that, for purposes of
this subsection, (i) any adverse change that primarily results from or
relates to general business, economic or industry conditions shall be
disregarded, (ii) any adverse change that directly or indirectly results
from or relates to the announcement or pendency of the Merger or any of the
other transactions contemplated by this Agreement shall be disregarded, and
(iii) any adverse change that directly or indirectly results from or
relates to the taking of any action contemplated or permitted by this
Agreement shall be disregarded). Without limiting the generality of the
foregoing and notwithstanding anything herein to the contrary, a material
and adverse deviation in the financial performance of Target from the
consensus of published financial analyst estimates as of the date of this
Agreement for the fiscal quarter ending December 31, 1997 shall be deemed a
material adverse change under this subsection (f).
Section 7.3 Additional Conditions to Obligations of Target. The obligation
of Target to effect the Merger is subject to the satisfaction on or prior to
the Closing Date of each of the following conditions, any of which may be
waived, in writing, exclusively by Target:
(a) Representations and Warranties. The representations and warranties of
Acquirer and Sub set forth in this Agreement shall be true and correct as
of the Closing Date as though made on and as of the Closing Date (except
for such representations and warranties that speak specifically as of the
date hereof or as of another specific date, which shall be true and correct
as of such date), except for (i) changes contemplated by this Agreement and
(ii) where the failure to be true and correct would not be reasonably
likely to have an Acquirer Material Adverse Effect, (it being understood
that, for purposes of determining whether such representations and
warranties are true and correct as of the Closing Date, (i) any inaccuracy
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that primarily results from or relates to general business, economic or
industry conditions shall be disregarded, (ii) any inaccuracy that directly
or indirectly results from or relates to the announcement or pendency of
the Merger or any of the other transactions contemplated by this Agreement
shall be disregarded, and (iii) any inaccuracy that directly or indirectly
results from or relates to the taking of any action contemplated or
permitted by this Agreement shall be disregarded); and Target shall have
received a certificate signed on behalf of Acquirer by the chief executive
officer and the chief financial officer of Acquirer to such effect.
(b) Performance of Obligations of Acquirer and Sub. Acquirer and Sub
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date
(except, in the case of Acquirer's obligations under the second sentence of
Section 5.2 and under Section 5.2(i), where such failure of performance
would not be reasonably likely to have an Acquirer Material Adverse
Effect); and Target shall have received a certificate signed on behalf of
Acquirer by the chief executive officer and the chief financial officer of
Acquirer to such effect.
(c) Tax Opinion. Target shall have received the opinion of Cooley Godward
LLP, special counsel to Target, to the effect that the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; provided, however, that if Cooley
Godward LLP does not render such opinion or withdraws or modifies such
opinion, this condition shall nonetheless be deemed to be satisfied if
counsel to Acquirer renders such opinion to Target.
(d) Employment Agreements. Acquirer shall have executed and delivered the
Employment Agreements.
(e) No Material Adverse Change. After the date of this Agreement, there
shall not have occurred any material adverse change in the business,
operations, financial condition or results of operations of Acquirer and
its Subsidiaries, taken as a whole (it being understood that, for purposes
of this subsection, (i) any adverse change that primarily results from or
relates to general business, economic or industry conditions shall be
disregarded, (ii) any adverse change that directly or indirectly results
from or relates to the announcement or pendency of the Merger or any of the
other transactions contemplated by this Agreement shall be disregarded, and
(iii) any adverse change that directly or indirectly results from or
relates to the taking of any action contemplated or permitted by this
Agreement shall be disregarded). Without limiting the generality of the
foregoing and notwithstanding anything herein to the contrary, a material
and adverse deviation in the financial performance of Acquirer from the
consensus of published financial analyst estimates as of the date of this
Agreement for the fiscal quarter ending December 31, 1997 shall be deemed a
material adverse change under this subsection (e).
(f) Rights Plan. The Acquirer Rights Plan shall have been amended to
provide that the Merger and the other transactions contemplated by this
Agreement will not result the distribution or exercisability of any rights
under the Acquirer Rights Plan.
