<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
-------------------------
CAYENNE SOFTWARE, INC.
(Name of Registrant as specified in its Charter)
-------------------------
Payment of filing fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share ("Cayenne Common Stock")
Series D Convertible Preferred Stock, par value $1.00 per share
("Cayenne Preferred Stock")
(2) Aggregate number of securities to which transactions applies:
Cayenne Common Stock: 21,333,398
Cayenne Preferred Stock: 170,000
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
The filing fee was determined based upon (a)(i) 21,333,398 issued
and outstanding shares of Cayenne Common Stock as of August 27, 1998
and (ii) 170,000 issued and outstanding shares of Cayenne Preferred
Stock as of August 27, 1998, and (b) the maximum potential merger
consideration of (i) in the case of Cayenne Common Stock, a cash
payment of $0.375 per share, and (ii) in the case of Cayenne
Preferred Stock, a cash payment of $20.00 per share. The filing fee,
calculated in accordance with Regulation 240.0-11 under the
Securities Exchange Act of 1934, as amended, equals one-fiftieth of
one percent of the maximum potential aggregate consideration to be
paid in connection with the proposed merger.
(4) Proposed maximum aggregate value of transaction: $11,402,274
(5) Total fee paid: $2,281
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
CAYENNE SOFTWARE, INC.
14 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
September __, 1998
Dear Stockholders:
You are invited to attend the Special Meeting of Stockholders of Cayenne
Software, Inc., a Massachusetts corporation ("Cayenne"), to be held on
_______________, September __, 1998, at 9:00 a.m., local time, at the offices of
Ropes & Gray, 36th Floor, One International Place, Boston, Massachusetts 02110
(including any postponement or adjournment thereof, the "Special Meeting").
As you are aware, Cayenne has experienced declining revenues and substantial
operating losses for several years, which have adversely affected its liquidity
and capital resources to a substantial degree. Various factors, including
limitations on Cayenne's ability to generate and/or borrow sufficient funds to
satisfy short-term and longer-term cash requirements, have raised the
possibility that Cayenne will not be able to continue as a going concern.
Earlier this year, Cayenne retained the firm of Adams, Harkness & Hill to assist
it in evaluating potential strategic alternatives, including the sale of
Cayenne, the sale of a portion of Cayenne's assets and the financial
restructuring of Cayenne. The primary objective of the Board of Directors of
Cayenne (the "Cayenne Board") in evaluating potential strategic transactions was
to attempt to enhance stockholder value to the extent possible in light of
Cayenne's financial condition and serious liquidity concerns. After thoroughly
considering various alternatives, the Cayenne Board determined that a sale of
Cayenne to Sterling Software, Inc. ("Sterling Software") is the best available
alternative. Accordingly, the Cayenne Board unanimously approved Cayenne's
execution and delivery of an Agreement and Plan of Merger with Sterling Software
(the "Merger Agreement") and unanimously recommends that Cayenne stockholders
vote for approval of the Merger Agreement.
This is a very important meeting that affects your investment in Cayenne. At
the Special Meeting, you will be asked to vote on a proposal to approve a merger
(the "Merger") between Cayenne and a wholly owned subsidiary of Sterling
Software. In the Merger, Sterling Software will pay $20.00 for each outstanding
share of Cayenne Series D Convertible Preferred Stock and $0.375 for each
outstanding share of Cayenne Common Stock, subject to reduction as described
below. The payment to be received for each share of Cayenne Common Stock will
be reduced to the extent that Cayenne obtains any advances under a new credit
facility provided by Cayenne's bank based on credit enhancement provided by
Sterling Software. The amount of the cash payment for each share of Cayenne
Common Stock will be reduced by an amount equal to the quotient obtained by
dividing (i) the aggregate amount of such outstanding advances by (ii)
21,333,398 (i.e., the number of shares of Cayenne Common Stock that are
presently outstanding). For example, if the aggregate amount of such
outstanding advances were to be $1,000,000, $2,000,000 or $3,000,000,
respectively, the amount of such cash payment would be reduced to $0.328, $0.281
or $0.234, respectively. The foregoing hypothetical examples are presented
solely for illustrative purposes, and it is not possible to predict the amount
of such outstanding advances (if any) that may exist at the effective time of
the Merger. Any advances in excess of $3,000,000 would likewise reduce the cash
payable to holders of Cayenne Common Stock. CONSEQUENTLY, THERE CAN BE NO
ASSURANCE AS TO THE ACTUAL AMOUNT OF THE CASH PAYMENT THAT WILL BE MADE ON
ACCOUNT OF SHARES OF CAYENNE COMMON STOCK IN THE MERGER OR THAT SUCH AMOUNT WILL
NOT BE SUBSTANTIALLY LESS THAN $0.375 PER SHARE.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF CAYENNE
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Please read carefully the accompanying Notice of Special Meeting of
Stockholders and Proxy Statement for additional information regarding the
proposal to approve the Merger Agreement. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING (AND REGARDLESS OF WHETHER YOU WISH TO VOTE FOR OR AGAINST, OR
TO ABSTAIN FROM VOTING WITH RESPECT TO, THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT), PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you attend the Special
Meeting, you may vote in person if you wish, even if you have previously
returned your proxy card.
Sincerely,
John J. Alexander
Chairman of Board,
President and Chief
Executive Officer
<PAGE>
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
CAYENNE SOFTWARE, INC.
14 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
_________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER __, 1998
___________________________
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of Cayenne
Software, Inc., a Massachusetts corporation ("Cayenne"), will be held on
_________, September __, 1998, at 9:00 a.m., local time, at the offices of Ropes
& Gray, 36th Floor, One International Place, Boston, Massachusetts 02110
(including any postponement or adjournment thereof, the "Special Meeting"), to
consider and vote upon a proposal to approve the Agreement and Plan of Merger,
dated as of August 27, 1998 (the "Merger Agreement"), among Sterling Software,
Inc., a Delaware corporation ("Sterling Software"), Sterling Software
(Southern), Inc., a Georgia corporation and a wholly owned subsidiary of
Sterling Software ("Merger Sub"), and Cayenne, pursuant to which Cayenne will be
merged with and into Merger Sub (the "Merger"), with Merger Sub continuing as
the surviving corporation and remaining a wholly owned subsidiary of Sterling
Software. Assuming the Merger Agreement has been approved by the affirmative
vote of the holders of the requisite number of shares of capital stock of
Cayenne, the Merger is expected to be consummated shortly after the Special
Meeting.
The Board of Directors of Cayenne has fixed September __, 1998 as the record
date for the determination of stockholders entitled to notice of and to vote at
the Special Meeting or any adjournment or postponement thereof. Only holders of
record of (i) Series D Convertible Preferred Stock, par value $1.00 per share,
of Cayenne and (ii) Common Stock, par value $.01 per share, of Cayenne at the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting.
The accompanying Proxy Statement, which constitutes an integral part of this
Notice of Special Meeting of Stockholders and describes the Merger Agreement,
the Merger and appraisal rights available to stockholders in connection with the
Merger, should be read carefully and in its entirety. WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING (AND REGARDLESS OF WHETHER YOU WISH TO VOTE FOR OR
AGAINST, OR TO ABSTAIN FROM VOTING WITH RESPECT TO, THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT), PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. You may revoke your
proxy in the manner described in the accompanying Proxy Statement at any time
before it is voted at the Special Meeting. Executed proxies with no
instructions indicated thereon will be voted "FOR" approval of the Merger
Agreement.
By Order Of The Board of Directors,
John J. Alexander
Chairman of Board,
President and Chief
Executive Officer
Bedford, Massachusetts
September __, 1998
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. ASSUMING THE MERGER
IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
CERTIFICATES.
<PAGE>
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
PROXY STATEMENT
OF
CAYENNE SOFTWARE, INC.
This Proxy Statement is furnished to holders of shares of (i) Series D
Convertible Preferred Stock, par value $1.00 per share ("Cayenne Preferred
Stock"), of Cayenne Software, Inc., a Massachusetts corporation ("Cayenne"), and
(ii) Common Stock, par value $.01 per share, of Cayenne ("Cayenne Common Stock"
and, together with Cayenne Preferred Stock, "Cayenne Capital Stock") in
connection with the solicitation by and on behalf of the Board of Directors of
Cayenne (the "Cayenne Board") of proxies for use at a Special Meeting of
Stockholders of Cayenne to be held on __________, September __, 1998, at 9:00
a.m., local time, at the offices of Ropes & Gray, 36th Floor, One International
Place, Boston, Massachusetts 02110 (including any postponement or adjournment
thereof, the "Special Meeting"). This Proxy Statement, the Notice of Special
Meeting of Stockholders and the accompanying proxy card are first being sent to
stockholders of Cayenne on or about September __, 1998.
At the Special Meeting, holders of record of shares of Cayenne Capital Stock
at the close of business on September __, 1998 (the "Record Date") will consider
and vote upon the approval of the Agreement and Plan of Merger, dated as of
August 27, 1998 (the "Merger Agreement"), among Sterling Software, Inc., a
Delaware corporation ("Sterling Software"), Sterling Software (Southern), Inc.,
a Georgia corporation and a wholly owned subsidiary of Sterling Software
("Merger Sub"), and Cayenne, pursuant to which Cayenne will be merged with and
into Merger Sub (the "Merger"), with Merger Sub continuing as the surviving
corporation and remaining a wholly owned subsidiary of Sterling Software.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time") (i) each then-outstanding share of Cayenne Preferred Stock
will be converted into the right to receive a cash payment of $20.00 and (ii)
each then-outstanding share of Cayenne Common Stock will be converted into the
right to receive a cash payment of $0.375, subject to reduction as described in
the next sentence. If, at the Effective Time, there are outstanding any
advances to Cayenne under a new credit facility provided by Cayenne's bank based
on credit enhancement provided by Sterling Software, the amount of the cash
payment that will be made on account of each share of Cayenne Common Stock that
is converted in the Merger will be reduced by an amount equal to the quotient
obtained by dividing (i) the aggregate amount of such outstanding advances by
(ii) 21,333,398 (i.e., the number of shares of Cayenne Common Stock that are
presently outstanding). For example, if the aggregate amount of such
outstanding advances were to be $1,000,000, $2,000,000 or $3,000,000,
respectively, the amount of such cash payment would be reduced to $0.328, $0.281
or $0.234, respectively. The foregoing hypothetical examples are presented
solely for illustrative purposes, and it is not possible to predict the amount
of such outstanding advances (if any) that may exist at the Effective Time.
CONSEQUENTLY, THERE CAN BE NO ASSURANCE AS TO THE ACTUAL AMOUNT OF THE CASH
PAYMENT THAT WILL BE MADE ON ACCOUNT OF THE SHARES OF CAYENNE COMMON STOCK THAT
ARE CONVERTED IN THE MERGER OR THAT SUCH AMOUNT WILL NOT BE SUBSTANTIALLY LESS
THAN $0.375 PER SHARE.
This Proxy Statement incorporates by reference certain reports and statements
filed by Cayenne with the Securities and Exchange Commission (the "Commission")
prior to the date hereof. This Proxy Statement should be read in conjunction
with such reports and statements, copies of certain of which (excluding the
exhibits thereto) are enclosed herewith.
-------------------------
The date of this Proxy Statement is September __, 1998.
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY CAYENNE, STERLING SOFTWARE OR ANY OTHER PERSON. THIS PROXY STATEMENT DOES NOT
CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON
TO WHOM IT IS NOT LAWFUL TO MAKE SUCH SOLICITATION IN SUCH JURISDICTION. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CAYENNE SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
AVAILABLE INFORMATION
Cayenne is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission also maintains a Website, located at http://www.sec.gov, that
contains reports, proxy statements and other information regarding registrants
that file electronically with the Commission. Copies of such reports, proxy
statements and other information also can be obtained by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Cayenne Common Stock is traded on The Nasdaq
National Market of The Nasdaq Stock Market (the "Nasdaq National Market") under
the symbol CAYN. Reports and other information relating to Cayenne may also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Cayenne with the Commission
are hereby incorporated by reference in this Proxy Statement: (i) Annual Report
on Form 10-K for the fiscal year ended December 31, 1997; (ii) Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 31, 1998 and June 30, 1998;
(iii) Proxy Statement on Schedule 14A for the Special Meeting in Lieu of Annual
Meeting of Stockholders held on June 18, 1998; and (iv) Current Report on Form
8-K dated August 27, 1998.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein is deemed to be modified or superseded for
purposes of this Proxy Statement 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 will not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
Copies of Cayenne's most recent Annual Report on Form 10-K and Quarterly
Report on Form 10-Q (collectively, the "Cayenne Reports") (excluding the
exhibits thereto) are enclosed herewith.
This Proxy Statement incorporates by reference documents that are not
presented herein or enclosed herewith. These documents (excluding the exhibits
thereto) are available, without charge, to any person to whom this Proxy
Statement is delivered, on written or oral request, to: Cayenne Software, Inc.,
14 Crosby Drive, Bedford, Massachusetts 01730, Attention: Investor Relations,
(781) 273-9003. In order to ensure timely delivery of the documents, any
request should be made by September ___, 1998.
ii
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... ii
SUMMARY.................................................................. 1
The Parties........................................................... 1
The Special Meeting................................................... 1
Background of the Merger; Forbearance Agreement....................... 2
Recommendation of the Cayenne Board................................... 3
Opinion of Cayenne's Financial Advisor................................ 3
The Merger............................................................ 3
The Stock Option Agreement............................................ 6
The Stockholder Agreement............................................. 6
Market Price Information.............................................. 6
THE SPECIAL MEETING...................................................... 8
General............................................................... 8
Voting at the Special Meeting......................................... 8
Proxies; Revocation................................................... 9
THE MERGER............................................................... 9
Background of the Merger.............................................. 9
Cayenne's Reasons for the Merger...................................... 12
Opinion of Cayenne's Financial Advisor................................ 13
Sterling Software's Reasons for the Merger............................ 16
Certain Information Provided by Cayenne............................... 16
The Merger Agreement.................................................. 18
Accounting Treatment.................................................. 25
Certain Federal Income Tax Consequences............................... 25
Regulatory Matters.................................................... 26
Interests of Certain Persons in the Merger............................ 26
Appraisal Rights...................................................... 27
THE FORBEARANCE AGREEMENT................................................ 29
General............................................................... 29
Forbearance Agreement, Amended Revolving Loan Facility
and Overadvance Facility.............................................. 30
Termination........................................................... 31
Events of Default..................................................... 31
Sterling Software Guaranty............................................ 31
THE STOCK OPTION AGREEMENT............................................... 32
General............................................................... 32
Exercise of the Option................................................ 32
Adjustments to Number and Type of Shares.............................. 32
Registration Rights and Listing....................................... 33
Effect of Stock Option Agreement...................................... 33
THE STOCKHOLDER AGREEMENT................................................ 33
General............................................................... 33
Voting Agreements..................................................... 33
Options............................................................... 34
iii
<PAGE>
TABLE OF CONTENTS (CONT'D)
Page
----
Restrictions on Transfer.............................................. 34
BUSINESSES OF STERLING SOFTWARE AND CAYENNE.............................. 34
Sterling Software..................................................... 34
Cayenne............................................................... 34
BENEFICIAL OWNERSHIP OF CAYENNE CAPITAL STOCK............................ 35
INDEPENDENT AUDITORS..................................................... 36
STOCKHOLDER PROPOSALS.................................................... 37
APPENDIX A -- Agreement and Plan of Merger............................... A-1
APPENDIX B -- Opinion of Adams, Harkness & Hill.......................... B-1
APPENDIX C -- Massachusetts Business Corporation Code, Sections 85-98.... C-1
iv
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SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information contained elsewhere in this Proxy
Statement, the attached Appendices and the accompanying Cayenne Reports, all of
which should be reviewed carefully. As required by the context, references in
this Proxy Statement to "Sterling Software," "Cayenne" or the "Surviving
Company" should be construed as references to Sterling Software, Cayenne or the
Surviving Company, as the case may be, together with their respective
predecessors and subsidiaries.
THE PARTIES
Sterling Software. Sterling Software was founded in 1981 and became a
publicly owned corporation in 1983. Sterling Software is a recognized worldwide
supplier of software products and services within three major markets:
applications management, systems management and federal systems. The mailing
address of Sterling Software's principal executive offices is 300 Crescent
Court, Suite 1200, Dallas, Texas 75201, and its telephone number is (214) 981-
1000. See "Businesses of Sterling Software and Cayenne --Sterling Software."
Cayenne. Cayenne was organized as a Massachusetts corporation in 1983.
Cayenne develops, markets and supports a suite of workgroup-to-enterprise
analysis and design solutions for software developers. The mailing address of
Cayenne's principal executive offices is 14 Crosby Drive, Bedford, Massachusetts
01730, and its telephone number is (781) 280-0505. See "Businesses of Sterling
Software and Cayenne --Cayenne."
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting will be held on __________,
September __, 1998, at 9:00 a.m., local time, at the offices of Ropes & Gray,
36th Floor, One International Place, Boston, Massachusetts 02110. See "The
Special Meeting."
Purpose. The purpose of the Special Meeting is for holders of shares of
Cayenne Capital Stock to consider and vote upon the approval of the Merger
Agreement, a copy of which is attached hereto as Appendix A. See "The Special
Meeting."
Shares Entitled to Vote. At the close of business on the Record Date, the
outstanding Cayenne Capital Stock consisted of (i) 21,333,398 shares of Cayenne
Common Stock, held of record by ___ holders, and (ii) 170,000 shares of Cayenne
Preferred Stock, held of record by five holders. Each share of Cayenne Common
Stock is entitled to one vote at the Special Meeting, and each share of Cayenne
Preferred Stock is entitled to [53] votes (i.e., a number of votes equal to the
number of shares of Cayenne Common Stock into which one share of Cayenne
Preferred Stock was convertible at the Record Date) at the Special Meeting. See
"The Special Meeting--Voting at the Special Meeting."
Required Votes. The affirmative vote of the holders of two-thirds of the
outstanding shares of Cayenne Capital Stock entitled to vote at the Special
Meeting, voting together as a single class, the affirmative vote of the holders
of two-thirds of the outstanding shares of Cayenne Preferred Stock entitled to
vote at the Special Meeting, voting separately by class, and the affirmative
vote of the holders of two-thirds of the outstanding shares of Cayenne Common
Stock entitled to vote at the Special Meeting, voting separately by class, are
required for the approval of the Merger Agreement. At the close of business on
the Record Date, Integral Capital Partners III, L.P., Integral Capital Partners
International III, L.P., Winston Partners L.P., Winston Partners II LLC and
Winston Partners II LDC (collectively, the "Preferred Stockholders") owned all
of the outstanding shares of Cayenne Preferred Stock, representing approximately
[29.8%] of the combined voting power of the then-outstanding shares of Cayenne
Capital Stock. Each of the Preferred Stockholders has agreed to vote the shares
of Cayenne Capital Stock beneficially owned by such Preferred Stockholder for
the approval of the Merger Agreement. See "The Stockholder Agreement."
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<PAGE>
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Revocation of Proxies. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the proxy is voted at the
Special Meeting. A proxy may be revoked by filing with the Secretary of Cayenne
prior to the voting of the proxy either a written instrument revoking the proxy
or an executed proxy bearing a later date, or by voting in person at the Special
Meeting. Attendance at the Special Meeting will not, in itself, constitute the
revocation of a proxy. See "The Special Meeting --Proxies; Revocation."
BACKGROUND OF THE MERGER; FORBEARANCE AGREEMENT
Cayenne has experienced declining revenues and substantial operating losses
for several years, which have adversely affected its liquidity and capital
resources to a substantial degree. Various factors, including limitations on
Cayenne's ability to generate and/or borrow sufficient funds to satisfy short-
term and longer-term cash requirements, have raised the possibility that Cayenne
will not be able to continue as a going concern. In May 1998, Cayenne retained
the firm of Adams, Harkness & Hill ("AH&H") to assist it in evaluating potential
strategic alternatives, including the sale of Cayenne, the sale of a portion of
Cayenne's assets and the financial restructuring of Cayenne. The primary
objective of the Cayenne Board in evaluating potential strategic transactions
was to attempt to enhance stockholder value to the extent possible in light of
Cayenne's financial condition and serious liquidity concerns.
After thoroughly considering various alternatives, the Cayenne Board
determined that a sale of Cayenne was the best available alternative. Following
this determination, AH&H contacted a number of companies that they and Cayenne
believed would be interested in such a transaction, certain of which companies
subsequently submitted proposals or other indications of interest relating to
the possible acquisition of Cayenne. Following consideration of all of such
proposals and indications of interest, the Cayenne Board ultimately determined
that the proposal submitted by Sterling Software was the most attractive. Among
the advantages of Sterling Software's proposal considered by the Cayenne Board
was Sterling Software's ability to consummate an acquisition transaction more
quickly and with a higher degree of certainty than the other interested parties.
In addition, in light of the circumstances described in the following paragraph,
the Cayenne Board attached substantial importance to Sterling Software's
willingness and ability to participate in an arrangement pursuant to which
Cayenne's senior secured lender would, on the basis of credit enhancement
provided by Sterling Software, temporarily forbear from exercising any rights or
remedies against Cayenne and make additional advances to Cayenne to fund its
near-term working capital requirements.
As of August 26, 1998 (i.e., the business day immediately preceding the date
of the Merger Agreement), Cayenne was in default under its revolving credit
facility (as amended, the "SVB Credit Facility") with Silicon Valley Bank
("SVB") by reason of (i) Cayenne's failure to have the minimum net worth
required thereby and (ii) outstanding borrowings thereunder being in excess of
the borrowing base established thereby. As a result of such defaults, SVB was
unwilling to advance any further funds to Cayenne. Moreover, prior to the
execution and delivery of the Forbearance Agreement (as hereinafter defined),
SVB had the right, exercisable at any time, to declare all amounts outstanding
under the SVB Credit Facility to be immediately due and payable and to foreclose
upon its security interests in substantially all of Cayenne's assets.