ARTICLE VIII
Termination and Amendment
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time (with respect to Sections 8.1(b) through 8.1(g), by
written notice by the terminating party to the other party); whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Target or Acquirer:
(a) by the mutual written consent of Acquirer and Target;
(b) by either Acquirer or Target if the Merger shall not have been
consummated by March 31, 1998; provided, however, that the right to
terminate this Agreement under this Section 8.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger to occur on
or before such date (except, in the case of Target's obligations
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under the second sentence of Section 5.1 and under Section 5.1(r), where
such failure of performance would not be reasonably likely to have a Target
Material Adverse Effect);
(c) by either Acquirer or Target if a court of competent jurisdiction or
other Governmental Entity in the United States shall have issued a
nonappealable final order, decree or ruling or taken any other action, in
each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger (provided, however, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available
to any party which has failed to comply in any material respect with its
obligations under Section 6.7);
(d) by either Acquirer or Target, if at the Target Stockholders' Meeting
or the Acquirer Stockholders' Meeting (including any adjournment or
postponement) the final vote of the stockholders shall have been taken and,
in respect of Target, the Target Requisite Vote shall not have been
obtained or, in respect of Acquirer, the Acquirer Requisite Vote shall not
have been obtained (provided, however, that the right to terminate this
Agreement under this Section 8.1(d) shall not be available to any party
which has failed to comply in any material respect with its obligations
under Sections 6.2 and 6.6);
(e) by Acquirer, if (i) the Board of Directors of Target shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to Acquirer or shall have resolved or publicly announced
its intention to do so; (ii) an Alternative Transaction (as defined in
Section 8.3(e)) shall have been consummated or the Board of Directors of
Target shall have recommended an Alternative Transaction to the
stockholders of Target or shall have resolved or publicly announced its
intention to recommend or engage in such an Alternative Transaction; or
(iii) a tender offer or exchange offer for 50% or more of the outstanding
shares of Target Common Stock is commenced (other than by Acquirer or an
Affiliate of Acquirer) and the Board of Directors of Target shall have (A)
recommended (or resolved or publicly announced its intention to recommend)
that the stockholders of Target tender their shares in such tender or
exchange offer or (B) resolved or publicly announced its intention to take
no position with respect to such tender or exchange offer;
(f) by Target, if the Board of Directors of Target shall have determined
(i) to recommend an Acquisition Proposal to its stockholders after
determining, pursuant to Section 6.1, that such Acquisition Proposal
constitutes a Superior Proposal or (ii) to withdraw its recommendation of
this Agreement or the Merger in accordance with the provisions of Section
6.2; or
(g) by Acquirer or Target, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) causes the conditions
set forth in Section 7.2(a) or (b) (in the case of termination by Acquirer)
or 7.3(a) or (b) (in the case of termination by Target) not to be satisfied
and (ii) shall not have been cured within 20 business days following
receipt by the breaching party of written notice of such breach from the
other party.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.1, there shall be no liability or obligation
on the part of Acquirer, Target, Sub or their respective officers, directors,
stockholders or Affiliates, except as set forth in Section 8.3 and further
except to the extent that such termination results from the willful breach by
a party of any of its representations, warranties or covenants set forth in
this Agreement (except, in the case of Target's obligations under the second
sentence of Section 5.1 and under Section 5.1(r), where such failure of
performance would not be reasonably likely to have a Target Material Adverse
Effect); provided that, the provisions of Sections 6.14 and 8.3 of this
Agreement and the Confidentiality Agreements shall remain in full force and
effect and survive any termination of this Agreement.
Section 8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated; provided, however, that Acquirer and Target shall share
equally all fees and expenses, other than attorneys' fees, incurred in
connection with the printing and filing of the Proxy Statement (including any
related preliminary materials) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements thereto.
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(b) If this Agreement is terminated by Acquirer or by Target pursuant to
Section 8.1(d) as a result of the failure to receive the Target Requisite Vote
or by Target pursuant to Section 8.1(f), Target shall reimburse Acquirer for
all of its reasonable and documented legal, accounting and financial advisory
fees and all other reasonable and documented out-of-pocket expenses incurred
by Acquirer in connection with this Agreement and the transactions
contemplated hereby, in an aggregate amount not to exceed $750,000.
(c) If (i) this Agreement is terminated by Acquirer pursuant to Section
8.1(e) or by Target pursuant to Section 8.1(f), and (ii) within six months
after such termination, an Alternative Transaction is consummated, Target
shall pay to Acquirer a termination fee of $4,000,000 in cash, less any amount
previously paid by Target in reimbursement of Acquirer's expenses pursuant to
Section 8.3(b), at or prior to the consummation of such Alternative
Transaction.