In connection with the execution and delivery of the Merger Agreement, SVB,
Cayenne and certain subsidiaries of Cayenne entered into a Forbearance
Agreement, dated as of August 27, 1998 (the "Forbearance Agreement"), pursuant
to which, on the basis of credit enhancement provided by Sterling Software, SVB
agreed, subject to specified conditions, to (i) forbear from exercising its
rights and remedies in respect of defaults under the SVB Credit Facility and
(ii) make advances to Cayenne under a new $3,000,000 subfacility (the
"Overadvance Facility") added to the SVB Credit Facility pursuant to the
Forbearance Agreement to provide funding for Cayenne's near-term working capital
requirements. Sterling Software has guaranteed Cayenne's obligations under the
Overadvance Facility and under certain circumstances may become the owner of all
or a portion of the Sub Credit Facility. Pursuant to the Merger Agreement,
Cayenne has agreed not to effect advances under the Overadvance Facility without
Sterling Software's prior consent and without first maximizing all other
available sources of working capital,
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2
<PAGE>
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and Sterling Software has agreed, subject to specified conditions, to consent to
advances under the Overadvance Facility to fund Cayenne's near-term working
capital requirements. See "The Merger --Background of the Merger," "The Merger
- --The Merger Agreement --Interim Credit Arrangements" and "The Forbearance
Agreement." If at the Effective Time, there are outstanding any advances under
the Overadvance Facility, the amount of the cash payment that will be made on
account of each share of Cayenne Common Stock that is converted in the Merger
will be reduced by an amount equal to the quotient obtained by dividing (i) the
aggregate amount of such outstanding advances by (ii) 21,333,398 (i.e., the
number of shares of Cayenne Common Stock that are presently outstanding). For
example, if the aggregate amount of such outstanding advances were to be
$1,000,000, $2,000,000 or $3,000,000, respectively, the amount of such cash
payment would be reduced to $0.328, $0.281 or $0.234, respectively. The
foregoing hypothetical examples are presented solely for illustrative purposes,
and it is not possible to predict the amount of such outstanding advances (if
any) that may exist at the Effective Time. CONSEQUENTLY, THERE CAN BE NO
ASSURANCE AS TO THE ACTUAL AMOUNT OF THE CASH PAYMENT THAT WILL BE MADE ON
ACCOUNT OF THE SHARES OF CAYENNE COMMON STOCK THAT ARE CONVERTED IN THE MERGER
OR THAT SUCH AMOUNT WILL NOT BE SUBSTANTIALLY LESS THAN $0.375 PER SHARE.
RECOMMENDATION OF THE CAYENNE BOARD
At a meeting held on August 26, 1998, the Cayenne Board unanimously approved
the Merger Agreement. The Cayenne Board believes that the Merger is in the best
interests of Cayenne and its stockholders and unanimously recommends that
Cayenne stockholders vote FOR approval of the Merger Agreement.
OPINION OF CAYENNE'S FINANCIAL ADVISOR
AH&H was retained by the Cayenne Board to act as its exclusive financial
advisor with respect to an evaluation of potential strategic alternatives. AH&H
has delivered to the Cayenne Board a written opinion, dated August 26, 1998, to
the effect that, as of such date and based upon and subject to the matters set
forth therein, the consideration to be received by holders of shares of Cayenne
Capital Stock in the Merger was fair to such holders from a financial point of
view. The full text of the opinion of AH&H is attached as Appendix B to this
Proxy Statement. See "The Merger --Opinion of Cayenne's Financial Advisor."
THE MERGER
General. On the terms and subject to the conditions set forth in the Merger
Agreement, Cayenne will be merged with and into Merger Sub, with Merger Sub
continuing as the surviving corporation in the Merger (as such, the "Surviving
Company"). At the Effective Time, each then-outstanding share of common stock
of Merger Sub will remain outstanding and Merger Sub will remain a wholly-owned
subsidiary of Sterling Software.
Conversion of Cayenne Shares. At the Effective Time, (i) each then-
outstanding share of Cayenne Preferred Stock will be converted into the right to
receive a cash payment of $20.00, (ii) each then-outstanding share of Cayenne
Common Stock will be converted into the right to receive a cash payment of
$0.375, subject to reduction as described in the next paragraph and (iii) each
then-outstanding share of Cayenne Capital Stock owned by Cayenne or any
subsidiary of Cayenne or by Sterling Software, Merger Sub or any other
subsidiary of Sterling Software, will be canceled.
The Merger Agreement provides that if there are outstanding at the Effective
Time any advances made to Cayenne under the Overadvance Facility, the amount of
the cash payment to be made on account of each share of Cayenne Common Stock
converted in the Merger will be reduced by an amount (rounded to the nearest
one-tenth of a cent) equal to the quotient obtained by dividing (i) the
aggregate amount of such outstanding advances by (ii) 21,333,398 (i.e., the
number of shares of Cayenne Common Stock that are presently outstanding). For
example, if the aggregate amount of such outstanding advances were to be
$1,000,000, $2,000,000 or $3,000,000, respectively, the amount of such cash
payment would be reduced to $0.328, $0.281 or $0.234, respectively. The
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foregoing hypothetical examples are presented solely for illustrative purposes,
and it is not possible to predict the amount of such outstanding advances (if
any) that may exist at the Effective Time. Moreover, Cayenne is not permitted to
repay any such advances prior to the Effective Time and, although Sterling
Software has no obligation to allow more than $3,000,000 of such advances to be
made, it may, in its sole and absolute discretion, allow an unlimited amount of
such advances to be made (although the Forbearance Agreement, as presently in
effect, provides for an aggregate maximum of $3,000,000 of such advances). Any
advances in excess of $3,000,000 would likewise reduce the cash payable to
holders of Cayenne Common Stock. CONSEQUENTLY, THERE CAN BE NO ASSURANCE AS TO
THE ACTUAL AMOUNT OF THE CASH PAYMENT THAT WILL BE MADE ON ACCOUNT OF THE SHARES
OF CAYENNE COMMON STOCK THAT ARE CONVERTED IN THE MERGER OR THAT SUCH AMOUNT
WILL NOT BE SUBSTANTIALLY LESS THAN $0.375 PER SHARE. See "The Merger --The
Merger Agreement --Consideration to be Paid in the Merger" and "The Merger --The
Merger Agreement --Interim Credit Arrangements."
Treatment of Cayenne Stock Options. At the Effective Time, each then-
outstanding option to purchase shares of Cayenne Common Stock (a "Cayenne
Option") under the Bachman Information Systems, Inc. Amended and Restated 1986
Incentive and Nonqualified Stock Option Plan, the Cayenne Software, Inc. Amended
1996 Incentive and Nonqualified Stock Option Plan, the Cayenne Software, Inc.
1998 Nonqualified Stock Option Plan, the Cadre Technologies, Inc. 1988 Incentive
and Non-Statutory Stock Option Plan, the Cadre Technologies, Inc. 1989 Non-
Statutory Stock Option Plan and the Stock Option Agreements, dated December 29,
1997, between Cayenne and each of Massood Zarrabian and Frederick Phillips
(collectively, the "Cayenne Stock Option Plans") will be assumed by Sterling
Software and will constitute an option (a "Substitute Option") to purchase a
number of shares of common stock, par value $0.10 per share ("Sterling Software
Common Stock"), of Sterling Software, rounded down to the nearest whole share
(with the portion, if any, of a Cayenne Option that would otherwise have
resulted in a Substitute Option being exercisable to purchase a fractional share
of Sterling Software Common Stock being extinguished as a result of such
rounding), determined by multiplying (i) the number of shares of Cayenne Common
Stock subject to such Cayenne Option immediately prior to the Effective Time by
the Option Conversion Factor, at an exercise price per share of Sterling
Software Common Stock (increased to the nearest one-tenth of a cent) equal to
(i) the exercise price per share of Cayenne Common Stock subject to such Cayenne
Option divided by (ii) the Option Conversion Factor. The "Option Conversion
Factor" will be equal to the quotient obtained by dividing (i) the amount of the
cash payment made on account of each share of Cayenne Common Stock converted in
the Merger by (ii) $21.50 (i.e., the closing price per share of Sterling
Software Common Stock on August 26, 1998). See "The Merger --The Merger
Agreement --Treatment of Cayenne Stock Options."
Treatment of Cayenne Warrants. At the Effective Time, each then-outstanding
warrant to purchase shares of Cayenne Common Stock (a "Cayenne Warrant") issued
under or evidenced by (i) the Warrant Agreement, dated December 20, 1996,
between Cayenne and SVB, (ii) the Convertible Preferred Stock Purchase
Agreement, dated January 2, 1997, between Cayenne and Southbrook International
Investments, Ltd. ("Southbrook"), (iii) the Convertible Preferred Stock Purchase
Agreement, dated July 8, 1997, between Cayenne and Southbrook, (iv) the
Convertible Preferred Stock Purchase Agreement, dated August 28, 1997, between
Cayenne, the Preferred Stockholders and certain other persons named therein, (v)
the Warrant Certificate, dated November 1995, executed by Cadre Technologies,
Inc. ("Cadre Technologies") in favor of First Portland Corporation (dba First
Portland Leasing Corp.), (vi) the Share Purchase Agreement, dated April 3, 1995,
between Cadre Technologies and Stichting Administratiekantoor Cadmount, and
(vii) the Warrant Certificate, dated January 1997, executed by Cayenne in favor
of Rene de Vleeschauver (collectively, the "Warrant Documents"), all of which
warrants have exercise prices that are substantially in excess of the current
market value of the shares of Cayenne Common Stock purchasable upon the exercise
thereof, will be canceled and retired and will cease to exist, and no cash or
other consideration will be delivered or deliverable in exchange therefor. See
"The Merger --The Merger Agreement --Treatment of Cayenne Warrants."
Effective Time of the Merger. As soon as practicable, but in no event later
than the second business day following the date on which the last of the
conditions set forth in the Merger Agreement (other than those that by their
nature are to be satisfied at the Closing (as hereinafter defined)) is satisfied
or waived (the date on which the
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Closing occurs being referred to herein as the "Closing Date"), Sterling
Software, Merger Sub and Cayenne will cause articles of merger (the
"Massachusetts Articles of Merger") to be filed with the Secretary of State of
The Commonwealth of Massachusetts as provided in the Massachusetts General
Corporation Law (the "MGCL"), and a certificate of merger (the "Georgia
Certificate of Merger") to be filed with the Secretary of State of the State of
Georgia as provided in the Georgia Business Corporation Code (the "GBCC"). The
Merger will become effective upon the later of the filing of the Massachusetts
Articles of Merger with the Secretary of State of The Commonwealth of
Massachusetts and the filing of the Georgia Certificate of Merger with the
Secretary of State of the State of Georgia.
Conditions to the Merger. The obligation of each party to effect the Merger
is conditioned upon, among other things: (i) the approval of the Merger
Agreement by Cayenne's stockholders; (ii) the absence of any order or injunction
that prohibits the consummation of the Merger; and (iii) the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") having expired or been terminated. In addition, the obligation of
each of Sterling Software and Merger Sub to effect the Merger is conditioned
upon, among other things, (i) the absence of any Material Adverse Change (as
defined in the Merger Agreement), (ii) the absence of any exercise by SVB of any
rights or remedies or any similar actions taken by SVB under or in respect of
the SVB Credit Facility, (iii) the funding by SVB of all advances requested by
Cayenne and consented to by Sterling Software under the Overadvance Facility,
and (iv) the absence of any material litigation against Cayenne. See "The
Merger --The Merger Agreement --Conditions to the Merger."
Termination. The Merger Agreement may be terminated under certain
circumstances, including by mutual written consent of Sterling Software and
Cayenne and by either Sterling Software or Cayenne (i) if the Effective Time has
not occurred on or before December 31, 1998 (otherwise than as a result of
material breach of the Merger Agreement by the party seeking to effect such
termination), (ii) if an order, decree or ruling has been issued or other action
taken by a court of competent jurisdiction which permanently restrains, enjoins
or otherwise prohibits the Merger, (iii) if the Special Meeting has been held
and the Merger Agreement has not been approved by the affirmative vote of
holders of the requisite number of shares of Cayenne Capital Stock, or (iv) if
the other party commits certain breaches of its representations, warranties or
covenants contained in the Merger Agreement. The Merger Agreement also may be
terminated by Sterling Software if the Stockholders Meeting shall not have been
held by October 31, 1998 as a result of a breach by Cayenne of its obligations
under the Merger Agreement or if the Cayenne Board has (i) withdrawn or
modified, in a manner adverse to Sterling Software, its approval of the Merger
Agreement or the transactions contemplated thereby or its recommendation that
the stockholders of Cayenne approve the Merger Agreement, (ii) approved,
endorsed or recommended to its stockholders an alternative transaction, or (iii)
resolved to do any of the foregoing. If the Merger Agreement is terminated (i)
under the circumstances described in the immediately preceding sentence or (ii)
because the Special Meeting has been held and the Merger Agreement has not been
approved by an affirmative vote of the holders of the requisite number of shares
of Cayenne Capital Stock, Cayenne will be required to pay to Sterling Software a
fee in the amount of $570,000. In addition, if the circumstances referred to in
the immediately preceding sentence shall have occurred (regardless of whether
the Merger Agreement shall have been terminated), the stock option granted by
Cayenne to Sterling Software in connection with the execution and delivery of
the Merger Agreement would become exercisable. See "The Merger --The Merger
Agreement --Termination; Effects of Termination" and "The Stock Option
Agreement."
Governmental and Regulatory Matters. In connection with the transactions
contemplated by the Merger Agreement, Sterling Software and Cayenne have made
filings or applications with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act. Consummation of the Merger is conditioned upon, among
other things, the expiration or termination of the applicable waiting period
under the HSR Act. See "The Merger--The Merger Agreement--Conditions to the
Merger" and "--Regulatory Approvals."
Appraisal Rights. Under the MGCL, appraisal rights will be available to
holders of Cayenne Capital Stock in connection with the Merger. Any holder of
Cayenne Capital Stock desiring to exercise appraisal rights must follow
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precisely the procedure prescribed by the MGCL, which procedure is summarized in
"The Merger--Appraisal Rights."
Interests of Certain Persons in the Merger. Certain members of Cayenne's
management and the Cayenne Board may be deemed to have certain interests in the
Merger that are in addition to their interests as stockholders of Cayenne
generally. Such interests relate to, among other things, provisions in the
Merger Agreement regarding the treatment of outstanding Cayenne Options and the
performance and provision of obligations and benefits under existing employment
and severance agreements and compensation and benefit plans. The Cayenne Board
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement. See "The Merger --Interests of Certain Persons
in the Merger," "The Merger--The Merger Agreement--Treatment of Cayenne Stock
Options," "--Treatment of Cayenne Warrants," and "--Employee Benefit Matters."
Certain Federal Income Tax Consequences. The receipt of cash for shares of
Cayenne Capital Stock pursuant to the Merger Agreement will be a taxable
transaction to Cayenne's stockholders for U.S. federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code"), and may be a taxable
transaction for state, local and foreign income tax purposes as well.
Stockholders should consult their own tax advisors regarding the U.S. federal
income tax consequences of the Merger, as well as any tax consequences under
state, local or foreign laws. See "The Merger --Certain Federal Income Tax
Consequences."
Accounting Treatment. The Merger will be accounted for as a "purchase," as
such term is used under generally accepted accounting principles, for accounting
and financial reporting purposes. See "The Merger --Accounting Treatment."
THE STOCK OPTION AGREEMENT
As a condition to its willingness to enter into the Merger Agreement, Sterling
Software required that Cayenne enter into an agreement with Sterling Software
(the "Stock Option Agreement"), pursuant to which Cayenne granted Sterling
Software an option (the "Option") to purchase up to 4,245,346 shares of Cayenne
Common Stock or such other number of shares of Cayenne Common Stock as equals
19.9% of the issued and outstanding shares of Cayenne Common Stock at the time
of exercise of the Option at a price per share of $0.375, subject to reduction
as described in the next sentence. If, at the time of the consummation of any
purchase and sale of shares of Cayenne Common Stock pursuant to exercise of the
Option, there are outstanding any advances to Cayenne under the Overadvance
Facility, the amount of such exercise price will be reduced by an amount equal
to the quotient obtained by dividing (i) the aggregate amount of such
outstanding advances by (ii) 21,333,398 (i.e., the number of shares of Cayenne
Common Stock that are presently outstanding). The Option is exercisable, in
whole or in part, at any time or from time to time during the Option Period (as
hereinafter defined). Pursuant to the Stock Option Agreement, Sterling Software
has certain rights to require registration by Cayenne of any shares of Cayenne
Common Stock or other securities purchased pursuant to the Option under the
securities laws if necessary for Sterling Software to be able to sell such
shares and to require the listing of such shares on the Nasdaq National Market
or other national securities exchange on which shares of Cayenne Common Stock
are then authorized to be quoted. The Stock Option Agreement is intended to
increase the likelihood that the Merger will be consummated on the terms set
forth in the Merger Agreement. See "The Stock Option Agreement."
THE STOCKHOLDER AGREEMENT
As a condition to its willingness to enter into the Merger Agreement, Sterling
Software required that the Preferred Stockholders enter into an agreement with
Sterling Software (the "Stockholder Agreement"), pursuant to which, among other
things, (i) each Preferred Stockholder agreed to vote all of the shares of
Cayenne Preferred Stock beneficially owned by such Preferred Stockholder for the
approval of the Merger Agreement and (ii) each Preferred Stockholder granted to
Sterling Software an option to purchase such shares in exchange for a cash
payment equal to the product of (a) $20.00 and (b) the number of shares of
Cayenne Preferred Stock so purchased. As of the
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Record Date, the Preferred Stockholders beneficially owned all of the
outstanding shares of Cayenne Preferred Stock, representing approximately
[29.8%] of the combined voting power of the then-outstanding shares of Cayenne
Capital Stock. See "The Stockholder Agreement."
MARKET PRICE INFORMATION
The Cayenne Common Stock is traded on the Nasdaq National Market under the
symbol "CAYN." On August 27, 1998, the last full trading day prior to the
public announcement by Cayenne and Sterling Software of the execution of the
Merger Agreement, the high and low sale prices per share of Cayenne Common Stock
as reported on the Nasdaq National Market were $/15//32 and $/13//32,
respectively. On September __, 1998, the last full trading day prior to the
date of this Proxy Statement, the high and low sale prices per share of Cayenne
Common Stock as reported on the Nasdaq National Market were $______ and
$_______, respectively. Holders of Cayenne Common Stock are encouraged to
obtain current market quotations.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished by Cayenne to its stockholders in
connection with the solicitation by and on behalf of the Cayenne Board of
proxies for use at the Special Meeting. The Special Meeting will be held on
_________, September __, 1998, at 9:00 a.m., local time, at the offices of Ropes
& Gray, 36th Floor, One International Place, Boston, Massachusetts 02110. The
purpose of the Special Meeting is for holders of Cayenne Capital Stock to
consider and vote upon the approval of the Merger Agreement.
THE CAYENNE BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF CAYENNE
AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF CAYENNE
VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT.
VOTING AT THE SPECIAL MEETING
The holders of record of shares of Cayenne Capital Stock at the close of
business on September __, 1998, the Record Date, are entitled to vote such
shares at the Special Meeting. At the close of business on the Record Date, the
outstanding Cayenne Capital Stock consisted of (i) 21,333,398 shares of Cayenne
Common Stock, held of record by ___ holders and (ii) 170,000 shares of Cayenne
Preferred Stock, held of record by five holders. Shares of Cayenne Capital
Stock owned by Cayenne or by any subsidiary of Cayenne are not considered to be
outstanding.
The holders of shares representing a majority in interest of each class of
Cayenne Capital Stock outstanding at the close of business on the Record Date
will constitute a quorum for the transaction of business at the Special Meeting.
If the persons present or represented by proxy at the Special Meeting do not
constitute a quorum as provided in the immediately preceding sentence, the
Special Meeting may be adjourned to a subsequent date for the purpose of
obtaining a quorum.
Each share of Cayenne Common Stock is entitled to one vote at the Special
Meeting, and each share of Cayenne Preferred Stock is entitled to [53] votes
(i.e., a number of votes equal to the number of shares of Cayenne Common Stock
into which one share of Cayenne Preferred Stock was convertible at the Record
Date) at the Special Meeting. The approval of the Merger Agreement requires (i)
the affirmative vote of the holders of two-thirds of the outstanding shares of
Cayenne Capital Stock entitled to vote at the Special Meeting, voting together
as a single class, (ii) the affirmative vote of the holders of two-thirds of the
outstanding shares of Cayenne Preferred Stock entitled to vote at the Special
Meeting, voting separately by class, and (iii) the affirmative vote of the
holders of two-thirds of the outstanding shares of Cayenne Common Stock entitled
to vote at the Special Meeting, voting separately by class. As a result,
abstentions on such proposal will have the same effect as a vote against such
proposal. Broker non-votes, which occur when brokers who are the record holders
of shares do not exercise discretionary voting authority with respect to those
beneficial owners who have not provided voting instructions, will also have the
same effect as a vote against such proposal. Abstentions, however, will be
included in determining the number of shares held by persons present or
represented by proxy at the Special Meeting for purposes of determining whether
a quorum exists.
At the Record Date, the Preferred Stockholders owned, in the aggregate, (i)
100% of the outstanding shares of Cayenne Preferred Stock and (ii) less than one
percent of the outstanding shares of Cayenne Common Stock, representing
approximately [29.8%] of the combined voting power of the then-outstanding
shares of Cayenne Capital Stock. Each of the Preferred Stockholders has agreed
to vote the shares of Cayenne Capital Stock beneficially owned by such Preferred
Stockholder for the approval of the Merger Agreement. See "The Stockholder
Agreement."
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PROXIES; REVOCATION
All shares of Cayenne Capital Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, unless
such proxies shall have been revoked, will be voted at the Special Meeting in
accordance with the instructions on the proxies. If no instructions are
indicated, such proxies will be voted for the approval of the Merger Agreement.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Special Meeting. A proxy
may be revoked by filing with the Clerk of Cayenne prior to the voting of the
proxy either a written instrument revoking the proxy or an executed proxy
bearing a later date, or by voting in person at the Special Meeting. Attendance
at the Special Meeting will not, in itself, constitute the revocation of a
proxy.
Sterling Software and Cayenne will share the cost of the preparation and
mailing of this Proxy Statement (although, if the Merger is consummated,
Sterling Software will ultimately bear the full cost thereof). Cayenne may
solicit proxies otherwise than by the use of the mails, in that certain officers
and regular employees of Cayenne, without additional compensation, may use their
personal efforts, by telephone or otherwise, to obtain proxies. Cayenne will
also request that persons and entities holding shares in their names, or in the
name of their nominees, that are beneficially owned by others, send proxy
materials to and obtain proxies from such beneficial owners and will reimburse
such holders for their reasonable expenses in so doing.
THE MERGER
BACKGROUND OF THE MERGER
Cayenne has experienced declining revenues and substantial operating losses
for several years, which have adversely affected its liquidity and capital
resources to a substantial degree. Various factors, including limitations on
Cayenne's ability to generate and/or borrow sufficient funds to satisfy short-
term and longer-term cash requirements, have raised the possibility that Cayenne
will not be able to continue as a going concern. In May 1998, Cayenne retained
AH&H to assist it in evaluating potential strategic alternatives, including the
sale of Cayenne, the sale of a portion of Cayenne's assets and the financial
restructuring of Cayenne. The Cayenne Board's primary objective in evaluating
potential strategic transactions was to attempt to enhance stockholder value to
the extent possible in light of Cayenne's financial condition and serious
liquidity concerns.
In connection with its efforts to address Cayenne's liquidity concerns, the
Cayenne Board considered modifying, supplementing or replacing the SVB Credit
Facility. However, the Cayenne Board ultimately concluded that it would not be
possible to adequately address Cayenne's working capital and other liquidity
requirements absent substantial concessions from SVB and/or the agreement by any
potential replacement lender to accept terms substantially less favorable to it
than those applicable to SVB under the SVB Credit Facility. The Cayenne Board
further concluded, following discussions with SVB and AH&H, that it was
unrealistic to expect to obtain such concessions and/or agreement in the context
of a stand-alone financing transaction.
The Cayenne Board also considered the possibility of accessing the public or
private equity markets to obtain additional capital. In considering this
alternative, the Cayenne Board ultimately concluded that, given Cayenne's
financial condition, historical financial performance and prospects for the
future, a public or private equity offering for Cayenne was not feasible.
The Cayenne Board also considered the sale of a portion of Cayenne's assets.
However, the Cayenne Board ultimately concluded that such a sale was not likely
to provide sufficient financial benefits to offset the loss of future revenues
and strategic disadvantages that would result from such a sale.
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The Cayenne Board also considered a sale of Cayenne as a going concern. AH&H
advised the Cayenne Board that a sale was a viable alternative, particularly in
light of the current merger and acquisition market in general and for suppliers
of software products and services in particular.
As an alternative to the sale of Cayenne as a going concern, the Cayenne Board
also considered the value, if any, that stockholders of Cayenne could expect to
receive in the event of a decision to liquidate Cayenne. In evaluating this
alternative, the Cayenne Board considered management's view that an acquisition
by an established supplier of software products and services could generate
operating efficiencies and cost savings that might positively affect such a
potential purchaser's valuation of Cayenne. A liquidation of Cayenne was not
perceived to have this potential. In addition, the complexities of liquidating a
multinational software company with significant assets outside the United States
would lead to substantial uncertainty regarding the total value that could be
realized. Ultimately, the Cayenne Board concluded that it was unlikely that any
amount would be available for distribution to holders of Cayenne Common Stock
upon any liquidation of Cayenne and that holders of Cayenne Preferred Stock
would be likely to receive substantially less than their full liquidation
preference.
In order to pursue the sale of Cayenne as a going concern, Cayenne and AH&H
identified 30 companies they believed would be interested in such a transaction,
and all of such companies were contacted by AH&H to determine on a preliminary
basis whether they would be interested. Of the companies contacted, nine
entered into confidentiality agreements with Cayenne and were provided with
certain nonpublic information regarding Cayenne. Of the companies that entered
into such confidentiality agreements, two (including Sterling Software)
submitted proposals or other indications of interest specifying the price at
which they would be interested in acquiring all of the equity interest in
Cayenne.
On August 5, 6 and 7, 1998, representatives of Cayenne, including John J.
Alexander, its Chief Executive Officer, and Frederick H. Phillips, its Chief
Financial Officer, met with representatives of Sterling Software at its
corporate headquarters in Dallas to provide detailed financial and operating
information regarding Cayenne to Sterling Software.
During the period from August 10 to August 12, 1998, Sterling Software, with
the assistance of its professional advisors, conducted a customary legal and
financial "due diligence" review of Cayenne.
On August 14, 1998, Sterling Software submitted to representatives of Cayenne
drafts of proposed merger, stock option and stockholder agreements.
On August 18, 1998, Sterling Software submitted to representatives of Cayenne
a term sheet setting forth the principal terms of a proposed acquisition by
Sterling Software of all of the equity interest in Cayenne (the "Sterling
Software Proposal"), together with certain revisions to the proposed merger,
stock option and stockholder agreements based on Sterling Software's extensive
due diligence review. The Sterling Software Proposal was expressly made subject
to Cayenne terminating all discussions with other parties with respect to
alternative transactions.
On August 19, 1998, Cayenne received a written proposal (the "Other Proposal")
from another third party (the "Other Interested Party"). The Other Proposal
contemplated the purchase for cash of all outstanding shares of Cayenne Capital
Stock for $15,000,000. However, the Other Proposal was subject to a number of
substantial conditions, including (i) the ability of the Other Interested Party
to obtain financing for the transaction from financial institutions consistent
with preliminary commitment letters therefor (copies of which were provided to
Cayenne), (ii) the Other Interested Party's satisfaction with the results of its
due diligence review of Cayenne (which had not then commenced), and (iii)
Cayenne having a "normal" level of working capital for companies of its type
(which Cayenne believed that it did not have). In evaluating the Other
Proposal, the Cayenne Board considered, among other factors, the highly
conditional nature of the Other Proposal and the amount of time that would
likely be required for the Other Interested Party to complete a due diligence
review of Cayenne, for definitive agreements to be negotiated and for the
transaction contemplated thereby to be implemented, as compared to the greater
degree of certainty and likely shorter time to closing associated with the
Sterling Software Proposal. In particular, the Cayenne Board was concerned that
the financing condition contained in the Other Proposal would require the
satisfaction of
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the relevant financial institutions with their own due diligence reviews of
Cayenne and that the condition relating to the normalcy of Cayenne's working
capital levels could not be satisfied. Morever, the Other Proposal's dependence
on financing was particularly troubling to the Cayenne Board in view of
Cayenne's own need to have interim financing available to it during the period
of time that would be required to obtain the stockholder and other approvals
that would be required in connection with the transactions contemplated by the
Other Proposal. Unlike the Sterling Software Proposal, the Other Proposal made
no provision for any interim financing.
On August 20, 1998, the Cayenne Board authorized Cayenne's management to enter
into discussions with Sterling Software with respect to the Sterling Software
Proposal.
On August 21, 1998, representatives of Cayenne and Sterling Software commenced
negotiations with respect to various aspects of the Sterling Software Proposal,
including matters relating to timing, certainty of consummation and interim
financial assistance, and the documentation proposed by Sterling Software to be
used in connection therewith. During the course of such negotiations,
representatives of Cayenne reported to the Cayenne Board the progress that had
been made with respect to resolving such matters. Following that report, the
Cayenne Board authorized Cayenne's management to enter into a limited
arrangement providing for exclusive negotiations with Sterling Software.
Thereafter, Cayenne and Sterling Software entered into a letter agreement
prohibiting Cayenne, for a period of time expiring on August 28, 1998 (or upon
any earlier notice to Cayenne that Sterling Software had determined not to
continue to pursue the acquisition of Cayenne), from entering into or continuing
discussions or negotiations with other parties with respect to alternative
transactions.
During the period from August 21, 1998 through August 26, 1998,
representatives of Cayenne and Sterling Software continued negotiations with
respect to various aspects of the Sterling Software Proposal and the
documentation therefor, and engaged in extensive discussions with
representatives of SVB regarding the terms of the proposed interim credit
arrangements.
On August 26, 1998, the Cayenne Board met to further review and consider the
Sterling Software Proposal (including the interim credit arrangements
contemplated thereby) and the status of negotiations relating thereto. Messrs.
Alexander and Phillips, and representatives of Ropes & Gray and AH&H, made
presentations to the Cayenne Board and discussed with the Cayenne Board their
views and analyses of various aspects of the proposed transaction. The Cayenne
Board reviewed and discussed, among other matters, (i) the terms and conditions
of the Merger Agreement, the Stock Option Agreement, the Stockholder Agreement
pursuant to which the holders of Cayenne Preferred Stock agreed to vote in favor
of the Merger, and the proposed interim credit arrangements with SVB (which were
ultimately reflected in the Forbearance Agreement), including the amount and
form of the consideration to be paid to holders of Cayenne Capital Stock, the
limited conditions to Sterling Software's obligation to consummate the Merger,
and the agreement of SVB, on the basis of the credit enhancement provided by
Sterling Software, to temporarily forbear from exercising any rights or remedies
against Cayenne under the SVB Credit Facility and to make additional advances to
Cayenne to fund its near-term working capital requirements, (ii) the background
of the proposed transaction and the strategic alternatives potentially available
to Cayenne, including the indicated value of the consideration proposed to be
provided to holders of Cayenne Capital Stock pursuant to the Other Proposal,
(iii) Cayenne's current and historical financial condition and results of
operations, including its serious liquidity concerns and its sustained history
of declining revenues and substantial operating losses, (iv) Cayenne's prospect
as an independent company, including the limitations on its ability to generate
and/or borrow sufficient funds to satisfy its short-term and longer-term cash
requirements, and the possibility that Cayenne would not be able to continue as
a going concern, (v) the opinion of AH&H to the effect that the consideration to
be received by holders of Cayenne Capital Stock in the Merger was fair to such
holders from a financial point of view, and (vi) other matters more fully
described below under "--Cayenne's Reasons for the Merger." Following a
discussion of the foregoing, and based upon its review of such factors as it
deemed relevant to its decision, the Cayenne Board unanimously approved the
Sterling Software Proposal (and the related proposed interim credit
arrangements), and authorized Cayenne's management to execute and deliver on
behalf of Cayenne definitive agreements consistent with the terms of the
Sterling Software Proposal (and the related proposed interim credit
arrangements) and otherwise satisfactory to the officer executing the same on
behalf of Cayenne.
11
<PAGE>
By August 26, 1998, negotiations among Sterling Software, Cayenne, SVB and the
Preferred Stockholders, as applicable, had resulted in agreement upon all of the
material terms that were ultimately reflected in the Merger Agreement, the Stock
Option Agreement, the Forbearance Agreement and the Stockholder Agreement, all
of which were entered into as of August 27, 1998.
CAYENNE'S REASONS FOR THE MERGER
The Cayenne Board has determined that the Merger is in the best interests of
Cayenne and its stockholders. ACCORDINGLY, THE CAYENNE BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE CAYENNE'S
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
In reaching its determination to approve the Merger Agreement, the Cayenne
Board considered a number of factors, including without limitation the factors
listed below:
. Cayenne's financial condition and serious liquidity concerns, including the
limitations on Cayenne's ability to generate and/or borrow sufficient funds to
satisfy its short-term and longer-term cash requirements.
. Cayenne's sustained history of declining revenues and substantial operating
losses, together with increased competitive pressures resulting from industry
consolidation and the presence of competitors with significantly greater
financial resources than Cayenne.
. Cayenne's prospects for the future, including the possibility that Cayenne,
as an independent company, would not be able to continue as a going concern.
. The results of Cayenne's evaluation of various potential strategic
alternatives, including modifying, supplementing or replacing the SVB Credit
Facility, accessing the public or private equity markets to obtain additional
capital, selling a portion of Cayenne's assets, selling Cayenne as a going
concern or liquidating Cayenne.
. The consideration to be provided to holders of Cayenne Capital Stock
pursuant to the Merger, both in absolute terms and as compared to the
consideration that had been contemplated to be provided to such holders pursuant
to the other alternatives considered by Cayenne, including Other Proposal and
the possible liquidation of Cayenne.
. The opinion of AH&H to the effect that the consideration to be received by
holders of Cayenne Capital Stock in the Merger was fair to such holders from a
financial point of view.
. Various factors relating to the likelihood of consummation of the Merger,
including Sterling Software's substantial history of consummating acquisition
transactions and the limited conditions to the obligations of Sterling Software
to consummate the Merger.
. Sterling Software's willingness and ability to provide credit enhancement
to Cayenne during the period of time required to solicit and obtain stockholder
and other approvals.
. The terms and conditions applicable to any advances of funds to Cayenne
pursuant to the Overadvance Facility, the inability of Cayenne to reduce the
amount of any such advances outstanding at any time prior to the earlier of the
Effective Time and the termination of the Merger Agreement, and the effect that
such advances would have on the consideration to be provided to holders of
Cayenne Common Stock in the Merger.
. The consequences of a failure of the Merger to be consummated, including
the substantially enhanced possibility that Cayenne would be unable to continue
as a going concern in that event.
. Sterling Software's insistence that Cayenne grant Sterling Software an
option to purchase shares of Cayenne Common Stock, the circumstances in which
such option would be exercisable, and the magnitude of such option.
12
<PAGE>
. Sterling Software's insistence on obtaining the agreement of each Preferred
Stockholder to vote in favor of the approval of the Merger Agreement and on
being granted an option by each Preferred Stockholder to purchase such Preferred
Stockholder's shares of Cayenne Capital Stock.
. Sterling Software's insistence that Cayenne's obligation to cause the
Special Meeting to be held be absolute and unconditional and that Cayenne be
required to pay a termination fee to Sterling Software in certain circumstances.
. The effect that such options, voting agreements, obligation to cause the
Special Meeting to be held and termination fee could have on the willingness of
other potential acquirors to submit proposals for alternative transactions and
on the terms of any such proposals.
. The interests of certain persons, including directors and officers of
Cayenne, in the Merger, as described in "The Merger --Interests of Certain
Persons in the Merger."
In view of the numerous factors taken into consideration, the Cayenne Board did
not consider it practical to, and did not attempt to, quantify or otherwise
assign relative weights to the factors considered by it in reaching its
decision.
OPINION OF CAYENNE'S FINANCIAL ADVISOR
Cayenne retained AH&H to render an opinion as to the fairness, from a
financial point of view, to Cayenne and Cayenne's stockholders, of the merger
consideration. At the August 26, 1998, meeting of the Cayenne Board, AH&H
stated that, provided the proposed merger consideration and other substantive
terms of the proposed transaction set forth in the draft Merger Agreement
reviewed by it did not change in final negotiations, AH&H would be in a position
to deliver its written opinion (the "Fairness Opinion") that, based on matters
described therein and as of the date of the Merger Agreement, the merger
consideration provided for therein is fair, from a financial point of view, to
Cayenne and Cayenne stockholders. Subsequently, AH&H delivered the Fairness
Opinion. The complete text of the Fairness Opinion, dated August 26, 1998,
setting forth the assumptions made, procedures followed, matters considered and
scope of the review undertaken by AH&H in rendering the Fairness Opinion, is
attached hereto as Appendix B to this Proxy Statement. Stockholders are urged
to read the Fairness Opinion in its entirety.
In developing the Fairness Opinion, AH&H, among other activities: (i)
reviewed Cayenne's Annual Reports to Stockholders, Annual Reports on Form 10-K
and related financial information for the three fiscal years ended December 31,
1997 and Cayenne's Quarterly Report on Form 10-Q and the related unaudited
financial information for the three- and six-month periods ended June 30, 1998;
(ii) reviewed Sterling Software's Annual Reports to Stockholders, Annual Reports
on Form 10-K and related financial information for the three fiscal years ended
September 30, 1997, and Sterling Software's Quarterly Report on Form 10-Q and
the related unaudited financial information for the nine-month period ended June
30, 1998; (iii) analyzed certain internal financial statements and other
financial and operating data concerning Cayenne prepared by the management of
Cayenne, (iv) reviewed certain information relating to prior periods concerning
the business, earnings and assets furnished to AH&H by Cayenne; (v) conducted
due diligence discussions with members of senior management of Cayenne and
discussed with members of senior management of Cayenne their views regarding
future business, financial and operating benefits arising from the Merger; (vi)
reviewed the historical market prices and trading activity for shares of Cayenne
Common Stock and compared them with that of certain publicly traded companies
AH&H deemed to be relevant and comparable to Cayenne (the "Peer Group"); (vii)
compared the results of operations of Cayenne with the Peer Group; (viii)
compared the financial terms of the Merger with the financial terms of certain
other mergers and acquisitions AH&H deemed to be relevant and comparable to the
Merger (the "Precedent Transactions"); (ix) participated in certain discussions
among representatives of Cayenne and its financial and legal advisors; (x)
reviewed the Merger Agreement; and (xi) reviewed such other financial studies
and analyses and performed such other investigations and took into account such
other matters as AH&H deemed necessary, including our assessment of general
economic, market and monetary conditions.
13
<PAGE>
The following paragraphs summarize the material analyses performed by AH&H in
arriving at the Fairness Opinion and reviewed with the Cayenne Board in
connection therewith, but do not purport to be a complete description of the
analyses performed by AH&H.
Stock Price Analysis. AH&H reviewed the trading activity, including closing
share price and trading volume, of Cayenne Common Stock for the one-year period
ended August 25, 1998. AH&H noted that, for the one-year period, the daily
closing prices of Cayenne Common Stock ranged from a high of $3.438 on October
14, 1997 to a low of $0.375 on August 20, 1998. In addition, AH&H compared the
indexed performance of Cayenne Common Stock for the 200 trading days up to and
including August 25, 1998 to Sterling Software Common Stock, a composite index
made up of the Peer Group, and the NASDAQ Composite Index. The companies making
up the Peer Group were: Compuware Corporation, Forte Software, Inc., PLATINUM
technology, inc., Rational Software Corporation and Select Software Tools, Ltd.
AH&H noted that the performance of Cayenne Common Stock had underperformed
relative to Sterling Software Common Stock, and the indexed performance of both
the Peer Group and the NASDAQ Composite for the one-year period.
Peer Group Analysis. To provide contextual data and comparative market
information, AH&H compared selected historical and forecasted operating and
financial ratios for Cayenne to the corresponding data and ratios of certain
other companies whose securities are publicly traded and which AH&H deemed
comparable to Cayenne in certain respects (i.e., the Peer Group). Such data and
ratios include the market capitalization of the Peer Group as multiples of last
twelve months ("LTM") revenues and LTM operating income, and the market
capitalization of common stock of the Peer Group as a multiple of the book value
of common stockholders' equity. AH&H also examined the ratios of the current
stock price of the Peer Group to the estimated next twelve months ("NTM")
earnings per share ("EPS") and estimated EPS for calendar years 1998 and 1999
(as estimated by First Call) for the Peer Group.
Such analyses of the Peer Group indicated that: (i) market capitalization
as a multiple of LTM revenues ranged from 0.6x to 8.2x, and the median value was
2.7x; (ii) market capitalization as a multiple of LTM operating income ranged
from 31.9x and 56.5x, and the median value was 42.1x; (iii) market
capitalization as a multiple of book value of common stockholders' equity ranged
from 2.3x to 12.9x, and the median value was 5.6x; and (iv) the current stock
price as a multiple of estimated NTM EPS and estimated EPS for calendar years
1998 and 1999 ranged from 22.1x to 32.9x, 24.9x to 39.1x and 8.5x to 31.8x,
respectively, and the median values were 26.8x, 33.5x and 23.6x. Cayenne's
corresponding multiples of LTM revenues and book value of common stockholders'
equity implied by Sterling's offer is 0.3x and 2.8x. Cayenne's corresponding
multiples of LTM operating income and LTM net income implied by Sterling's offer
price were not meaningful due to the Company's operating losses during such
period. In addition, estimated EPS for Cayenne's 1998 and 1999 calendar years
was unavailable.
Based on the multiples of market capitalization to LTM revenues and market
capitalization to book value of common stockholders' equity for the Peer Group
and Cayenne, AH&H estimated the following ranges of Cayenne's implied equity
value: (i) based on market capitalization as a multiple of LTM revenues,
Cayenne's implied equity value ranged from $24.6 million, or $1.15 per share, to
$361.9 million, or $16.96 per share; and (ii) based on market capitalization as
a multiple of the book value of common stockholders' equity, Cayenne's implied
equity value ranged from $9.1 million, or $0.42 per share, to $51.9 million, or
$2.43 per share. Although the Peer Group was used for comparison purposes, none
of the companies included therein is directly comparable to Cayenne.
Accordingly, an analysis of the results of such a comparison is not purely
mathematical but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the Peer Group and other factors that could affect the public
trading value of the Peer Group or Cayenne. In particular, the negative cash
flow and net operating losses of Cayenne on both an historical and a projected
basis caused AH&H to discount many of the comparisons.