(d) If this Agreement is terminated by Acquirer or Target pursuant to
Section 8.1(d) as a result of the failure to receive the Acquirer Requisite
Vote, Acquirer shall pay to Target a termination fee of $4,000,000 in cash
within one business day after such termination.
(e) As used in this Agreement, an "Alternative Transaction" means (i) a
transaction or series of transactions pursuant to which any person or group
(as such term is defined under the Exchange Act) other than Acquirer or Sub or
any Affiliate thereof, (a "Third Party") acquires or would acquire (upon
completion of such transaction or series of transactions) shares (or
securities exercisable for or convertible into shares) representing more than
50% of the outstanding shares of Target Common Stock, pursuant to a tender
offer or exchange offer or otherwise, (ii) a merger, consolidation or share
exchange involving Target if, upon consummation of such merger, consolidation
or share exchange such Third Party owns or would own more than 50% of the
outstanding equity securities of Target or the entity surviving such merger or
resulting from such consolidation (where Target either disappears into such
entity in such merger or consolidation or becomes a direct or indirect
Subsidiary of such entity), or (iii) any other transaction or series of
transactions pursuant to which any third party acquires or would acquire (upon
completion of such transaction or series of transactions) control of assets of
Target and its Subsidiaries (including, for this purpose, outstanding equity
securities of Subsidiaries of such party) having a fair market value equal to
more than 50% of the fair market value of all the consolidated assets of
Target and its Subsidiaries immediately prior to such transaction or series of
transactions. The occurrence of any of the foregoing prior to the date of this
Agreement shall not constitute an "Alternative Transaction" under this
Agreement.
Section 8.4 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Target, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 8.5 Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE IX
Miscellaneous
Section 9.1 Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive
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the Closing and the Effective Time, except for covenants and agreements which,
by their terms, are to be performed after the Effective Time and the
agreements of the Affiliates of Target delivered pursuant to Section 6.11. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement.
Section 9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Acquirer or Sub, to
Borland International, Inc.
100 Borland Way
Scotts Valley, CA 95066
Attention: General Counsel
Facsimile No.: (408) 431-4171
with a copy to:
Gray Cary Ware & Freidenrich
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Peter M. Astiz, Esq.
(b) if to Target, to
Visigenic Software, Inc.
951 Mariner's Island Boulevard
San Mateo, CA 94404
Attention: President
Facsimile No.: (650) 286-5146
with a copy to
Cooley Godward LLP
3000 El Camino Real
Five Palo Alto Square
Palo Alto, California 94306
Attention: Timothy J. Moore, Esq.
Section 9.3 Interpretation. When a reference is made in this Agreement to an
Article or a Section, such reference shall be to an Article or a Section of
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement they
shall be deemed to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is
to be made available. The phrases "the date of this Agreement", "the date
hereof," and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to November 17, 1997. The words "agreement,"
"contract" or "commitment" when used in this Agreement shall mean a legally
binding agreement, contract or commitment.
Section 9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
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Section 9.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Sections 6.13 and 6.15 is
not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 9.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law, except that the DGCL shall, to the extent
applicable, govern the procedures to be taken hereunder to effect the Merger.
Section 9.7 Assignment. 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
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
IN WITNESS WHEREOF, Acquirer, Sub and Target have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the
date first written above.
Visigenic Software, Inc. Borland International, Inc.
/s/ Roger J. Sippl /s/ Delbert W. Yocam
By: _________________________________ By: _________________________________
Title: Chief Executive Officer Title: Chief Executive Officer
Vixen Acquisition Corporation
/s/ Delbert W. Yocam
By: _________________________________
Title: Chief Executive Officer
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ANNEX B
ONE BUSH STREET
SAN FRANCISCO, CA 94104
(415) 439-3000
November 17, 1997
Confidential
The Board of Directors
Borland International, Inc.
100 Borland Way
Scotts Valley, CA 95066
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Borland International, Inc. ("Borland" or the "Company") of the
consideration to be paid by the Company in connection with the proposed
acquisition by Borland of the common stock of Visigenic Software, Inc.