Precedent Transactions Analysis. AH&H analyzed publicly available
information for selected, completed transactions (i.e., mergers and
acquisitions) involving financially distressed target companies from a variety
of industry segments (i.e., Precedent Transactions). The Precedent Transactions
reviewed were, in order of date announced: (i) Visigenic Software, Inc./Borland
International, Inc. (Inprise); (ii) Individual, Inc./Desktop Data,
14
<PAGE>
Inc. (NewsEDGE); (iii) CompuRAD, Inc./Lumisys, Inc.; (iv) NetFrame Systems,
Inc./Micron Electronics, Inc.; (v) Imex Medical Systems, Inc./Nicolet
Biomedical, Inc.; (vi) Somatix Therapy Corporation/Cell Genesys, Inc.; (vii)
Compression Labs, Inc./VTEL Corporation; and (viii) Altai, Inc./PLATINUM
technology, inc. In examining the Precedent Transactions, AH&H assessed certain
financial characteristics of the acquired company relative to the consideration
offered. AH&H reviewed the value of the consideration paid (the "Transaction
Value") in the Precedent Transactions as a multiple of LTM revenues, LTM
operating income and LTM net income, and as a multiple of the book value of
common stockholder's equity. In addition, AH&H reviewed the premiums/discounts
of the offer prices to the closing stock prices one day, one week and four weeks
prior to the announcement date of the Precedent Transactions.
Such analyses of the Precedent Transactions indicated that: (i)
Transaction Values as a multiple of LTM revenues ranged from 0.3x to 5.4x, and
the median value was 1.3x; and (ii) Transaction Values as a multiple of he book
value of common stockholders' equity ranged from 1.7x to 43.5x, and the median
value was 5.5x. As a result of losses incurred by Cayenne and the target
companies in the Precedent Transactions analysis, the corresponding multiples of
LTM operating income and LTM net income implied by the acquirers' offers were
not meaningful. The corresponding multiples of LTM revenues and book value of
common stockholders' equity implied by Sterling Software's offer is 0.3x and
2.8x. The premiums/discounts of the offer prices to the closing stock prices
one trading day, one week and four weeks prior to the announcement date of the
Precedent Transactions ranged from -26.2% to 51.2%, -18.4% to 29.2% and -22.5%
to 51.2%, and the median values were 2.8%, 3.1% and 2.6%, respectively. Sterling
Software's offer price represented a discount of 50% of the closing price of
Cayenne's Common Stock one month prior to August 26, 1998.
Based on the multiples of market capitalization to LTM revenues and market
capitalization to book value of common stockholders' equity for the Peer Group
and Cayenne, AH&H estimated the following ranges of Cayenne's implied equity
value: (i) based on market capitalization as a multiple of LTM revenues,
Cayenne's implied equity value ranged from $13.2 million, or $0.62 per share, to
$238.1 million, or $11.16 per share; and (ii) based on market capitalization as
a multiple of book value of common stockholders' equity, Cayenne's implied
equity value ranged from $6.8 million, or $0.32 per share, to $174.9 million, or
$8.20 per share.
Although the Precedent Transactions were used for comparison purposes, none
of such transactions is directly comparable to the Merger and none of the
companies in such transactions are directly comparable to Cayenne or Sterling
Software. In particular, AH&H noted the effect that concerns about the
continuing viability of Cayenne on a stand-alone basis have on the transactions
available to Cayenne. Accordingly, an analysis of the results of such a
comparison is not purely mathematical but instead involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the companies involved and other
factors that could affect the acquisition value of such companies or Cayenne.
Summary of Valuation Analyses. Taken together, the information and
analyses employed by AH&H led to AH&H's overall opinion that the consideration
to be received by Cayenne's stockholders in the Merger is fair to such
stockholders from a financial point of view.
The foregoing summary of the various sources of information, analyses and
valuation methodologies employed by AH&H in connection with rendering the
Fairness Opinion does not purport to be complete. The preparation of the
Fairness Opinion involved various determinations as to the most appropriate and
relevant quantitative and qualitative methods of financial analysis and the
application of these methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, AH&H believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, could create an incomplete view of the process underlying the analyses
set forth in the Fairness Opinion. The Fairness Opinion is necessarily based
upon market, economic, financial and other conditions as they existed and could
be evaluated as of the date of the Fairness Opinion and any change in such
conditions may impact the Fairness Opinion. In developing its Fairness Opinion,
AH&H took into consideration the special circumstances resulting from Cayenne's
cumulative losses and, based on management's projections, the probability of
continued losses and management's concerns that Cayenne may not, on a stand-
alone basis, be able
15
<PAGE>
to continue as a going concern. Furthermore, within the context of management's
performance projections, AH&H took into consideration the range of possible
outcomes, which were inherently limited by the financial constraints of Cayenne.
AH&H took into account the results of its efforts to assist Cayenne in finding a
suitable acquirer, including the consideration offered in various proposals and
expressions of interest received by Cayenne, the likelihood that other acquirers
would be able to complete an acquisition within the timeframe required given
Cayenne's financial situation, and the degree of certainty that the Merger would
be completed. In performing its analyses, AH&H made numerous assumptions with
respect to software industry performance and general economic conditions, many
of which are beyond the control of Cayenne. The analyses performed by AH&H 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, any analyses relating to value do not purport to be appraisals or
reflect the price at which such assets or the business may actually be sold.
Further, AH&H was not requested to and did not analyze or give effect to any
federal, state or local income tax consequences to Cayenne's stockholders
arising out of the Merger.
The Cayenne Board selected AH&H as its financial advisor on the basis of
AH&H's reputation and experience in the IT sector and the computer software
industry in particular, as well as AH&H's historical relationship with Cayenne.
Pursuant to the terms of engagement letters between Cayenne and AH&H
(collectively, the "AH&H Agreement"), upon the successful conclusion of the
Merger, AH&H will receive a fee from Cayenne (the "Consummation Fee") in an
amount equal to 2% of the value of the consideration to be received by holders
of Cayenne Capital Stock. A nonrefundable retainer fee of $50,000 previously
delivered by Cayenne to AH&H will be credited against the Consummation Fee.
Cayenne also agreed to pay a fee of $250,000 in connection with the delivery of
the Fairness Opinion, which fee is payable whether or not the Merger Agreement
is consummated. AH&H will be reimbursed by Cayenne for certain of its expenses
incurred in connection with its engagement. The terms of the AH&H Agreement,
which Cayenne and AH&H believe are customary in transactions of this nature,
were negotiated at arm's-length between Cayenne and AH&H, and the Cayenne Board
was aware of the nature of the fee arrangement, including the fact that a
significant portion of the fees payable to AH&H is contingent upon completion of
the Merger. Allyn C. Woodward, Jr., a member of the Cayenne Board, is president
of AH&H. Mr. Woodward abstained from consideration of the retention of AH&H or
negotiation of its fee. Mr. Woodward was not involved on behalf of AH&H in
analyzing or preparing the Fairness Opinion.
STERLING SOFTWARE'S REASONS FOR THE MERGER
Sterling Software believes that the Merger is in the best interests of it
and its stockholders. Sterling Software maintains a strategy of seeking to
acquire businesses and products to fill strategic market niches. The Merger is
expected to result in broadening the current customer base of Sterling
Software's Applications Management Group to include the customers of Cayenne.
In addition, the Merger would enable Sterling Software to offer enterprise
application development software products to customers of Cayenne that are not
presently customers of Sterling Software.
CERTAIN INFORMATION PROVIDED BY CAYENNE
In the course of the discussions described in "--Background of the Merger,"
Cayenne provided Sterling Software with certain business and financial
information which was not publicly available. Such information included, among
other things, (i) forecasted results of operations for Cayenne's fiscal quarters
ending September 30, 1998 and December 31, 1998 and its fiscal year ending
December 31, 1998 prepared by the management of Cayenne on July 15, 1998 (the
"Cayenne 1998 Plan") and (ii) forecasted revenues for Cayenne's North American
operations for the fiscal quarter ending September 30, 1998 prepared by the
management of Cayenne on July 30, 1998 (the "Updated Third Quarter Revenue
Forecast" and, together with the Cayenne 1998 Plan, the "Cayenne Forecasts").
The Cayenne Forecasts do not take into account any of the potential effects of
the Merger.
The information from the Cayenne Forecasts summarized below is included in
this Proxy Statement solely because such information was provided to Sterling
Software in connection with its evaluation of the Merger. As a matter of
course, Cayenne does not make public projections or forecasts of its anticipated
financial position or results
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<PAGE>
of operations. Accordingly, Cayenne has not updated the Cayenne Forecasts
subsequent to the time at which they were originally prepared (except to the
extent that the Updated Third Quarter Revenue Forecast updates the Cayenne 1998
Plan) and Cayenne does not anticipate that it will, and it disclaims any
obligation to, furnish updated forecasts or projections to any person, cause
such information to be included in documents required to be filed with the
Commission, or otherwise make such information public (irrespective in any such
case of whether the Cayenne Forecasts, in light of events or developments
occurring after the time at which it was originally prepared, shall have ceased
to have a reasonable basis).
The inclusion herein of the information from the Cayenne Forecasts
summarized below should not be regarded as an indication that Cayenne considers
such information to be an accurate prediction of future events. While presented
with numerical specificity, the information from the Cayenne Forecasts
summarized below is based upon a variety of assumptions relating to general
economic conditions and the business of Cayenne which may not be realized and is
subject to significant uncertainties and contingencies, many of which are beyond
the control of Cayenne. Moreover, Cayenne has a history of not achieving the
revenue or income levels included in forecasts developed by Cayenne's management
with respect to prior fiscal quarters and prior fiscal years. For example,
Cayenne's actual results of operations during the first half of fiscal 1998 fell
short of targets prepared by the management of Cayenne, and it is likely that
Cayenne's actual results of operations during the second half of fiscal 1998
would likewise fall short of the Cayenne Forecasts if the Merger were not
consummated and Cayenne continued as an independent entity.
The Cayenne Forecasts were not prepared with a view to public disclosure or
compliance with published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants.
The information from the Cayenne Forecasts should be evaluated in
conjunction with the historical financial statements and other information
regarding Cayenne contained elsewhere in this Proxy Statement and the Cayenne
Reports. In light of the foregoing factors and the uncertainties inherent in
the Cayenne Forecasts, holders of shares of Cayenne Capital Stock are cautioned
not to place undue or significant reliance thereon. A summary of the Cayenne
Forecasts is set forth below.
<TABLE>
<CAPTION>
CAYENNE 1998 PLAN
-----------------
FISCAL QUARTER FISCAL QUARTER FISCAL YEAR
ENDING ENDING ENDING
SEPTEMBER 30, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
------------------ ----------------- -----------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Total revenue............................. $ 8,694,000 $ 9,000,000 $37,250,000
Total operating expenses.................. 6,783,000 2,337,000 30,280,000
----------- ----------- -----------
Loss before taxes......................... (475,000) (396,000) (2,623,000)
=========== =========== ===========
Loss after taxes.......................... (575,000) (521,000) (3,054,000)
=========== =========== ===========
CASH FLOW DATA:
Used by operations........................ (260,000) (206,000) (1,846,000)
Provided/used by working capital.......... 506,000 (1,922,000) (3,486,000)
Used by L/T assets........................ (72,000) (72,000) (661,000)
Financing provided........................ 0 0 88,000
----------- ----------- -----------
Net cash flow............................. 174,000 (2,200,000) (5,905,000)
=========== =========== ===========
</TABLE>
AS OF AS OF
SEPTEMBER 30, 1998 DECEMBER 31, 1998
------------------ -----------------
BALANCE SHEET DATA:
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Total current assets...................... $15,287,000 $14,267,000
----------- -----------
Total assets.............................. 18,063,000 16,755,000
=========== ===========
Total current liabilities................. 14,517,000 13,775,000
----------- -----------
Total liabilities......................... 14,664,000 13,922,000
=========== ===========
Total equity.............................. 3,399,000 2,833,000
=========== ===========
The Updated Third Quarter Revenue Forecast indicates for Cayenne's North
American operations for the fiscal quarter ending September 30, 1998 probable
revenues of $5,405,000 and total potential revenues of $5,563,000.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement, a copy of which is attached as Appendix A to this Proxy
Statement.
The Merger. On the terms and subject to the conditions set forth in the
Merger Agreement, at the Effective Time (i) Cayenne will be merged with and into
Merger Sub and (ii) the separate corporate existence of Cayenne will cease and
Merger Sub will continue as the Surviving Company. As soon as practicable, but
in no event later than the second business day following the date on which the
last of the conditions set forth in the Merger Agreement (other than those that
by their nature are to be satisfied at the Closing) is satisfied or waived,
Sterling Software, Merger Sub and Cayenne will cause the Massachusetts Articles
of Merger to be filed with the Secretary of State of The Commonwealth of
Massachusetts as provided in the MGCL, and the Georgia Certificate of Merger to
be filed with the Secretary of State of the State of Georgia as provided in the
GBCC. The Merger will become effective upon the later of the filing of the
Massachusetts Articles of Merger with the Secretary of State of The Commonwealth
of Massachusetts or the filing of the Georgia Certificate of Merger with the
Secretary of State of Georgia. The Merger will have the effects set forth in
the applicable provisions of the MGCL and the GBCC.
Consideration to be Paid in the Merger. The Merger Agreement provides that at
the Effective Time, by virtue of the Merger and without any action on the part
of any holder thereof, each share of Cayenne Capital Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Cayenne Capital Stock owned by Cayenne or any subsidiary of Cayenne or by
Sterling Software, Merger Sub or any other subsidiary of Sterling Software) will
be converted into the right to receive applicable amount of cash specified in
the Merger Agreement (the "Merger Consideration"), which (i) in the case of each
share of Cayenne Preferred Stock is $20.00, and (ii) in the case of each share
of Cayenne Common Stock is $0.375, subject to reduction as described in the next
paragraph.
The Merger Agreements provides that, if there are outstanding at the Effective
Time any advances to Cayenne under the Overadvance Facility, the amount of the
cash payment to be made on account of each share of Cayenne Common Stock
converted in the Merger will be reduced by an amount (rounded to the nearest
one-tenth of a cent) equal to the quotient obtained by dividing (i) the
aggregate amount of such outstanding advances by (ii) 21,333,398 (i.e., the
number of shares of Cayenne Common Stock that are presently outstanding). See
"--Interim Credit Arrangements." For example, if the aggregate amount of such
outstanding advances were to be $1,000,000, $2,000,000 or $3,000,000,
respectively, the amount of such cash payment would be reduced to $0.328, $0.281
or $0.234, respectively. The foregoing hypothetical examples are presented
solely for illustrative purposes, and it is not possible to predict the amount
of such outstanding advances (if any) that may exist at the Effective Time.
Moreover, (i) Cayenne is not permitted to repay any such advances prior to the
Effective Time and (ii) although Sterling Software has no obligation to allow
more than $3,000,000 of such advances to be made, it may, in its sole and
absolute discretion, allow an unlimited amount of such advances to be made
(although the Forbearance Agreement, as presently in effect, provides for a
maximum of $3,000,000 of such advances). Any advances in excess of $3,000,000
would likewise reduce the cash payable to holders of Cayenne Common Stock.
CONSEQUENTLY, THERE CAN BE NO ASSURANCE AS TO THE ACTUAL AMOUNT OF THE CASH
PAYMENT THAT WILL BE MADE ON ACCOUNT OF SHARES
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<PAGE>
OF CAYENNE COMMON STOCK THAT ARE CONVERTED IN THE MERGER OR THAT SUCH AMOUNT
WILL NOT BE SUBSTANTIALLY LESS THAN $0.375 PER SHARE.
Each share of common stock, par value $.10 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time will remain outstanding and
will not be affected in any way by the Merger. Each share of Cayenne Capital
Stock issued and outstanding immediately prior to the Effective Time that is
owned by Cayenne or any subsidiary of Cayenne or by Sterling Software, Merger
Sub or any other subsidiary of Sterling Software (other than shares of Cayenne
Capital Stock held in trust accounts, managed accounts, custodial accounts and
the like that are beneficially owned by third parties) will automatically be
canceled and retired and will cease to exist and no cash or other consideration
will be delivered or deliverable in exchange therefor.
Appraisal Rights. The Merger Agreement provides that shares of Cayenne
Capital Stock outstanding immediately prior to the Effective Time held by a
holder who has the right to demand, and who properly demands, an appraisal of
such shares in accordance with Sections 85 through 98 of the MGCL will not be
converted into the right to receive the applicable merger consideration unless
the holder thereof fails to perfect or otherwise loses such holder's right to
appraisal. If, after the Effective Time, such a holder fails to perfect or
loses any such right to appraisal, each such share of such holder will be
treated as a share that had been converted as of the Effective Time into the
right to receive the applicable merger consideration in accordance with the
Merger Agreement. See "--Appraisal Rights."
Treatment of Cayenne Stock Options. At the Effective Time, each Cayenne
Option, whether or not then vested or fully exercisable, will be assumed by
Sterling Software and will constitute an option (a "Substitute Option") to
acquire, on substantially the same terms and subject to substantially the same
conditions as were applicable under such Cayenne Option, including without
limitation term, vesting, exercisability and termination provisions, a number of
shares of Sterling Software Common Stock, rounded down to the nearest whole
share (with the portion, if any, of a Cayenne Option that would otherwise have
resulted in a Substitute Option being exercisable to purchase a fractional share
of Sterling Software Common Stock being extinguished as a result of such
rounding), determined by multiplying (i) the number of shares of Cayenne Common
Stock subject to such Cayenne Option immediately prior to the Effective Time by
(ii) the Option Conversion Factor, at an exercise price per share of Sterling
Software Common Stock (increased to the nearest one-tenth of a cent) equal to
(i) the exercise price per share of Cayenne Common Stock subject to such Cayenne
Option divided by (ii) the Option Conversion Factor. The "Option Conversion
Factor" will be equal to the quotient obtained by dividing (i) the amount of the
cash payment made on account of each share of Cayenne Common Stock that is
converted in the Merger by (ii) $21.50 (i.e., the closing price per share of
Sterling Software Common Stock on August 26, 1998).
Cayenne has agreed to use all reasonable efforts to obtain all necessary
waivers, consents or releases from holders of Cayenne Options under the Cayenne
Stock Option Plans and take any such other action as may be reasonably necessary
to give effect to the transactions described in the immediately preceding
paragraph. Sterling Software has agreed to take all corporate action necessary
to reserve for issuance a sufficient number of shares of Sterling Software
Common Stock for delivery upon exercise of Substitute Options. Sterling
Software has also agreed (i) to register such shares with the Commission on an
appropriate registration statement, at such time (if any) as such action may be
required under the Securities Act, (ii) to use all reasonable efforts to
maintain the effectiveness of such registration statement as long as such
Substitute Options remain outstanding, and (iii) to use all reasonable efforts
to cause such shares of Sterling Software Common Stock to be listed on the New
York Stock Exchange (the "NYSE") or any other exchange upon which shares of
Sterling Software Common Stock may be listed, at such time (if any) as such
action may be required under the rules and policies of the NYSE or such other
exchange.
Treatment of Cayenne Warrants. At the Effective Time, each Cayenne Warrant
will be canceled and retired and will cease to exist, and no cash or other
consideration will be delivered or deliverable in exchange therefor. Cayenne has
agreed to use all reasonable efforts to obtain all necessary waivers, consents
or releases from holders of Cayenne Warrants under the Cayenne Warrant Documents
and take any such other action as may be reasonably necessary to give effect to
the transactions described in the immediately preceding paragraph.
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Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations by Cayenne with respect to: (i) organization, good standing and
corporate power; (ii) authority and noncontravention; (iii) consents and
approvals; (iv) capital structure; (v) documents filed with the Commission; (vi)
absence of certain changes or events and undisclosed liabilities; (vii) real
property and other assets; (viii) software; (ix) intellectual property; (x)
material contracts; (xi) litigation; (xii) compliance with laws; (xiii)
environmental matters; (xiv) taxes; (xv) benefit plans; (xvi) labor matters;
(xvii) brokers' fees; (xviii) receipt of the written fairness opinion of AH&H;
and (xix) voting requirements.
Sterling Software and Merger Sub have also made certain representations and
warranties with respect to: (i) organization and good standing; (ii) authority
and noncontravention; (iii) consents and approvals; and (iv) financing.
No representations and warranties made by Cayenne, Sterling Software or Merger
Sub will survive beyond the Effective Time.
Interim Credit Arrangements. Sterling Software has guaranteed Cayenne's
obligations under the Overadvance Facility. During the period from and after
the date of the Merger Agreement to the earlier of the Effective Time and the
termination of the Merger Agreement, Cayenne has agreed not to effect advances
under the Overadvance Facility without Sterling Software's prior consent and
without first maximizing all other available sources of working capital, and
Sterling Software has agreed, subject to the satisfaction of the conditions
described in the next paragraph, from time to time at Cayenne's request, to
consent to advances under the Overadvance Facility to fund Cayenne's working
capital requirements in the ordinary course of business consistent with past
practice (each such advance being referred to herein as an "Advance"). Although
Sterling Software has no obligation to allow more than $3,000,000 of Advances to
be made, it may, in its sole and absolute discretion, allow an unlimited amount
of Advances to be made (although the Forbearance Agreement, as presently in
effect, provides for a maximum of $3,000,000 of Advances). Any advances in
excess of $3,000,000 would likewise reduce the cash merger consideration payable
to holders of Cayenne Common Stock.
The obligation of Sterling Software to consent to any Advance shall be subject
to the satisfaction on the date that any Advance is to be made (an "Advance
Date") of the following conditions: (i) the Forbearance Agreement (and certain
related agreements) shall be in full force and effect without modification,
amendment or supplement, and neither Cayenne nor SVB shall have (A) waived any
rights thereunder without Sterling Software's prior written consent or (B) taken
or omitted to take (or expressed any intention to take or omit to take) any
action in contravention thereof; (ii) Cayenne shall not have taken or omitted to
take (or expressed any intention to take or omit to take) any action in
contravention of the provisions of Section 6.11 of the Merger Agreement (which,
among other things, prohibits Cayenne from making any payments in respect of the
principal amount of any Advances or, except as expressly required under the
Forbearance Agreement, in respect of any other obligations under the SVB Credit
Facility) or the provisions of a cash management plan agreed upon by Cayenne and
Sterling Software; (iii) specified conditions to the obligations of Sterling
Software and Merger Sub to effect the Merger shall have been satisfied (with the
references to the "Closing Date" in the applicable provisions of the Merger
Agreement being deemed to be references to the applicable Advance Date for this
purpose); (iii) from the date of the Merger Agreement to the applicable Advance
Date, neither Cayenne nor any of its subsidiaries or any of its or their
affiliates, officers, directors, employees, agents or representatives (including
without limitation any investment banker, financial advisor, attorney or
accountant retained by Cayenne or any of its subsidiaries) shall have (A)
initiated, solicited or encouraged (including by way of providing information or
assistance), or taken any other action to facilitate, any inquiries, any
expression of interest or the making of any proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal (as hereinafter
defined) or (B) entered into, maintained or continued discussions or negotiated
with any person in furtherance of such inquiries or to obtain an Acquisition
Proposal or agreed to or endorsed any Acquisition Proposal; (iv) the making of
an Advance to Cayenne shall not cause a default or event of default to occur
under the SVB Credit Facility or any other obligation of Cayenne or any of its
subsidiaries for borrowed money or evidenced by indentures, credit agreements,
security agreements, mortgages, guarantees, promissory notes or other contracts
relating to the borrowing of money; and (v) if a default or event of default has
occurred and is continuing under any indenture, credit agreement, security
agreement, mortgage, guaranty,
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promissory note or other contract relating to the borrowing of money to which
Cayenne is a party, Cayenne shall have obtained a written waiver of such default
or event of default or a forbearance agreement, in each case in form and
substance reasonably satisfactory to Sterling Software.
No Solicitation. The Merger Agreement provides that, from and including the
date of the Merger Agreement to the Effective Time, Cayenne will not, and will
not authorize or permit any of its subsidiaries, or any of its or their
affiliates, officers, directors, employees, agents or representatives (including
without limitation any investment banker, financial advisor, attorney or
accountant retained by Cayenne or any of its subsidiaries), to, directly or
indirectly, initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries, any expression of interest or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal,
or enter into or maintain or continue discussions or negotiate with any person
in furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal; except that nothing in the Merger
Agreement will prohibit the Cayenne Board, prior to the time at which the Merger
Agreement is approved by Cayenne's stockholders, from furnishing information to,
or entering into, maintaining or continuing discussions or negotiations with,
any person that makes an unsolicited bona fide written Acquisition Proposal
after the date of the Merger Agreement, if, and to the extent that, the Cayenne
Board, after consultation with and based upon the advice of independent legal
counsel, determines in good faith that (i) such Acquisition Proposal would be
more favorable to the Cayenne stockholders than the Merger, and (ii) the failure
to take such action would result in a breach by the Cayenne Board of its
fiduciary duties to the Cayenne stockholders under applicable law, and, prior to
furnishing any non-public information to such person, Cayenne receives from such
person an executed confidentiality agreement with provisions no less favorable
to Cayenne than the confidentiality agreement entered into by Sterling Software
and Cayenne in connection with the Merger. The Merger Agreement further
provides that Cayenne will promptly (and, in any event within 24 hours) notify
Sterling Software after receipt by Cayenne of any Acquisition Proposal or any
request for information relating to Cayenne or its subsidiaries or for access to
the properties, books or records of Cayenne or any of its subsidiaries by any
person who has informed Cayenne that such person is considering making, or has
made, an Acquisition Proposal (which notice will identify the person making, or
considering to make, such Acquisition Proposal and will set forth the material
terms of any Acquisition Proposal received), and Cayenne will keep Sterling
Software informed in reasonable detail of the terms, status and other pertinent
details of any such Acquisition Proposal. For purposes of the Merger Agreement,
"Acquisition Proposal" means an inquiry, offer, proposal or indication of
interest regarding any of the following (other than the transactions
contemplated by the Merger Agreement or the Stock Option Agreement with Sterling
Software or Merger Sub) involving Cayenne: (i) any merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of all or substantially all of the assets of Cayenne and its subsidiaries, taken
as a whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of Cayenne or the filing of a registration statement under the
Securities Act of 1933, as amended, in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
The Merger Agreement further provides that during the period from and
including the date thereof to and including the Effective Time, neither the
Cayenne Board nor any committee thereof will withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Sterling Software or
Merger Sub, the approval of the Merger Agreement or the transactions
contemplated thereby or the recommendation referred to in "--Cayenne
Stockholders Meeting" below, except that nothing contained in the Merger
Agreement will prohibit the Cayenne Board from (i) withdrawing or modifying such
recommendation following the receipt by Cayenne after the date of the Merger
Agreement, under circumstances not involving any breach of the provisions
described in the immediately preceding paragraph, of an unsolicited Acquisition
Proposal if, and to the extent that, the Cayenne Board, after consultation with
and based upon the advice of independent legal counsel, determines in good faith
that (A) the transactions contemplated by such Acquisition Proposal would be
more favorable to Cayenne's stockholders than the transactions contemplated by
the Merger Agreement and (B) the failure to take such action would result in a
breach by the Cayenne Board of its fiduciary duties to Cayenne's stockholders
under applicable law, or (ii) to the extent applicable, complying with Rule 14e-
2 promulgated under the Exchange Act with regard to an Acquisition Proposal. No
such action taken by the Cayenne Board will (i) have any effect on Cayenne's
obligations described
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under "--Cayenne Stockholders Meeting" below to hold the Special Meeting, which
obligations are absolute and unconditional, (ii) permit Cayenne to terminate the
Merger Agreement except as described under "--Termination; Effects of
Termination", (iii) permit Cayenne to enter into any agreement providing for any
transaction contemplated by an Acquisition Proposal for as long as the Merger
Agreement remains in effect, or (iv) affect in any manner any other obligation
of Cayenne under the Merger Agreement.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligation of each party to effect the Merger is subject to the satisfaction or
written waiver on or prior to the Closing Date of the following conditions: (i)
the Merger Agreement shall have been approved by the affirmative vote of the
holders of the requisite number of shares of Cayenne Capital Stock in the manner
required pursuant to Cayenne's Articles of Organization (the "Cayenne
Articles"), Cayenne's Bylaws (the "Cayenne Bylaws"), the MGCL and other
applicable law; (ii) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect; and (iii) all necessary waiting periods under the HSR Act
applicable to the Merger shall have expired or been earlier terminated.
The obligation of each of Sterling Software and Merger Sub to effect the
Merger is further subject to satisfaction or written waiver on or prior to the
Closing Date of the following conditions: (i) the representations and
warranties of Cayenne contained in the Merger Agreement, which representations
and warranties are deemed for purposes of this condition not to include any
qualification or limitation with respect to materiality (whether by reference to
Material Adverse Effect (as hereinafter defined) or otherwise), shall be true
and correct as of the Closing Date, except where the matters in respect of which
such representations and warranties are not true and correct, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect on Cayenne, with the same effect as though such representations and
warranties were made as of the Closing Date, and Sterling Software and Merger
Sub shall have received a certificate signed on behalf of Cayenne by an
authorized officer of Cayenne to such effect; (ii) Cayenne shall have performed
in all material respects all obligations required to be performed by it under
the Merger Agreement at or prior to the Closing Date, and Sterling Software and
Merger Sub shall have received a certificate signed on behalf of Cayenne by an
authorized officer of Cayenne to such effect; (iii) since the date of the Merger
Agreement, Cayenne and its subsidiaries, taken as a whole, shall not have
experienced any Material Adverse Change (as defined in the Merger Agreement);
(iv) there shall not be pending or threatened any suit, action or proceeding
seeking to restrain or prohibit the Merger or seeking to obtain from Sterling
Software or Cayenne or any of their respective affiliates in connection with the
Merger any material damages, or seeking other specified relief; (v) all
consents, authorizations, orders and approvals of (or filings or registrations
with) any governmental entity or any other person required to be obtained or
made prior to the Effective Time in connection with the execution, delivery and
performance of the Merger Agreement shall have been obtained or made, except for
the filing of the Massachusetts Articles of Merger and the Georgia Certificate
of Merger and except where the failure to have obtained or made such consents,
authorizations, orders, approvals, filings or registrations could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Sterling Software or the Surviving Company; (vi) Sterling Software and
Cayenne shall have received written confirmation reasonably satisfactory to
Sterling Software from certain insurers as to specified insurance matters; (vii)
specified commercial relationships to which Cayenne is a party shall have been
modified or terminated on terms reasonably satisfactory to Sterling Software;
and (viii) SVB shall not have exercised any rights or remedies or taken any
other action under or in respect of the SVB Credit Facility and shall not have
failed to make any Advance requested by Cayenne and consented to by Sterling
Software as described in "--Interim Credit Arrangements." For purposes of the
Merger Agreement, a "Material Adverse Effect" with respect to any person means a
material adverse effect on (i) the ability of such person to perform its
obligations under the Merger Agreement or to consummate the transactions
contemplated thereby or (ii) the condition (financial or otherwise), assets,
liabilities (actual or contingent), results of operations or business of such
person and its subsidiaries taken as a whole.
The obligation of Cayenne to effect the Merger is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions: (i) the representations and warranties of each of Sterling Software
and Merger Sub contained in the Merger Agreement, which representations and
warranties are deemed for purposes of this condition not to include any
qualification or limitation with respect to materiality (whether by reference to
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Material Adverse Effect or otherwise), shall be true and correct as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, have not had and
could not reasonably be expected to have a Material Adverse Effect on Sterling
Software or a material adverse effect on the economic benefits to be realized by
the holders of shares of Cayenne Capital Stock as a result of the consummation
of the Merger, with the same effect as though such representations and
warranties were made as of the Closing Date, and Cayenne shall have received a
certificate signed on behalf of Sterling Software and Merger Sub by an
authorized officer of Sterling Software to such effect; and (ii) each of
Sterling Software and Merger Sub shall have performed in all material respects
all obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date, and Cayenne shall have received a certificate signed
on behalf of Sterling Software by an authorized officer of Sterling Software to
such effect.
Termination; Effects of Termination. The Merger Agreement may be terminated
and the transactions contemplated thereby may be abandoned at any time prior to
the Effective Time, notwithstanding approval thereof by the Cayenne
stockholders, in any one of the following circumstances: (i) by mutual written
consent duly authorized by the Board of Directors of Sterling Software and the
Cayenne Board; (ii) by Sterling Software or Cayenne, if the Effective Time shall
not have occurred on or before December 31, 1998 (otherwise than as a result of
a material breach of any provision of the Merger Agreement by the party seeking
to effect such termination); (iii) by Sterling Software or Cayenne, if any
federal or state court of competent jurisdiction or other governmental entity
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and non-
appealable; (iv) by Sterling Software or Cayenne, if the Special Meeting shall
have been held and the Merger Agreement shall not have been approved by the
affirmative vote of the requisite number of shares of Cayenne Capital Stock; (v)
by Sterling Software, if (A) the Cayenne Board or any committee thereof shall
have (1) withdrawn or modified, in a manner adverse to Sterling Software or
Merger Sub, its approval of the Merger Agreement or the other transactions
contemplated by the Merger Agreement or the recommendation referred to in "--
Cayenne Stockholders Meeting," (2) approved, endorsed or recommended to its
stockholders an Acquisition Proposal, or (3) resolved to do any of the foregoing
or (B) if the Special Meeting shall not have been held by October 31, 1998 as a
result of a breach by Cayenne of its obligations described in "--Cayenne
Stockholders Meeting"; or (vi) by Sterling Software or Cayenne, if (A) the other
party shall have failed to comply in any material respect with any of the
material covenants and agreements contained in the Merger Agreement to be
complied with or performed by such party at or prior to such date of
termination, and such failure continues for 20 business days after the actual
receipt by such party of a written notice from the other party setting forth in
detail the nature of such failure, or (B) the representations and warranties of
the other party contained in the Merger Agreement, which representations and
warranties are deemed not to include any qualification or limitation with
respect to materiality (whether by reference to a Material Adverse Effect or
otherwise), shall have been untrue in any respect on the date when made (or in
the case of any representations and warranties that are made as of a different
date, as of such different date) and the matters in respect of which such
representations and warranties shall have been untrue, in the aggregate, have
had or could reasonably be expected to have a Material Adverse Effect on such
other party.
If the Merger Agreement is terminated based upon an event described in clause
(iv) or (v) of the immediately preceding paragraph, Cayenne will be required to
pay to Sterling Software a fee in an amount equal to $570,000. If the Merger
Agreement is terminated by Cayenne based on an event described in clause (vi) of
the immediately preceding paragraph, then Sterling Software will be required to
pay to or for the account of Cayenne an amount in immediately available funds
equal to $570,000 (the "Liquidated Damages Amount"). The payment of the
Liquidated Damages Amount will be the exclusive remedy of Cayenne for any
damages arising from or relating to any event described in clause (vi) of the
preceding paragraph. To the extent that any Advances are outstanding at the
time that Cayenne elects to terminate the Merger Agreement based on an event
described in clause (vi) of the preceding paragraph, Sterling Software will pay
the Liquidated Damages Amount first to SVB to reduce the balance of such
Advances, with any remaining portion of the Liquidated Damages Amount being
thereafter paid to Cayenne.
The Merger Agreement provides that in the event of the termination thereof as
described in the first paragraph under "--Termination; Effects of Termination,"
the Merger Agreement (except for the provisions described in the immediately
preceding paragraph and certain other specified provisions thereof) will cease
to have any force or effect
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without any liability on the part of any party thereto. Subject in all events to
payment of the Liquidated Damages Amount being an exclusive remedy in the
circumstances to which it applies, the provision of the Merger Agreement
described in the immediately preceding sentence would not relieve any party to
the Merger Agreement from liability for any willful or intentional breach of the
Merger Agreement.
Termination of the Merger Agreement for any reason will constitute an Event of
Default under the SVB Forbearance Agreement and will terminate Cayenne's ability
to availability of the Overadvance Facility. Upon the occurrence of such an
Event of Default, SVB may refuse to make further advances under the SVB Credit
Facility and demand payment of all amounts owing under the SVB Credit Facility.
See "The Forbearance Agreement."
Cayenne Stockholders Meeting. The Merger Agreement provides that Cayenne will
take all action necessary, in accordance with the MGCL and other applicable law
and the Cayenne Articles and the Cayenne Bylaws, to convene and hold a special
meeting of Cayenne stockholders as promptly as practicable after the date of the
Merger Agreement for the purpose of considering and voting upon the Merger
Agreement and to solicit proxies in connection therewith. The Merger Agreement
also provides that, subject to the right of the Cayenne Board to withdraw or
modify its recommendation as described in the second paragraph under the caption
"--No Solicitation" above, the Cayenne Board will recommend that the holders of
shares of Cayenne Capital Stock vote in favor of the approval of the Merger
Agreement at the Special Meeting and cause such recommendation to be included in
this Proxy Statement.
Consents, Approvals and Filings. The Merger Agreement provides that each of
the parties to the Merger Agreement will (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act
and the Exchange Act, with respect to the Merger and the other transactions
contemplated by the Merger Agreement and (ii) use its reasonable best efforts to
take, or cause to be taken, all appropriate 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 Merger and the other
transactions contemplated by the Merger Agreement, including without limitation
using all reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental entities
and parties to contracts with Cayenne and its subsidiaries as are necessary for
the consummation of the Merger and the other transactions contemplated by the
Merger Agreement and to fulfill the conditions to the Merger, except that in no
event will Sterling Software or any of its subsidiaries be required to agree or
commit to divest, hold separate, offer for sale, abandon, limit its operation of
or take similar action with respect to any assets (tangible or intangible) or
any business interest of it or any of its subsidiaries (including without
limitation the Surviving Company after consummation of the Merger) in connection
with or as a condition to receiving the consent or approval of any governmental
entity (including without limitation under the HSR Act). See "The Merger --
Regulatory Approvals."
Employee Benefit Matters. The Merger Agreement provides that, from and after
the Effective Time, Sterling Software will, and will cause its subsidiaries
(including the Surviving Company) to, honor and provide for payment of all
accrued obligations and benefits under all employee benefit plans of Cayenne and
employment or severance agreements between Cayenne and any persons who are or
had been employees of Cayenne or any of its subsidiaries at or prior to the
Effective Time ("Covered Employees"), all in accordance with their respective
terms.
The Merger Agreement further provides that, from and after the Effective Time,
Sterling Software will, and will cause its subsidiaries (including the Surviving
Company) to, provide Covered Employees who remain in the employ of Sterling
Software or any such subsidiary employee benefits that are reasonably comparable
to the employee benefits provided to similarly situated employees of Sterling
Software or any such subsidiary who are not Covered Employees. The Merger
Agreement also provides that, to the extent Covered Employees are included in
any benefit plan of Sterling Software or its subsidiaries, Covered Employees
will receive credit under such plan (other than any such plan providing for
sabbaticals) for service prior to the Effective Time with Cayenne to the same
extent such service was counted under similar Cayenne employee benefit plans for
purposes of eligibility, vesting, eligibility for retirement (but not for
benefit accrual) and, with respect to vacation, disability and severance,
benefit accrual. The Merger Agreement also provides that, to the extent that
Covered Employees are included in any medical, dental or health plan other than
the plan or plans they participated in at the Effective Time, any such plans
will not include
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pre-existing condition exclusions, except to the extent such exclusions were
applicable under the similar Cayenne employee benefit plan at the Effective
Time, and will provide credit for any deductibles and co-payments applied or
made with respect to each Covered Employee in the calendar year of the change.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that, for a period of five years after the Effective Time, the
provisions with respect to indemnification set forth in the certificate of
incorporation and bylaws of Merger Sub as in effect on the date of the Merger
Agreement will not be amended, repealed or otherwise modified in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of Cayenne in respect of
actions or omissions occurring at or prior to the Effective Time (including the
transactions contemplated by the Merger Agreement), unless such modification is
required by law.
The Merger Agreement also provides that for a period commencing at the
Effective Time and expiring not later than the fifth anniversary of the
Effective Time, Sterling Software will cause to be maintained in effect policies
of directors' and officers' liability insurance, for the benefit of those
persons who are covered by Cayenne's directors' and officers' liability
insurance policies at the Effective Time, providing coverage with respect to
matters occurring prior to the Effective Time that is at least equal to the
coverage provided under Cayenne's current directors' and officers' liability
insurance policies, to the extent that such liability insurance can be
maintained at an annual cost to Sterling Software not greater than 150 percent
of the premium for the current Cayenne directors' and officers' liability
insurance; provided that if such insurance cannot be so maintained at such cost,
Sterling Software shall maintain as much of such insurance as can be so
maintained at a cost equal to 150 percent of the current annual premiums of
Cayenne for such insurance.
Fees and Expenses. The Merger Agreement provides that each party will pay its
own expenses incident to preparing for, entering into and carrying out the
Merger Agreement and the consummation of the transactions contemplated thereby,
except that each of Sterling Software and Cayenne will bear and pay one-half of
the costs and expenses incurred in connection with the filing of the premerger
notification and report forms under the HSR Act.
Amendment. Subject to the applicable provisions of the MGCL, at any time
prior to the Effective Time the parties to the Merger Agreement may modify or
amend the Merger Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties, except that after approval of the
Merger Agreement at the Special Meeting, no amendment will be made which would
reduce the amount or change the type of consideration into which each share of
Cayenne Capital Stock will be converted upon consummation of the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as that term is used under
generally accepted accounting principles, for accounting and financial reporting
purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences of the Merger and is based on the Code, the final, proposed and
temporary Treasury Regulations promulgated thereunder, administrative rulings
and interpretations, and judicial decisions, in each case as in effect as of the
date hereof. All of the foregoing are subject to change at any time, possibly
with retroactive effect. The discussion set forth below does not address all
aspects of federal income taxation that may be relevant to a stockholder in
light of such stockholder's particular circumstances or to stockholders subject
to special rules under the federal income tax laws, such as non-United States
persons, financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or stockholders who acquired their shares of Cayenne
Capital Stock pursuant to the exercise of employee stock options or otherwise as
compensation, nor any consequences arising under the laws of any state, locality
or foreign jurisdiction. This discussion assumes that holders of Cayenne
Capital Stock hold their respective shares as capital assets within the meaning
of Section 1221 of the Code.
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The receipt of cash for shares of Cayenne Capital Stock pursuant to the Merger
will be a taxable transaction to stockholders for federal income tax purposes
under the Code and also may be a taxable transaction under applicable state,
local, foreign and other tax laws. In general, a stockholder will recognize
gain or loss measured by the difference between the amount of cash received in
exchange for shares of Cayenne Capital Stock and the tax basis in such shares of
Cayenne Capital Stock. Such gain or loss will be capital gain or loss and, in
the case of an individual stockholder, any gain will generally be taxed at a
maximum rate of 20% if such Cayenne Capital Stock is considered to have been
held for more than 12 months at the Effective Time.
HOLDERS OF CAYENNE CAPITAL STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
REGULATORY MATTERS
Sterling Software and Cayenne must observe the notification and waiting period
requirements of the HSR Act before the Merger may be consummated. The HSR Act
provides for an initial 30-calendar day waiting period following the filing with
the FTC and the Antitrust Division of certain notification and report forms by
Sterling Software and Cayenne. The HSR Act further provides that if, within the
initial 30-calendar day waiting period, the FTC or the Antitrust Division issues
a request for additional information or documents, the waiting period will be
extended until 11:59 p.m. on the twentieth day after the date of substantial
compliance by the filing parties with such request. Only one such extension of
the initial waiting period is permitted under the HSR Act; however, the filing
parties may voluntarily extend the waiting period.
Sterling Software and Cayenne have made the requisite initial filings under
the HSR Act in connection with the Merger. The initial waiting period with
respect to such filings will expire at 11:59 p.m. on September 27, 1998.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the FTC or the Antitrust Division could, among other
things, seek under the antitrust laws to enjoin the Merger or to cause Sterling
Software to divest itself, in whole or in part, of Cayenne or of other
businesses conducted by Sterling Software. Under certain circumstances, private
parties and state governmental authorities may also bring legal action under the
antitrust laws challenging the Merger. See "--The Merger Agreement--Conditions
to the Merger" and "--Consents, Approvals and Filings."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of Cayenne's management and the Cayenne Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as stockholders of Cayenne generally. Such interests relate to, among
other things, provisions in the Merger Agreement regarding the treatment of
outstanding Cayenne Options and the performance and provision of obligations and
benefits under existing employment and severance agreements and compensation and
benefit plans. The Cayenne Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement. See "The Merger--
The Merger Agreement --Treatment of Cayenne Stock Options" and "--Employee
Benefit Matters."