("Visigenic") (the "Proposed Transaction") under the terms of the Agreement
and Plan of Merger, dated as of November 17, 1997, among Visigenic and Borland
and the related Exhibits and Schedules thereto (the "Agreement"). The
Agreement provides, among other things, that Borland will issue to
stockholders of Visigenic, upon consummation of the proposed transaction
0.81988 shares of Borland for each share of Visigenic common stock.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, negotiated underwriting, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as a financial
advisor to the Board of Directors of Borland in connection with the Proposed
Transaction, and we will receive a fee for our services, which include the
rendering of this opinion.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of Borland for
recent years and interim periods to date and certain other relevant
financial and operating data of Borland made available to use from
published sources and from the internal records of Borland;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to Borland prepared by the
management of Borland;
(iii) discussed the business, financial condition and prospects of
Borland with certain of its officers;
(iv) reviewed the publicly available consolidated financial statements of
Visigenic for recent years and interim periods to date and certain other
relevant financial and operating data of Visigenic made available to use
from published sources and from the internal records of Visigenic;
(v) reviewed certain financial and operating information, including
certain projections, relating to Visigenic prepared by analysts and certain
information relating to Visigenic prepared by the management of Visigenic;
(vi) discussed the business, financial condition and prospects of
Visigenic with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of Borland and Visigenic and compared such information and
certain financial information of Borland and Visigenic with similar
information for certain other companies engaged in businesses we consider
comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
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(ix) reviewed the Agreement;
(x) discussed the tax and accounting treatment of the Proposed
Transaction with Borland and Borland's lawyers and accountants; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In the past, we have provided financial advisory services to Post Modern
Computing Technologies, Inc. in its merger with Visigenic and received fees
for rendering these services including 84,375 shares of common stock in
Visigenic which we currently own. Hambrecht & Quist acted as the lead
underwriter in both Visigenic's initial public offering of common stock in
August 1996 and its subsequent follow-on offering in February 1997. In the
ordinary course of business, Hambrecht & Quist has acted as a market maker and
broker in the publicly traded securities of Visigenic and has received
customary compensation in connection therewith. Hambrecht & Quist has also
provided research coverage on Visigenic. Christina Morgan, Managing Director
and Co-Head of Investment Banking at Hambrecht & Quist was a member of
Visigenic's Board of Directors between March, 1993 and July, 1997.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information or Visigenic considered in connection
with our review of the Proposed Transaction, and we have not assumed any
responsibility for independent verification or such information or any
independent valuation or appraisal of any of the assets or liabilities of
Borland or Visigenic nor have we conducted a physical inspection of the
properties and facilities of either company. With respect to the financial
forecast and projections made available to us and used in our analysis, we
have assumed that they reflect the best currently available estimates and
judgments of the expected future financial performance of Borland and
Visigenic. For purposes of this Opinion, we have assumed that neither Borland
nor Visigenic is a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
Proposed Transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this letter and any change in such conditions
would require a reevaluation of this opinion.
It is understood that this letter is for the information of the Board of
Directors and may not be used for any other purpose without our prior written
consent; provided, however, that this letter may be reproduced in full in the
Proxy Statement/Prospectus. This letter does not constitute a recommendation
to any stockholder as to how such stockholder should vote on the Proposed
Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be paid by Borland in the Proposed Transaction is fair to
the Company from a financial point of view.
Very truly yours,
Hambrecht & Quist LLC
/s/ Paul B. Cleveland
-----------------------------
Managing Director
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ANNEX C
November 17, 1997
PRIVILEGED AND CONFIDENTIAL
Board of Directors
Visigenic Software, Inc.
951 Mariner's Island Boulevard, Suite 120
San Mateo, CA 94404
Members of the Board:
You have asked our opinion with respect to the fairness to the stockholders
of Visigenic Software, Inc. ("Visigenic") from a financial point of view, as
of the date hereof, of the Aggregate Merger Consideration (as defined below)
in connection with the Agreement and Plan of Merger (the "Agreement"), by and
among Borland International, Inc. ("Borland"), Vixen Acquisition Corp., a
wholly owned subsidiary of Borland ("Merger Sub") and Visigenic.