Cayenne Stock Option Plans. Under the Cayenne Stock Option Plans, Cayenne has
granted Cayenne Options to selected officers and employees. As a result of the
Merger, outstanding Cayenne Options will be assumed by Sterling Software and
will constitute options to acquire Sterling Software Common Stock. See "The
Merger --The Merger Agreement --Treatment of Cayenne Stock Options." The
intrinsic value of all of the Cayenne Options (based on the price of Cayenne
Common Stock at the close of business on September __, 1998 of $________ and
determined by subtracting the exercise price of such Cayenne Options from the
value of the shares of Cayenne Common Stock subject to such Cayenne Options) is
zero.
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The following table sets forth, with respect to each of the executive officers
of Cayenne (the "Cayenne Executive Officers") and each of the directors serving
on the Cayenne Board, the number of shares of Cayenne Common Stock subject to
vested and unvested Cayenne Options held by such Cayenne Executive Officer or
director as of August 26, 1998. The aggregate intrinsic value of vested and
unvested Substitute Options which will be received in respect of such Cayenne
Options by each individual whose name is listed in the following table (based on
the price of Sterling Software Common Stock at the close of business on August
26, 1998 of $21.50 and determined by subtracting the aggregate exercise price of
such Substitute Options from the total value of the shares of Sterling Software
Common Stock subject to such Substitute Options) is zero.
NUMBER OF
SHARES
---------
EXECUTIVE OFFICERS
------------------------
John J. Alexander......... 177,600
Luciano Balma............. 55,600
Frederick H. Phillips..... 175,000
Massood Zarrabian......... 485,000
DIRECTORS
------------------------
R. John Fletcher.......... 50,000
William H.D. Goddard...... 38,955
Roland D. Pampel.......... 40,000
Allyn C. Woodward, Jr..... 50,000
Upon a "change in control" event, outstanding Cayenne Options held by certain
Cayenne Executive Officers will become immediately vested with respect to the
following numbers of shares of Cayenne Common Stock: Mr. Balma, 6,000 shares;
Mr. Phillips, 18,750 shares; and Mr. Zarrabian, 150,000 shares. Consummation of
the Merger will constitute such a "change in control" event.
Employment Agreement with Mr. Zarrabian. Cayenne has entered into an
agreement with Mr. Zarrabian (the "Zarrabian Agreement") that provides for
certain payments in the event of a "change in control." The Merger will
constitute such a "change in control." Under the Zarrabian Agreement, Mr.
Zarrabian would be entitled to a bonus payment of $125,000 within five days of
the Effective Time. Such payment constitutes consideration for the termination
of certain other severance agreements between him and Cayenne. In addition, the
Zarrabian Agreement provides that, after the Merger, Mr. Zarrabian would be
entitled to the payment of an additional $350,000 upon either the termination of
his employment with the Surviving Company or a failure of the Surviving Company
to offer Mr. Zarrabian a satisfactory position. Such payment would be triggered
by (i) termination of Mr. Zarrabian's employment by Cayenne or (ii) termination
of employment by Mr. Zarrabian for specified reasons. If Mr. Zarrabian's
employment is terminated by the Surviving Company without cause or if he
resigns, he would also be entitled to receive salary and benefits for a period
of six months after such termination.
APPRAISAL RIGHTS
If the Merger Agreement is approved by stockholders at the Special Meeting and
the Merger becomes effective, any holder of Cayenne Capital Stock (i) who files
with Cayenne, before the taking of the vote to approve the Merger Agreement,
written objection to the Merger stating that such holder intends to demand
payment for such holder's shares if the Merger becomes effective and (ii) whose
shares are not voted for the approval of the Merger Agreement, has the right to
demand in writing from the Surviving Company, within 20 days after the date of
mailing to such holder of notice in writing that the Merger has become
effective, payment for such holder's shares and an appraisal of the value
thereof. The Surviving Company and any such holder of Cayenne Capital Stock
shall in such cases have the rights and duties and shall follow the procedure
set forth in Sections 88 to 98, inclusive, of the MBCL, which are set forth in
full in Appendix C hereto.
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The following is a summary of the relevant sections of the MBCL. Such summary
is subject to and qualified in its entirety by reference to Appendix C hereto.
In order to exercise statutory appraisal rights, strict adherence to such
statutory provisions is required, and each stockholder who may desire to
exercise such rights should carefully review and adhere to such provisions.
Under Section 86 of the MBCL, no holder of Cayenne Capital Stock shall have
the right to demand payment for such holder's shares and an appraisal thereof
unless (i) such holder files with Cayenne, before the taking of the vote to
approve the Merger Agreement, written objection to the Merger stating that such
holder intends to demand payment for such holder's shares if the Merger becomes
effective (a "Written Objection") and (ii) such holder's shares are not voted
for the approval of the Merger Agreement. Any Written Objection should be
delivered to Cayenne Software, Inc., 14 Crosby Drive, Bedford, Massachusetts
01730, Attention: Clerk, and it is recommended that any Written Objection be
sent by registered or certified mail, return receipt requested.
Under Section 88 of the MBCL, the Surviving Company shall, within 10 days
after the date on which the Merger becomes effective, notify each stockholder
who filed a Written Objection meeting the requirements of Section 86 of the MBCL
and whose shares were not voted for the approval of the Merger Agreement that
the Merger has become effective (a "Merger Notice").
Under Section 89 of the MBCL, if within 20 days after the date of mailing of a
Merger Notice any holder of Cayenne Capital Stock to whom Cayenne was required
to give the Merger Notice shall demand in writing, from the Surviving Company,
payment for such holder's stock, the Surviving Company shall pay to such holder
(a "Demanding Stockholder") the fair value of such holder's stock within 30 days
after the expiration of the period during which such demand may be made.
Under Section 90 of the MBCL, if during the 30-day period referred to in the
immediately preceding paragraph the Surviving Company and any Demanding
Stockholder fail to agree as to the value of such Demanding Stockholder's stock,
the Surviving Company or any Demanding Stockholder may within four months after
the expiration of such 30-day period demand a determination of the value of the
stock of all Demanding Stockholders by a bill of equity filed in the superior
court in Middlesex County, Massachusetts.
Under Section 91 of the MBCL, if the bill is filed by the Surviving Company,
it shall name as parties respondent all Demanding Stockholders with whom the
Surviving Company has not reached agreement as to the value thereof. If the bill
is filed by a Demanding Stockholder, such Demanding Stockholder shall bring the
bill in its own behalf and in behalf of all other Demanding Stockholders with
whom the Surviving Company has not reached agreement as to the value thereof,
and service of the bill shall be made upon the Surviving Company by subpoena
with a copy of the bill annexed. The Surviving Company shall file with its
answer a duly verified list of all such other Demanding Stockholders, and such
Demanding Stockholders shall thereupon be deemed to have been added as parties
to the bill. The Surviving Company shall give notice in such form and
returnable on such date as the court shall order to each Demanding Stockholder
party to the bill by registered or certified mail, addressed to the last known
address of such Demanding Stockholder as shown in the records of the Surviving
Company, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each Demanding Stockholder shall be deemed to
have consented to the provisions of Section 91 of the MBCL relating to notice,
and the giving of notice by the Surviving Company to any such Demanding
Stockholder in compliance with the order of the court shall be a sufficient
service of process on it. Failure to give notice to any Demanding Stockholder
shall not invalidate the proceedings as to any other Demanding Stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
Under Section 92 of the MBCL, after hearing, the court shall enter a decree
determining the fair value of the stock of those Demanding Stockholders who have
become entitled to the valuation of and payment for their shares, and shall
order the Surviving Company to make payment of such value, together with
interest, if any, to the Demanding Stockholders entitled thereto upon the
transfer by them to the Surviving Company of the certificates representing such
stock. For this purpose, the value of the shares shall be determined as of the
day preceding the
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date of the vote approving the Merger Agreement and shall be exclusive of any
element of value arising from the expectation or accomplishment of the Merger.
Under Section 93 of the MBCL, the court in its discretion may refer the bill
or any question arising thereunder to a special master to hear the parties, make
findings and report the same to the court, all in accordance with the usual
practice in suits in equity in the superior court.
Under Section 94 of the MBCL, on motion, the court may order Demanding
Stockholders party to the bill to submit their certificates of stock to the
Surviving Company for notation thereon of the pendency of the bill, and may on
motion dismiss the bill as to any Demanding Stockholder who fails to comply with
such order.
Under Section 95 of the MBCL, the costs of the bill, including the reasonable
compensation and expenses of any master appointed by the court, but exclusive of
fees of counsel or of experts retained by any party, shall be determined by the
court and taxed upon the parties to the bill, or any of them, in such manner as
appears to be equitable, except that all costs of giving notice to Demanding
Stockholders as provided under the MBCL shall be paid by the Surviving Company.
Interest shall be paid upon any award from the date of the vote approving the
Merger Agreement, and the court may on application of any interested party
determine the amount of interest to be paid in the case of any Demanding
Stockholder.
Under Section 96 of the MBCL, any holder of Cayenne Capital Stock who has
demanded payment for such holder's stock as provided in the MBCL shall not
thereafter be entitled to notice of any meeting of stockholders or to vote such
stock for any purpose and shall not be entitled to the payment of dividends or
other distribution on the stock (except dividends or other distributions payable
to stockholders of record at a date which is prior to the date of the vote
approving the Merger Agreement) unless: (i) a bill shall not be filed within
the time provided in Section 90 of the MBCL; (ii) a bill, if filed, shall be
dismissed as to such holder; or (iii) such holder shall, with the written
approval of the Surviving Company, deliver to the Surviving Company a written
withdrawal of such holder's objections to and an acceptance of the Merger.
Under Section 98 of the MBCL, the enforcement by a holder of Cayenne Capital
Stock of such holder's right to receive payment for such holder's shares in the
manner provided in the MBCL shall be an exclusive remedy except that the MBCL
shall not exclude the right of such holder to bring or maintain an appropriate
proceeding to obtain relief on the ground that the Merger will be or is illegal
or fraudulent as to such holder. In addition, in Coggins v. New England
----------------------
Patriots Football Club, Inc., 397 Mass. 525 (1986), the Massachusetts Supreme
- ---------------------------
Judicial Court held that dissenting stockholders are not limited to the
statutory remedy of judicial appraisal where violations of fiduciary duty exist.
THE FORBEARANCE AGREEMENT
GENERAL
In connection with the execution and delivery of the Merger Agreement, SVB,
Cayenne and certain of Cayenne's subsidiaries entered into the Forbearance
Agreement.
The following is a summary of the material terms of the Forbearance Agreement.
This summary is not a complete description of the terms and conditions of the
Forbearance Agreement and is qualified in its entirety by reference to the full
text of the Forbearance Agreement, a copy of which is filed as Exhibit 10.31 to
Cayenne's Current Report on Form 8-K dated August 28, 1998. See "Available
Information" and "Incorporation of Certain Documents by Reference."
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FORBEARANCE AGREEMENT, AMENDED REVOLVING LOAN FACILITY AND OVERADVANCE FACILITY
Pursuant to the Forbearance Agreement, SVB has agreed, on the basis of credit
enhancement provided by Sterling Software and subject to specified conditions,
to (i) forbear from exercising its rights and remedies in respect of defaults by
Cayenne under the SVB Credit Facility, (ii) continue to make advances to Cayenne
under the revolving credit facility included in the SVB Credit Facility, as
amended by the Forbearance Agreement to provide for borrowings thereunder in an
amount not to exceed the lesser of (x) the "borrowing base" determined on a
semi-monthly basis, and (y) $200,000,000 (as so amended, the "Amended Revolving
Loan Facility"), (iii) remit to Cayenne amounts collected under a "lockbox
arrangement" for working capital purposes so long as Cayenne is in borrowing
base compliance, and (iv) make advances to Cayenne in a maximum amount of up to
$3,000,000 under a new subfacility (i.e., the Overadvance Facility) to fund
Cayenne's working capital requirements. In connection therewith, Cayenne paid
to SVB a forbearance fee of $12,500 and Sterling Software executed and delivered
to SVB the Sterling Software Guaranty described below under "-- Sterling
Software Guaranty." Except as specifically provided in the Forbearance
Agreement, the SVB Credit Facility remains in full force and effect and all of
Cayenne's obligations thereunder (including obligations under both the Amended
Revolving Loan Facility and the Overadvance Facility) are secured by liens on or
security interests in all or substantially all of the assets of Cayenne and
certain of its subsidiaries.
As of August 31, 1998, Cayenne had outstanding $_______ of borrowings under
the Amended Revolving Loan Facility, which amount exceeded by $________ the
maximum amount permitted to be outstanding thereunder by virtue of Cayenne's
month-end borrowing base of $________. Accordingly, pursuant to the
Forbearance Agreement, SVB (i) liquidated certain certificates of deposit that
had previously been pledged by Cayenne to SVB, and applied a portion of the
proceeds thereof to reduce the amount of borrowings under the Amended Revolving
Loan Facility to $_______ (so as to bring the outstanding amount of such
borrowings into borrowing base compliance as of August 31, 1998) and to pay
certain related costs and expenses. SVB then paid the remaining proceeds
thereof, in the amount of approximately $_______, to Cayenne for use by Cayenne
to fund its working capital requirements in the ordinary course of business.
Because Cayenne's borrowings under the Amended Revolving Loan Facility are not
permitted to exceed the lesser of (i) Cayenne's borrowing base indicated in its
immediately preceding semi-monthly borrowing base report to SVB and (ii)
$2,000,000, Cayenne will not be entitled to make additional borrowings under the
Amended Revolving Loan Facility, if at all, unless Cayenne's borrowing base as
of August 31, 1998 and semi-monthly thereafter until the Termination Date (as
hereinafter defined) exceeds the then-outstanding amount of such borrowings.
Moreover, Cayenne is prohibited under the Merger Agreement from making any
payment in respect of principal amounts outstanding under the Amended Revolving
Loan Facility except to the extent such payments are required to be made
pursuant to the provisions of the Forbearance Agreement. Under the Forbearance
Agreement, if, as of end of any semi-monthly reporting period, outstanding
borrowings under the Amended Revolving Loan Facility exceed Cayenne's then-
current borrowing base, (i) Cayenne will be required to pay the amount of such
excess to SVB upon demand or (ii) SVB will, if sufficient availability exists
under the Overadvance Facility, make an Advance under the Overadvance Facility
and apply the proceeds thereof to such payment. Any failure of the foregoing
actions to result in the full payment of such excess will constitute an Event of
Default under the Forbearance Agreement.
Subject to Sterling Software's prior consent as described in "The Merger
Agreement -- Interim Credit Arrangements," Cayenne may from time to time request
Advances from SVB under the Overadvance Facility in a maximum amount of up to
$3,000,000. (Although Sterling Software has reserved the right under the Merger
Agreement to consent, in its sole and absolute discretion, to Advances in excess
of $3,000,000, SVB has no obligation under the terms of the SVB Credit Agreement
as presently in effect to make any such excess Advances.) Among other terms and
conditions, the Forbearance Agreement provides that (i) no Advance shall be made
unless, at the time such Advance is requested, outstanding borrowings under the
Amended Revolving Loan Facility are equal to or greater than the maximum
permitted amount of such borrowings, (ii) the proceeds of all Advances shall be
used by Cayenne for its working capital requirements or to make payments of
principal outstanding or interest payments due under the Amended Revolving Loan
Facility that are required under the Forbearance Agreement, (iii) all
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Advances will bear interest at a rate per annum equal to a specified "prime"
rate plus 1%, and (iv) all Advances, together with any accrued and unpaid
interest thereon, shall be paid in full on or before the Termination Date or
upon the occurrence of an Event of Default (as hereinafter defined). As
described in "The Merger Agreement -- Interim Credit Arrangements," Cayenne is
prohibited from repaying any Advances prior to the earlier of the Effective Time
and the termination of the Merger Agreement.
TERMINATION
The Forbearance Agreement provides that all amounts outstanding under the SVB
Credit Facility, including all borrowings under the Amended Revolving Loan
Facility and the Overadvance Facility, together with any accrued and unpaid
interest thereon, will be due and payable (if not sooner accelerated upon the
occurrence of an Event of Default under the Forbearance Agreement) on the
earlier of (i) consummation of the Merger and (ii) October 30, 1998, unless as
of such date Cayenne has both mailed this Proxy Statement and obtained clearance
for the Merger under the HSR Act, in which case such amounts will be due and
payable on November 30, 1998 (the applicable date being referred to herein as
the "Termination Date").
EVENTS OF DEFAULT
Under the Forbearance Agreement, the following events constitute an "Event of
Default": (i) the failure of Cayenne to perform any term thereof as and when
required; (ii) the failure of Cayenne to pay any amounts required to be paid to
SVB thereunder as and when due (including without limitation the failure to
reduce the amount of borrowings outstanding under the Amended Revolving Loan
Facility as and when required under the Forbearance Agreement); (iii) the
failure of Cayenne to pay all amounts due and payable under the Amended
Revolving Loan Facility and the Overdraft Facility on the Termination Date; (iv)
the commencement of any case under the United States Bankruptcy Code by or
against Cayenne; (v) the termination of the Merger Agreement for any reason or
withdrawal by the Cayenne Board of its recommendation of the Merger to Cayenne's
stockholders; and (vi) termination by Sterling Software of the Sterling Software
Guaranty.
STERLING SOFTWARE GUARANTY
As a condition to its willingness to enter into the Forbearance Agreement and
establish the Overadvance Facility, SVB required that Sterling Software execute
and deliver to SVB a Limited Guaranty of Collection (together with an ancillary
agreement between SVB and Sterling Software relating thereto, the "Sterling
Software Guaranty") in favor of SVB. Pursuant to the Sterling Software
Guaranty, Sterling Software has guaranteed the payment and performance of any
amounts outstanding under and due to SVB pursuant to the Overadvance Facility.
Pursuant to the Sterling Software Guaranty, SVB may in certain circumstances
(including the occurrence of an Event of Default under the Forbearance
Agreement) require Sterling Software to either (i) pay all amounts due and owing
to SVB under the Overadvance Facility or (ii) purchase from SVB either (A) a
non-recourse assignment of Cayenne's obligations under the Overadvance Facility
or (B) an undivided last out participation interest in Cayenne's obligations
under the Amended Revolving Loan Facility and the Overadvance Facility (in the
proportion that Cayenne's obligations under the Overadvance Facility bear to
Cayenne's obligations under the Amended Revolving Loan Facility and the
Overadvance Facility taken as a whole), in each case on the terms and subject to
the conditions set forth in the Sterling Software Guaranty. Subject to certain
rights (including certain preferential rights) of SVB, upon making the payment
contemplated by clause (i) of the preceding sentence, Sterling Software would be
subrogated to SVB's rights against Cayenne in respect of the Overadvance
Facility, and upon purchasing the assignment or participation interest
contemplated by clause (ii) of the preceding sentence, Sterling Software would
directly or indirectly succeed to all or a proportionate share, as the case may
be, of SVB's rights against Cayenne under the Overadvance Facility or the
Overadvance Facility and the Amended Revolving Credit Loan Facility, including
all or a proportionate share, as the case may be, of SVB's liens on and security
interests in Cayenne's assets. In addition, SVB has granted to Sterling
Software an option to purchase from SVB all of Cayenne's obligations under the
Amended Revolving Loan Facility and the Overadvance Facility. In the event of
any such purchase, Sterling Software would succeed to all of SVB's rights
against Cayenne under the Amended Revolving Loan Facility and the Overadvance
Facility, including all of SVB's liens on and security interests in Cayenne's
assets.
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THE STOCK OPTION AGREEMENT
GENERAL
As a condition to its willingness to enter into the Merger Agreement, Sterling
Software required that Cayenne enter into the Stock Option Agreement.
The following is a summary of the material terms of the Stock Option
Agreement. This summary is not a complete description of the terms and
conditions of the Stock Option Agreement and is qualified in its entirety by
reference to the full text of the Stock Option Agreement, a copy of which is
filed as Exhibit 10.29 to Cayenne's Current Report on Form 8-K dated August 28,
1998. See "Available Information" and "Incorporation of Certain Documents by
Reference."
EXERCISE OF THE OPTION
Pursuant to the Stock Option Agreement, Cayenne granted Sterling Software the
Option to purchase up to 4,245,346 shares of Common Stock or such other number
of shares of Common Stock as equals 19.9% of the issued and outstanding shares
of Cayenne Common Stock at the time of exercise of the Option at a price per
share of $0.375, subject to reduction as described in the next sentence. If at
the time of the consummation of the purchase and sale of shares of Cayenne
Common Stock pursuant to exercise of the Option, there are outstanding any
Advances to Cayenne, the amount of such exercise price will be reduced by an
amount equal to the quotient obtained by dividing (i) the aggregate amount of
such outstanding Advances by (ii) 21,333,398 (i.e., the number of shares of
Cayenne Common Stock that are presently outstanding). The Option is
exercisable, in whole or in part, at any time or from time to time during the
period (the "Option Period") from and after the occurrence of any event as a
result of which the Merger Agreement is subject to being terminated pursuant to
certain provisions of the Merger Agreement (i.e., by either Cayenne or Sterling
Software if the Special Meeting has been held and the Merger Agreement has not
been adopted by the affirmative vote of holders of the requisite number of
shares of Cayenne Capital Stock, or by Sterling Software if the Cayenne Board
shall have withdrawn its approval of the Merger Agreement or its recommendation
that the stockholders approve the Merger Agreement, or shall have approved,
endorsed or recommended to the Cayenne stockholders an Acquisition Proposal),
through the earliest to occur of (i) the Effective Time; (ii) the termination of
the Merger Agreement by mutual consent of Cayenne and Sterling Software, or by
either Cayenne or Sterling Software in the event that (A) the Effective Time
shall not have occurred on or before December 31, 1998 (otherwise than as a
result of material breach of the Merger Agreement by the party seeking to effect
such termination), (B) an order, decree or ruling shall have been issued or
other action taken by a court of competent jurisdiction which permanently
restrains, enjoins or otherwise prohibits the Merger, or (C) if the other party
shall have committed certain breaches of its representations, warranties or
covenants contained in the Merger Agreement; and (iii) the date that is one year
after the termination of the Merger Agreement by Sterling Software or Cayenne if
the Special Meeting has been held and the Merger Agreement has not been approved
by the affirmative vote of holders of the requisite number of shares of Cayenne
Capital Stock, or by Sterling Software if the Cayenne Board withdraws its
approval of the Merger Agreement or its recommendation that the stockholders
approve the Merger Agreement, or shall have approved, endorsed or recommended to
the Cayenne stockholders an Acquisition Proposal.
ADJUSTMENTS TO NUMBER AND TYPE OF SHARES
The type and number of shares, securities or other property subject to the
Option and the purchase price therefor will be adjusted for any change in the
shares of Cayenne Common Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares, extraordinary distribution or
similar transaction, such that Sterling Software will receive upon exercise of
the Option the number and class of shares, securities or other property that
Sterling Software would have received in respect of shares of Cayenne Common
Stock if the Option had been exercised immediately prior to the occurrence of
such event (or the record date therefor). In the event that Cayenne enters into
an agreement to consolidate with or merge into any person other than Sterling
Software, to permit any person other than Sterling Software to merge into
Cayenne, or to sell or otherwise transfer all or
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substantially all of its assets to any person other than Sterling Software, then
such transaction will provide that the Option will, upon the consummation of
such transaction, be converted into an option to acquire the number and class of
shares or other securities or property Sterling Software would have received in
respect of shares of Cayenne Common Stock if the Option had been exercised
immediately prior to such consolidation, merger, sale or transfer (or the record
date therefor).
REGISTRATION RIGHTS AND LISTING
Sterling Software has certain rights to require registration by Cayenne of any
shares of Cayenne Common Stock or other securities purchased pursuant to the
Option under the securities laws if necessary for Sterling Software to be able
to sell such shares and to require the listing of such shares on the Nasdaq
National Market (or any other national securities quotation system or any
national securities exchange on which shares of Cayenne Common Stock are then
authorized to be quoted).
EFFECT OF STOCK OPTION AGREEMENT
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated on the terms set forth in the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in Cayenne from
considering or proposing such an acquisition.
THE STOCKHOLDER AGREEMENT
GENERAL
As a condition to its willingness to enter into the Merger Agreement, Sterling
Software required that the Preferred Stockholders enter into the Stockholder
Agreement.
The following is a summary of the material terms of the Stockholder Agreement.
This summary is not a complete description of the terms and conditions of the
Stockholder Agreement and is qualified in its entirety by reference to the full
text of the Stockholder Agreement, a copy of which is filed as Exhibit 10.30 to
Cayenne's Current Report on Form 8-K dated August 28, 1998. See "Available
Information" and "Incorporation of Certain Documents by Reference."
VOTING AGREEMENTS
The Stockholder Agreement provides that, during the period (the "Restricted
Period") from and including August 27, 1998 through and including the earlier of
(i) the Effective Time and (ii) the date on which the Merger Agreement is
terminated, at any meeting of the stockholders of Cayenne called to consider and
vote upon the approval of the Merger Agreement, and in connection with any
action to be taken in respect of the approval of the Merger Agreement by written
consent, each Preferred Stockholder will vote all of such Preferred
Stockholder's Subject Shares (as hereinafter defined) in favor of the approval
of the Merger Agreement, and in favor of any other matter necessary for the
consummation of the transactions contemplated by the Merger Agreement. During
the Restricted Period, at any meeting of the stockholders of Cayenne called to
consider and vote upon any Adverse Proposal (as hereinafter defined) and in
connection with any action to be taken in respect of any Adverse Proposal by
written consent of stockholders of Cayenne, each stockholder will vote or cause
to be voted all of such stockholder's Subject Shares against such Adverse
Proposal. For purposes of the Stockholder Agreement, the term "Adverse
Proposal" means any (x) Acquisition Proposal or (y) other action which is
intended or could reasonably be expected to impede, interfere with, delay or
materially and adversely affect the contemplated economic benefits to Sterling
Software of the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreement.
33
<PAGE>
Under the Stockholder Agreement, each Preferred Stockholder has granted to
Sterling Software an irrevocable proxy to vote or act by written consent with
respect to such Preferred Stockholder's Subject Shares in accordance with the
voting agreements described above.
For purposes of the Stockholder Agreement, the term "Subject Shares" means the
shares of Cayenne Capital Stock beneficially owned by each Preferred
Stockholder, as of August 27, 1998, together with any other shares of Cayenne
Capital Stock acquired by such Preferred Stockholder during the Restricted
Period.
At the Record Date, the Preferred Stockholders beneficially owned, in the
aggregate, (i) 100% of the outstanding shares of Cayenne Preferred Stock and
(ii) less than one percent of the outstanding shares of Cayenne Common Stock,
representing approximately [29.8%] of the combined voting power of the then-
outstanding shares of Cayenne Capital Stock.
OPTIONS
Pursuant to the Stockholder Agreement, each Preferred Stockholder has granted
to Sterling Software an irrevocable option (each, a "Stock Option" and,
collectively, the "Stock Options") to purchase such Preferred Stockholder's
Subject Shares in exchange for a cash payment per Subject Share equal to the
product of (i) $20.00, in the case of shares of Cayenne Preferred Stock, and
(ii) $0.375, in the case of shares of Cayenne Common Stock, subject to reduction
as described in the next sentence. If at the time of the consummation of the
purchase and sale of shares of Cayenne Common Stock pursuant to exercise of any
Stock Option, there are outstanding any Advances, the amount of such cash
payment will be reduced by an amount equal to the quotient obtained by dividing
(i) the aggregate amount of such outstanding Advances by (ii) 21,333,398 (i.e.,
the number of shares of Cayenne Common Stock that are presently outstanding).
The Stock Options may be exercised in whole or in part, at any time or from
time to time during the Restricted Period. The purchase of any Subject Shares
upon exercise of a Stock Option is subject to compliance with the HSR Act, to
the extent that the HSR Act is applicable to such purchase.
RESTRICTIONS ON TRANSFER
Pursuant to Stockholder Agreements, each Preferred Stockholder has agreed to
certain restrictions on the transfer of such Preferred Stockholder's Subject
Shares.
BUSINESSES OF STERLING SOFTWARE AND CAYENNE
STERLING SOFTWARE
Sterling Software was founded in 1981 and became a publicly owned corporation
in 1983. Sterling Software is a recognized worldwide supplier of software
products and services within three major markets: applications management,
systems management and federal systems.
CAYENNE
Cayenne was organized as a Massachusetts corporation in 1983. Cayenne
develops, markets and supports a suite of workgroup-to-enterprise analysis and
design solutions for software developers. Cayenne's products are designed
around an open architecture that enables organizations to create applications
that integrate diverse information sources into new high-performance computing
environments, to modify applications as business requirements and technologies
change, and to run those applications on a variety of platforms. See "Available
Information" and "Incorporation of Certain Documents by Reference."
34
<PAGE>
BENEFICIAL OWNERSHIP OF CAYENNE CAPITAL STOCK
The following table sets forth information, as of August 25, 1998, regarding
the beneficial ownership of Cayenne Common Stock (which includes shares held of
record and shares which may be acquired within 60 days pursuant to the exercise
of options, after giving effect to the acceleration of the exercisability of
certain options upon the consummation of the Merger) and Cayenne Preferred Stock
by each director of Cayenne, each of the Cayenne Executive Officers, the
directors and Cayenne Executive Officers as a group and each person known by
Cayenne to own 5% or more of the outstanding shares of Cayenne Common Stock or
Cayenne Preferred Stock. The persons named in the table have sole voting and
investment power with respect to all shares of Cayenne Capital Stock owned by
them, except as otherwise noted.
<TABLE>
<CAPTION>
SHARES OF CAYENNE SHARES OF CAYENNE
COMMON STOCK PREFERRED STOCK
OWNED BENEFICIALLY OWNED BENEFICIALLY
----------------------- ----------------------
PERCENT PERCENT
NAME NUMBER OF CLASS(1) NUMBER OF CLASS(1)
- ---- ------ ----------- ------- -----------
<S> <C> <C> <C> <C>
Associated Capital, L.P.(2)......................... 2,512,900 11.8% - -
477 Madison Avenue
14th Floor
New York, NY 10022
Wellington Management............................... 2,237,758 10.5% - -
Company, LLP(3)
75 State Street
Boston, MA 02109
Vanguard Explorer Fund,............................. 1,550,000 7.3% - -
Inc.(4)
P.O. Box 2600
Valley Forge, PA 19482
Massood Zarrabian(5)................................ 446,501 2.0% - -
Cayenne Software, Inc.
14 Crosby Drive
Bedford, MA 01730
John J. Alexander(5)................................ 162,539 * - -
Cayenne Software, Inc.
14 Crosby Drive
Bedford, MA 01730
William H.D. Goddard(5)............................. 141,102 * - -
Ramallah Capital
Corporation
5 Brown Street
Providence, RI 02906
Frederick H. Phillips(5)............................ 118,751 * - -
Cayenne Software, Inc.
14 Crosby Drive
Bedford, MA 07130
Luciano Balma(5).................................... 55,101 * - -
Cayenne Software, Inc.
14 Crosby Drive
Bedford, MA 07130
Allyn C. Woodward, Jr.(5)........................... 49,591 * - -
Adams, Harkness & Hill, Inc.
60 State Street
Boston, MA 02109
R. John Fletcher(5)................................. 44,777 * - -
Fletcher Spaght, Inc.
222 Berkeley Street
Boston, MA 02116
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
SHARES OF CAYENNE SHARES OF CAYENNE
COMMON STOCK PREFERRED STOCK
OWNED BENEFICIALLY OWNED BENEFICIALLY
----------------------- ----------------------
PERCENT PERCENT
NAME NUMBER OF CLASS(1) NUMBER OF CLASS(1)
- ---- ------ ----------- ------- -----------
<S> <C> <C> <C> <C>
Roland D. Pampel(5).................................. 25,601 * - -
c/o Cayenne Software, Inc.
14 Crosby Drive
Bedford, MA 07130
Integral Capital Management III, L.P.(6)............. [5,533,332](7) [20.6%] 100,000 58.8%
2750 Sand Hill Road
Menlo Park, CA 94026
Chatterjee Fund Management, L.P.,
Chatterjee Advisors, LLC and
Winston Partners III LDC(8).......................... [3,923,332](7) [15.3%] 70,000 41.2%
888 Seventh Avenue
New York, NY 10106
All officers and Directors as a group (8 persons).... 997,687 4.7% - -
</TABLE>
- ----------------
* Less than 1.0%
(1) The number of shares of Cayenne Common Stock outstanding as of August 25,
1998 was 21,333,398, and the number of shares of Cayenne Preferred Stock
outstanding as of August 25, 1998 was 170,000.
(2) Based upon a Schedule 13D dated May 29, 1997 and other information provided
by Associated Capital, L.P. for it and A. Cap, Inc., Jay Zises, Selig Zises
and Nancy J. Frankel-Zises. Represents shares of Cayenne Common Stock
beneficially owned by various entities and persons.
(3) Based upon a Schedule 13G dated January 13, 1998 provided by Wellington
Management Company, LLP ("WMC") in its capacity as an investment advisor
registered under Section 203 of the Investment Advisors Act of 1990. In its
capacity as investment advisor, WMC may be deemed to have beneficial
ownership of the shares of Cayenne Common Stock that are owned of record by
its clients. These clients have the right to receive, or the power to
direct the receipt of dividends from, or the proceeds from the sale of such
shares. No such client is known by WMC to have such right or power with
respect to more than 5% of the Cayenne Common Stock other than Vanguard
Explorer Fund, Inc., whose holdings are listed in this table.
(4) Based upon a Schedule 13G dated February 9, 1998 provided by Vanguard
Explorer Fund, Inc. Vanguard is an Investment Company registered under
Section 8 of the Investment Company Act of 1940. See Note 3.
(5) Represents shares of Cayenne Common Stock issuable upon exercise of options
to purchase shares of Cayenne Common Stock exercisable within 60 days of
August 25, 1998, for Messrs. Alexander, Balma, Fletcher, Goddard, Pampel,
Phillips, Woodward and Zarrabian, the number of shares includes 27,600,
55,101, 39,600, 28,955, 19,601, 112,201, 37,200 and 432,501.
(6) Integral Capital Management III, L.P. ("Integral") is the general partner of
Integral Capital Partners III, L.P., a Delaware limited partnership ("ICP3")
and the investment general partner of Integral Capital Partners
International III, L.P., a Cayman Islands limited partnership ("ICPI3," and,
together with ICP3, the "Integral Partnerships"). Based on representations
made by the Integral Partnerships in the Stockholder Agreement, the Integral
Partnerships are the holders of 100,000 shares of Cayenne Preferred Stock
and options or warrants to purchase 233,332 shares of Cayenne Common Stock.
According to a Schedule 13D filed with the Commission by Integral and the
Integral Partnerships, dated August 28, 1997, Integral may be deemed to have
shared voting and dispositive power with respect to all the shares owned by
the Integral Partnerships, ICP3 may be deemed to have shared voting and
dispositive power with respect to all the shares held by ICP3, and ICPI3 may
be deemed to have shared voting and dispositive power with respect to all
the shares owned by ICPI3.
(7) Includes a number of shares of Cayenne Common Stock equal to the product of
(i) the number of shares of Cayenne Preferred Stock beneficially owned and
(ii) [53] (i.e., the number of shares of Cayenne Common Stock into which one
share of Cayenne Preferred Stock was convertible as of August 25, 1998).
(8) Chatterjee Fund Management, L.P. ("Chatterjee Fund") is the general partner
of Winston Partners, L.P. ("WPLP"). Chatterjee Advisors, LLC ("Chatterjee
Advisors") is the manager of Winston Partners II LLC ("WPIILLC").
Chatterjee Fund, Chatterjee Advisors and Winston Partners II LDC ("WPIILDC"
and, together with WPLP and WPIILLC, the "Winston Entities") are affiliated
entities. Based on representations made by the Winston Entities in the
Stockholder Agreement, the Winston Entities are the holders of 70,000 shares
of Cayenne Preferred Stock, 50,000 shares of Cayenne Common Stock and
options or warrants to purchase 108,889 shares of Cayenne Common Stock.
Chatterjee Fund and WPLP may be deemed to have shared voting and dispositive
power with respect to all the shares owned by WPLP, and Chatterjee Advisors
and WPIILLC may be deemed to have shared voting and dispositive power with
respect to all the shares owned by WPIILLC.
INDEPENDENT AUDITORS
36
<PAGE>
PricewaterhouseCoopers LLP is the independent auditor for Cayenne. Cayenne
has been advised that a representative of PricewaterhouseCoopers LLP will be
present at the Special Meeting. This representative will have the opportunity
to make a statement if he or she wishes and will be available to respond to
appropriate questions presented at the Special Meeting.
STOCKHOLDER PROPOSALS
Stockholders of Cayenne may submit proposals on matters appropriate for
stockholder action at meetings of Cayenne's stockholders in accordance with Rule
14a-8 promulgated under the Exchange Act ("Rule 14a-8"). For such proposals to
be included in Cayenne's proxy materials relating to its 1999 Annual Meeting of
Stockholders (the "1999 Annual Meeting"), all applicable requirements of Rule
14a-8 must be satisfied and such proposals must be received by the Company no
later than December 31, 1998. Stockholder proposals may also be submitted to
Cayenne for inclusion in Cayenne's proxy materials relating to the 1999 Annual
Meeting in accordance with the Cayenne Bylaws, which require such proposals to
be received at Cayenne's principal executive offices no later than March 1,
1999. If the Merger is consummated, it is anticipated that the 1999 Annual
Meeting will not be held.
37
<PAGE>
APPENDIX A
============================================================
AGREEMENT AND PLAN OF MERGER
among
STERLING SOFTWARE, INC.
STERLING SOFTWARE (SOUTHERN), INC.
and
CAYENNE SOFTWARE, INC.
dated as of August 27, 1998
============================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AGREEMENT AND PLAN OF MERGER......................................................................................1
ARTICLE I - THE MERGER............................................................................................1
Section 1.1 The Merger.............................................................................1
Section 1.2 Closing................................................................................2
Section 1.3 Effective Time.........................................................................2
Section 1.4 Effects of the Merger..................................................................2
Section 1.5 Certificate of Incorporation; Bylaws...................................................2
Section 1.6 Directors; Officers....................................................................2
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS.............................................................................3
Section 2.1 Effect on Capital Stock................................................................3
Section 2.2 Stock Options and Warrants.............................................................4
ARTICLE III - PAYMENT FOR SHARES..................................................................................5
Section 3.1 Payment for Shares.....................................................................5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES.......................................................................7
Section 4.1 Representations and Warranties of Company..............................................7
Section 4.2 Representations and Warranties of Parent and Merger Sub...............................21
ARTICLE V - CONDUCT OF BUSINESS OF COMPANY.......................................................................22
Section 5.1 Conduct of Business of Company........................................................22
ARTICLE VI - ADDITIONAL COVENANTS................................................................................24
Section 6.1 Preparation of the Proxy Statement....................................................24
Section 6.2 Stockholders Meeting..................................................................24
Section 6.3 Access to Information; Confidentiality................................................25
Section 6.4 Reasonable Best Efforts...............................................................25
Section 6.5 Public Announcements..................................................................25
Section 6.6 No Solicitation; Acquisition Proposals................................................26
Section 6.7 Consents, Approvals and Filings.......................................................27
Section 6.8 Board Action Relating to Stock Option Plans...........................................28
Section 6.9 Employee Benefit Matters..............................................................28
Section 6.10 Indemnification; Directors' and Officers' Insurance...................................28
Section 6.11 Credit Arrangements...................................................................29
ARTICLE VII - CONDITIONS PRECEDENT...............................................................................31
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger............................31
Section 7.2 Conditions to Obligations of Parent and Merger Sub....................................31
Section 7.3 Conditions to Obligation of Company...................................................32
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER.................................................................33
Section 8.1 Termination...........................................................................35
Section 8.2 Effect of Termination.................................................................35
Section 8.3 Amendment.............................................................................35
Section 8.4 Extension; Waiver.....................................................................35
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.............................35
ARTICLE IX - GENERAL PROVISIONS..................................................................................35
Section 9.1 Nonsurvival of Representations and Warranties.........................................35
Section 9.2 Fees and Expenses.....................................................................36
Section 9.3 Definitions...........................................................................36
Section 9.4 Notices...............................................................................39
Section 9.5 Interpretation........................................................................39
Section 9.6 Entire Agreement; Third-Party Beneficiaries...........................................39
Section 9.7 Governing Law.........................................................................39
Section 9.8 Assignment............................................................................39
Section 9.9 Enforcement...........................................................................40
Section 9.10 Severability..........................................................................40
Section 9.11 Counterparts..........................................................................40
</TABLE>
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of August 27, 1998 (this
"Agreement"), is made and entered into among Sterling Software, Inc., a Delaware
corporation ("Parent"), Sterling Software (Southern), Inc., a Georgia
corporation and wholly owned subsidiary of Parent ("Merger Sub"), and Cayenne
Software, Inc., a Massachusetts corporation ("Company").
RECITALS:
A. The Executive Committee of the Board of Directors of Parent and the
respective Boards of Directors of Merger Sub and Company have determined that it
would be advisable and in the best interests of their respective stockholders
for Parent to acquire Company, by means of a merger of Company with and into
Merger Sub (the "Merger"), on the terms and subject to the conditions set forth
in this Agreement.
B. Concurrently with the execution and delivery of this Agreement and as
a condition to Parent's and Merger Sub's willingness to enter into this
Agreement, (i) Parent and Company have entered into a Stock Option Agreement,
dated as of the date hereof (the "Stock Option Agreement"), pursuant to which
Company has granted to Parent an option to purchase certain shares of capital
stock of Company under certain circumstances and (ii) Parent has entered into a
Stockholder Agreement, dated as of the date hereof (the "Stockholder
Agreement"), with each of the Preferred Stockholders (as hereinafter defined),
pursuant to which each Preferred Stockholder has (x) agreed, among other things,
to vote all shares of capital stock of Company owned by such Preferred
Stockholder in favor of the approval of this Agreement and (y) granted to Parent
an option to purchase all shares of capital stock of Company owned by such
Preferred Stockholder.
C. Parent, Merger Sub and Company desire to make certain representations,
warranties and covenants in connection with the Merger and to prescribe various
conditions to the consummation of the Merger.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. On the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the Massachusetts Business
Corporation Law (the "MBCL") and the Georgia Business Corporation Code (the
"GBCC"), the Merger shall be effected and Company shall be merged with and into
Merger Sub at the Effective Time (as hereinafter defined). At the Effective
Time, the separate existence of Company shall cease and Merger Sub shall
continue as the surviving corporation (sometimes hereinafter referred to as the
"Surviving Corporation").
<PAGE>
Section 1.2 Closing. Unless this Agreement shall have been terminated
-------
and the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver of all of the conditions
set forth in Article VII, the closing of the Merger (the "Closing") will take
place as soon as practicable, but in no event later than 10:00 a.m. on the
second business day (the "Closing Date") following satisfaction or waiver of all
of the conditions set forth in Article VII, other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those conditions, at the offices of Jones, Day, Reavis & Pogue,
2300 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas, unless another date,
time or place is agreed to in writing by the parties hereto.