As more fully described in the Agreement, pursuant to the terms and subject
to the conditions set forth therein, (i) Merger Sub will be merged with and
into Visigenic (the "Merger"), (ii) the outstanding shares of common stock,
par value $0.001 per share, of Visigenic (the "Visigenic Common Stock") and
options to purchase Visigenic Common Stock will be converted into a total of
approximately 12 million shares and options to purchase shares (on a treasury
stock basis) of the common stock, par value $0.01 per share (the "Borland
Common Stock"), of Borland (the "Aggregate Merger Consideration"). Under
certain specified conditions related to the termination of the Agreement,
Borland will be entitled to a fee of $4 million. The Merger is intended to
qualify as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended, and to be accounted for as a
"pooling of interests."
For purposes of this opinion, we have: (i) reviewed financial information
relating to Visigenic and Borland furnished to us by each company, including
financial forecasts provided by Visigenic and other information and data which
were provided to or otherwise discussed with us by the respective managements
of Visigenic and Borland; (ii) reviewed publicly available information; (iii)
held discussions with the managements of Visigenic and Borland concerning the
business, past and current business operations, financial condition and future
prospects of both companies, independently and combined; (iv) reviewed a draft
of the Agreement; (v) reviewed the stock prices and trading histories of
Visigenic and Borland; (vi) analyzed the potential pro forma financial impact
of the Merger on Borland; (vii) reviewed the valuations of publicly traded
companies which we deemed comparable to Visigenic, (viii) compared the
financial terms of the Merger with other transactions which we have deemed
relevant; (ix) analyzed the pro forma earnings per share of the combined
company; (x) prepared a discounted cash flow analysis of Visigenic; (xi) held
discussions with the management of Visigenic and Borland concerning the future
prospects of a combined company comprised of Visigenic and Borland; and (xii)
made such other studies and inquiries, and reviewed such other data, as we
deemed relevant.
In connection with our opinion, we have not independently verified any of
the foregoing information and have relied on all such information as provided
to us being complete and accurate in all material respects, including
information furnished to us orally or otherwise discussed with us by
management of Visigenic or Borland. Furthermore, we did not obtain any
independent appraisal of the properties or assets and liabilities of Visigenic
and Borland. With respect to the financial and operating forecasts of
Visigenic and Borland which we have reviewed, we have assumed that such
forecasts have been reasonably prepared in good faith on the basis of
reasonable assumptions, and reflect the best available estimates and judgments
of the managements of Visigenic and Borland. We have also assumed that the
Merger will be accounted for as a "pooling of interests" under the GAAP. This
opinion is based upon the closing trading price of the Borland Common Stock as
of November 17, 1997, and is necessarily based upon market, economic, and
other conditions that exist and can be evaluated as of
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the date of this letter and on the information noted above available to us as
of the date hereof. In rendering this opinion, we have assumed that the Merger
will be consummated substantially on the terms described in the Agreement,
without any waiver of any material terms or conditions by any party thereto.
It should be understood that, although subsequent developments may affect this
opinion, we assume no obligation to update, revise or reaffirm this opinion.
BancAmerica Robertson Stephens ("BARS") has provided certain investment
banking services to Visigenic from time to time, including acting as co-
manager for its initial public offering. In addition, BARS maintains a market
in shares of Visigenic Common Stock. Furthermore, BARS has acted as financial
advisor to Visigenic in connection with the Merger for which a portion of our
fee is due and payable upon delivery of this opinion and the remaining portion
of our fee is due and payable contingent upon the closing of the Merger.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Visigenic in its evaluation of the
proposed Merger, and this opinion is not intended to be and does not
constitute a recommendation to any stockholder of Visigenic as to how such
stockholder should vote on the proposed Merger. This opinion does not address
the relative merits of the proposed Merger and any other transactions or
business strategies discussed by the Board of Directors of Visigenic as
alternatives to the proposed Merger or the underlying business decision of the
Board of Directors of Visigenic to proceed with the proposed Merger. The
opinion may not be published or otherwise used or referred to, nor shall any
public reference to BARS be made, without our prior written consent; provided,
that this opinion letter may be included in its entirety in the Joint Proxy
Statement/Prospectus of Visigenic and Borland relating to the proposed Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Aggregate Merger Consideration is fair to the stockholders of
Visigenic from a financial point of view.
Very truly yours,
BancAmerica Robertson Stephens
/s/ Edwin David Hetz
-----------------------------
Managing Director
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