Section 1.3 Effective Time. On the Closing Date (or on such other date
--------------
as Parent and Company may agree), the parties hereto shall file with the
Secretary of State of The Commonwealth of Massachusetts (the "Massachusetts
State Secretary") articles of merger (the "Massachusetts Articles of Merger")
and any other appropriate documents, executed in accordance with the relevant
provisions of the MBCL, shall file with the Secretary of State of the State of
Georgia (the "Georgia State Secretary") a certificate of merger (the "Georgia
Certificate of Merger") and any other appropriate documents, executed in
accordance with the relevant provisions of the GBCC, and shall make all other
filings or recordings required under the MBCL and GBCC in connection with the
Merger. The Merger shall become effective upon the later of the filing of the
Massachusetts Articles of Merger and the filing of the Georgia Certificate of
Merger, or at such later time as may be specified in the Massachusetts Articles
of Merger or the Georgia Certificate of Merger (the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects
---------------------
set forth in the applicable provisions of the MBCL and the GBCC. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all property of Company and Merger Sub shall vest in the Surviving
Corporation, and all liabilities of Company and Merger Sub shall become the
liabilities of the Surviving Corporation.
Section 1.5 Certificate of Incorporation; Bylaws At the Effective Time,
------------------------------------
(a) the certificate of incorporation of Merger Sub as in effect at the Effective
Time shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
in accordance with the provisions thereof and applicable law and (b) the bylaws
of Merger Sub as in effect at the Effective Time shall, from and after the
Effective Time, be the bylaws of the Surviving Corporation until thereafter
changed or amended in accordance with the provisions thereof and applicable law.
Section 1.6 Directors; Officers. From and after the Effective Time, (a)
-------------------
the directors of Merger Sub shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, and (b) the
officers of Merger Sub shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
2
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue
-----------------------
of the Merger and without any action on the part of any holder of shares of
Company's common stock, par value $0.01 per share (the "Common Shares"), or
shares of Company's Series D Convertible Preferred Stock, par value $1.00 per
share (the "Preferred Shares" and, together with the Common Shares, the
"Shares"), or any other capital stock of Company or any shares of capital stock
of Merger Sub:
(a) Common Stock of Merger Sub. Each share of common stock, par value
--------------------------
$0.10 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall remain outstanding and shall not be affected in any way by
the effectiveness of the Merger.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each
-------------------------------------------------------
Share issued and outstanding immediately prior to the Effective Time that is
owned by Company or any Subsidiary (as hereinafter defined) of Company or by
Parent, Merger Sub or any other Subsidiary of Parent (other than shares in trust
accounts, managed accounts, custodial accounts and the like that are
beneficially owned by third parties) shall automatically be canceled and retired
and shall cease to exist, and no cash or other consideration shall be delivered
or deliverable in exchange therefor.
(c) Conversion of Shares. Each Share issued and outstanding
--------------------
immediately prior to the Effective Time (other than Shares to be canceled and
retired in accordance with Section 2.1(b) and any Dissenting Shares (as
hereinafter defined)) shall be converted into the right to receive the
applicable amount of cash specified in this Section 2.1(c) (the "Merger
Consideration"), which (i) in the case of each Common Share, is $0.375, and (ii)
in the case of each Preferred Share, is $20.00, upon surrender of the
certificate formerly representing such Share in accordance with this Agreement;
provided, however, that in the event that there shall be outstanding at the
Effective Time any Advances (as hereinafter defined), the Merger Consideration
shall be reduced, in the case of each Common Share, by an amount (rounded to the
nearest one-tenth of a cent) equal to the quotient obtained by dividing (1) the
aggregate amount of such outstanding Advances by (2) 21,333,398.
(d) Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, any Shares issued and outstanding immediately prior to the
Effective Time held by a holder who has the right to demand, and who properly
demands, payment for such Shares ("Dissenting Shares") in accordance with
Sections 85 through 98 of the MBCL (together with any successor provisions, the
"Appraisal Provisions") shall not be converted into a right to receive the
applicable Merger Consideration, unless such holder fails to perfect or
otherwise loses such holder's right to payment in accordance with the Appraisal
Provisions. If, after the Effective Time, such holder fails to perfect or loses
any such right, each such Share of such holder shall be treated as a Share that
had been converted as of the Effective Time into the right to receive the
applicable Merger Consideration in accordance with Section 2.1(c). At the
Effective Time, any
3
<PAGE>
holder of Dissenting Shares shall cease to have any rights with respect thereto,
except the rights provided in the Appraisal Provisions and as provided in the
immediately preceding sentence. Company shall give prompt notice to Parent of
any demands received by Company for payment in accordance with the Appraisal
Provisions, and Parent shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. Company shall not,
except with the prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands.
Section 2.2 Stock Options and Warrants.
--------------------------
(a) At the Effective Time, each then-outstanding option to purchase
Common Shares (collectively, the "Options") granted under the Bachman
Information Systems, Inc. Amended and Restated 1986 Incentive and Nonqualified
Stock Option Plan, the Cayenne Software, Inc. Amended 1996 Incentive and
Nonqualified Stock Option Plan, the Cayenne Software, Inc. 1998 Nonqualified
Stock Option Plan, the Cadre Technologies, Inc. 1988 Incentive and Non-Statutory
Stock Option Plan, the Cadre Technologies, Inc. 1989 Non-Statutory Stock Option
Plan and the Stock Option Agreements, dated December 29, 1997, between Company
and each of Massood Zarrabian and Frederick Phillips (collectively, the "Stock
Option Plans"), whether or not then exercisable or fully vested, shall be
assumed by Parent and shall constitute an option (a "Substitute Option") to
acquire, on substantially the same terms and subject to substantially the same
conditions as were applicable under such Option, including without limitation
term, vesting, exercisability, status as an "incentive stock option" under
Section 422 of the Code (if applicable) or as an employee stock purchase plan
option under Section 423 of the Code (if applicable), and termination
provisions, the number of shares of common stock, par value $0.10 per share
("Parent Common Stock"), of Parent, rounded down to the nearest whole share (it
being understood that the portion, if any, of an Option that would otherwise
have resulted in a Substitute Option being exercisable to purchase a fractional
share of Parent Common Stock shall be extinguished as a result of such
rounding), determined by multiplying the number of Common Shares subject to such
Option immediately prior to the Effective Time by the Conversion Factor, at an
exercise price per share of Parent Common Stock (increased to the nearest whole
cent) equal to the exercise price per share of Common Shares subject to such
Option divided by the Conversion Factor; provided, however, that in the case of
any Option to which Section 421 of the Code applies by reason of its
qualification as an incentive stock option under Section 422 of the Code or as
an employee stock purchase plan option under Section 423 of the Code, the
conversion formula shall be adjusted if necessary to comply with Section 424(a)
of the Code.
(b) Company shall use its best efforts to obtain all necessary
waivers, consents or releases from holders of Options granted under the Stock
Option Plans and take any such other action as may be reasonably necessary to
give effect to the transactions contemplated by Section 2.2(a).
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Substitute Options pursuant to the terms set forth in Section
2.2(a). At such time (if any) as such action may be required under the
Securities Act (as hereinafter defined), Parent will cause the shares of
4
<PAGE>
Parent Common Stock subject to all then-outstanding Substitute Options to be
covered by an effective registration statement on Form S-8 (or any successor
form) or another appropriate form and Parent shall use its reasonable best
efforts to maintain the effectiveness of such registration statement for so long
as such Substitute Options remain outstanding. In addition, at such time (if
any) as such action may be required under the rules and policies of the NYSE (as
hereinafter defined) or any other exchange upon which shares of Parent Common
Stock may be listed, Parent shall use all reasonable efforts to cause the shares
of Parent Common Stock subject to all then-outstanding Substitute Options to be
listed on the NYSE or such other exchange, as the case may be.
(d) At the Effective Time, each then-outstanding warrant to purchase
Common Shares (collectively, the "Warrants") issued under or evidenced by the
Warrant Agreement, dated December 20, 1996, between Company and Silicon Valley
Bank, the Convertible Preferred Stock Purchase Agreement, dated January 2, 1997,
between Company and Southbrook International Investments, Ltd. ("Southbrook"),
the Convertible Preferred Stock Purchase Agreement, dated July 18, 1997, between
Company and Southbrook, the Convertible Preferred Stock Purchase Agreement,
dated August 28, 1997, between Company, the Preferred Stockholders and certain
other persons named therein, the Warrant Certificate, dated November 1995,
executed by Cadre Technologies, Inc. ("Cadre Technologies") in favor of First
Portland Corporation (dba First Portland Leasing Corp.), the Share Purchase
Agreement, dated April 13, 1995, between Cadre Technologies and Stichting
Administratiekantoor Cadmount, and the Warrant Certificate, dated January 1997,
executed by Company in favor of Rene de Vleeschauver (collectively, the "Warrant
Documents") shall be canceled and retired and shall cease to exist, and no cash
or other consideration shall be delivered or deliverable in exchange therefor.
(e) Company shall use its best efforts to obtain all necessary
waivers, consents or releases from holders of Warrants issued under or evidenced
by the Warrant Documents and take such other action as may be reasonably
necessary to give effect to the transactions contemplated by Section 2.2(d).
ARTICLE III
PAYMENT FOR SHARES
Section 3.1 Payment for Shares.
------------------
(a) Payment Fund. Concurrently with the Effective Time, Parent shall
------------
deposit, or shall cause to be deposited, with or for the account of a bank or
trust company designated by Parent, which shall be reasonably satisfactory to
Company (the "Paying Agent"), for the benefit of the holders of Shares, cash in
an amount sufficient to pay the aggregate Merger Consideration payable upon the
conversion of Shares pursuant to Section 2.1(c) (the "Payment Fund").
(b) Letters of Transmittal; Surrender of Certificates. As soon as
-------------------------------------------------
reasonably practicable after the Effective Time, Parent shall instruct the
Exchange Agent to mail to each holder of record (other than Company or any of
its Subsidiaries or Parent, Merger Sub or any
5
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other Subsidiary of Parent) of a certificate or certificates that, immediately
prior to the Effective Time, evidenced outstanding Shares (the "Certificates"),
(i) a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent, and shall be in such
form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the applicable Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor cash in an amount equal to the product of (i) the number of
Shares theretofore represented by such Certificate and (ii) the applicable
Merger Consideration, and the Certificate so surrendered shall forthwith be
canceled. No interest shall be paid or accrued on any cash payable upon the
surrender of any Certificate. If payment is to be made to a person other than
the person in whose name the surrendered Certificate is registered, it shall be
a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the surrendered
Certificate or established to the satisfaction of Parent and the Surviving
Corporation that such taxes have been paid or are not applicable.
(c) Cancellation and Retirement of Shares; No Further Rights. As of
--------------------------------------------------------
the Effective Time, all Shares (other than Shares to be canceled in accordance
with Section 2.1(b)) issued and outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of any such Shares shall cease
to have any rights with respect thereto or arising therefrom (including without
limitation the right to vote), except the right to receive the applicable Merger
Consideration, without interest, upon surrender of such Certificate in
accordance with Section 3.1(b), and until so surrendered, each such Certificate
shall represent for all purposes only the right to receive the applicable Merger
Consideration, without interest. The Merger Consideration paid upon the
surrender for exchange of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Shares theretofore represented by such Certificates.
(d) Investment of Payment Fund. The Paying Agent shall invest the
--------------------------
Payment Fund, as directed by Parent, in (i) direct obligations of the United
States of America, (ii) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal and
interest, (iii) commercial paper rated the highest quality by either Moody's
Investors Services, Inc. or Standard & Poor's Corporation, or (iv) certificates
of deposit, bank repurchase agreements or bankers' acceptances of commercial
banks with capital exceeding $500 million. Any net earnings with respect to the
Payment Fund shall be the property of and paid over to Parent as and when
requested by Parent.
(e) Termination of Payment Fund. Any portion of the Payment Fund
---------------------------
which remains undistributed to the holders of Certificates for 180 days after
the Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates that have not theretofore
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<PAGE>
complied with this Article III shall thereafter look only to Parent, and only as
general creditors thereof, for payment of their claim for any Merger
Consideration.
(f) No Liability. None of Parent, Merger Sub, the Surviving
------------
Corporation or the Paying Agent shall be liable to any person in respect of any
payments or distributions payable from the Payment Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to five years after
the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration in respect of such Certificate would otherwise escheat to
or become the property of any Governmental Entity (as hereinafter defined)), any
amounts payable in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
(g) Withholding Rights. Parent shall be entitled to deduct and
------------------
withhold, or cause to be deducted or withheld, from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares, Options or
Certificates such amounts as are required to be deducted and withheld with
respect to the making of such payment under the Code, or any provision of
applicable state, local or foreign tax law. To the extent that amounts are so
deducted and withheld, such deducted and withheld amounts shall be treated for
all purposes of this Agreement as having been paid to such holders in respect of
which such deduction and withholding was made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Company. Company
-----------------------------------------
represents and warrants to Parent and Merger Sub as follows:
(a) Organization, Standing and Corporate Power. Each of Company and
------------------------------------------
each Subsidiary of Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its business as
now being conducted. Each of Company and each Subsidiary of Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect (as hereinafter defined) on Company. Company has delivered to
Parent true, complete and correct copies of the articles of organization and by-
laws or comparable governing documents of Company and each Subsidiary of
Company, in each case as amended to the date of this Agreement. A true, correct
and complete list of all Subsidiaries of Company, together with the jurisdiction
of incorporation of each such Subsidiary and the percentage of each such
Subsidiary's capital stock owned by Company or another Subsidiary, is set forth
in Section 4.1(a) of the Disclosure Schedule (as hereinafter defined).
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(b) Authority; Noncontravention. Company has the requisite corporate
---------------------------
power and authority to enter into this Agreement and the Stock Option Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement by
Company and the consummation by Company of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of Company, subject, in the case of the Merger, to the approval of this
Agreement by its stockholders as contemplated by Section 6.2. Each of this
Agreement and the Stock Option Agreement has been duly executed and delivered by
Company and, assuming that this Agreement or the Stock Option Agreement, as
applicable, constitutes a valid and binding obligation of Parent and Merger Sub,
constitutes a valid and binding obligation of Company, enforceable against
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity. Except as specified in Section 4.1(b) of the Disclosure Schedule, the
execution and delivery of this Agreement and the Stock Option Agreement do not,
and the consummation of the transactions contemplated hereby or thereby and
compliance with the provisions hereof or thereof will not, (i) conflict with any
of the provisions of the articles of organization or by-laws of Company or the
comparable governing documents of any Subsidiary of Company, in each case as
amended to the date of this Agreement, (ii) subject to the governmental filings
and other matters referred to in Section 4.1(c), conflict with, result in a
breach of or default (with or without notice or lapse of time, or both) under,
or give rise to a material obligation, a right of termination, cancellation or
acceleration of any obligation or a loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Company or any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries or any of their respective assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in Section
4.1(c), contravene any domestic or foreign law, rule or regulation or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
which, in the case of clauses (ii) and (iii) above could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on Company.
(c) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration or filing with, or notice to, any domestic or foreign
governmental agency or regulatory authority (a "Governmental Entity") which has
not been received or made is required by or with respect to Company or any of
its Subsidiaries in connection with the execution and delivery of this Agreement
or the Stock Option Agreement by Company or the consummation by Company of the
transactions contemplated hereby or thereby, except for (i) the filing of
premerger notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), with respect to the
Merger, (ii) the filing with the Securities and Exchange Commission (the "SEC")
of (A) the Proxy Statement (as hereinafter defined), and (B) such reports under
the Exchange Act (as hereinafter defined) as may be required in connection with
this Agreement or the Stock Option Agreement and the transactions contemplated
hereby or thereby, (iii) the filing of the Massachusetts Articles of Merger with
the Massachusetts State Secretary and the filing of the Georgia Certificate of
Merger with the Georgia State Secretary, and appropriate documents with the
relevant authorities of other states in which Company is qualified to do
business, (iv) such other consents, approvals, authorizations, filings or
notices as
8
<PAGE>
are specified in Section 4.1(c) of the Disclosure Schedule, and (v) any other
consents, approvals, authorizations, filings or notices the failure to make or
obtain which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company.
(d) Capital Structure. The authorized capital stock of Company
-----------------
consists solely of 52,400,000 Common Shares and 1,600,000 shares of preferred
stock, par value $1.00 per share, of Company. As of the date hereof: (i)
21,333,398 Common Shares were issued and outstanding; (ii) 170,000 Preferred
Shares were issued and outstanding; (iii) 2,578,762 Common Shares were reserved
for issuance pursuant to outstanding Options granted under the Stock Option
Plans; (iv) 5,200,000 Common Shares were reserved for issuance upon conversion
of Preferred Shares; (v) 1,407,973 Common Shares were reserved for issuance
pursuant to outstanding Warrants issued under or evidenced by the Warrant
Documents; and (vi) no Common Shares were held by Company in its treasury.
Except as set forth in the immediately preceding sentence, as of the date
hereof, no shares of capital stock or other equity securities of Company were
issued, reserved for issuance or outstanding. All outstanding shares of capital
stock of Company are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as specified above
or in Section 4.1(d) of the Disclosure Schedule, and except for the Stock Option
Agreement, neither Company nor any Subsidiary of Company has or is subject to or
bound by or, at or after the Effective Time will have or be subject to or bound
by, any outstanding option, warrant, call, subscription or other right
(including any preemptive right), agreement or commitment which (i) obligates
Company or any Subsidiary of Company to issue, sell or transfer, or repurchase,
redeem or otherwise acquire, any shares of the capital stock of Company or any
Subsidiary of Company, (ii) restricts the transfer of any shares of capital
stock of Company or any of its Subsidiaries, or (iii) relates to the voting of
any shares of capital stock of Company or any of its Subsidiaries. No bonds,
debentures, notes or other indebtedness of Company or any Subsidiary of Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the stockholders of Company or
any Subsidiary of Company may vote are issued or outstanding. Except as
specified in Section 4.1(d) of the Disclosure Schedule, all of the outstanding
shares of capital stock of each Subsidiary of Company have been duly authorized,
validly issued, fully paid and nonassessable and are owned by Company, by one or
more Subsidiaries of Company, by Company and one or more such Subsidiaries, or
by persons who are designees of Company or a Subsidiary of Company in the case
of foreign qualifying shares held by such persons in accordance with the laws of
the jurisdiction of organization of certain foreign Subsidiaries of Company,
free and clear of Liens (as hereinafter defined). Company has taken all
necessary corporate action to authorize, reserve for issuance and permit the
issuance of, and at all times from the date hereof until the Stock Option
Agreement terminates will keep reserved for issuance upon exercise of the option
granted to Parent pursuant to the Stock Option Agreement, all Common Shares or
other securities which may be issuable pursuant to the Stock Option Agreement.
All Common Shares or other securities which may be issuable pursuant to the
Stock Option Agreement, upon issuance pursuant thereto, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free and
clear of all Liens. All Common Shares held pursuant to the Escrow Agreement,
dated as of July 18, 1996, by and among Bachman Information Systems, Inc., James
P. Lally, as agent for the former stockholders of Cadre Technologies, and State
Street Bank and Trust Company, as escrow agent, have been distributed in
accordance with the terms thereof.
9
<PAGE>
(e) SEC Documents. Company has filed all reports, schedules, forms,
-------------
statements and other documents required to be filed with the SEC pursuant to the
Securities Act or the Exchange Act since December 31, 1994 (such reports,
schedules, forms, statements and other documents are hereinafter referred to as
the "SEC Documents"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of (i) the SEC
Documents as of such dates or (ii) any press release or other public statement
issued or made by Company (with any statement pertaining to the Company made by
an executive officer of Company being deemed for purposes of this Section 4.1(e)
to have been made by Company) since December 31, 1994, as of their respective
dates of issuance, contained any untrue statements of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may otherwise be indicated in the notes
thereto) and fairly present the consolidated financial position of Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal year-end audit
adjustments).
(f) Absence of Certain Changes or Events; No Undisclosed Material
-------------------------------------------------------------
Liabilities.
- -----------
(i) Except as disclosed in the SEC Documents filed and publicly
available prior to the date of this Agreement (the "Filed SEC Documents") or
specified in Section 4.1(f) of the Disclosure Schedule, since the date of the
most recent audited financial statements included in the Filed SEC Documents,
Company and its Subsidiaries have conducted their businesses only in the
ordinary course, and there has not been: (A) any Material Adverse Change; (B)
any declaration, setting aside or payment of any dividend or other distribution
in respect of shares of Company's capital stock, or any redemption or other
acquisition by Company of any shares of its capital stock; (C) any increase in
the rate or terms of compensation payable or to become payable by Company or its
Subsidiaries to their directors, officers or key employees, except increases
occurring in the ordinary course of business consistent with past practice; (D)
any entry into, or increase in the rate or terms of, any bonus, insurance,
severance, pension or other employee or retiree benefit plan, payment or
arrangement made to, for or with any such directors, officers or key employees,
except increases occurring in the ordinary course of business consistent with
past practices or as required by applicable law; (E) any entry into any
agreement, commitment or transaction by Company or any of its Subsidiaries which
is material to Company and its Subsidiaries taken as a whole, except for
agreements, commitments or transactions entered into in the ordinary course of
business consistent with past practice; (F) any change by Company in accounting
methods, principles or practices, except as required or permitted by generally
accepted accounting principles; (G) any write-off or write-down of, or any
determination to write-off or write-down, any asset of Company or any of its
Subsidiaries or any portion thereof
10
<PAGE>
which write-off, write-down or determination exceeds $50,000 individually or
$250,000 in the aggregate; (H) any announcement or implementation of any
reduction in force, lay-off, early retirement program, severance program or
other program or effort concerning the termination of employment of employees of
Company or its Subsidiaries; or (I) any announcement of or entry into any
agreement, commitment or transaction by Company or any of its Subsidiaries to do
any of the things described in the preceding clauses (A) through (H) otherwise
than as expressly provided for herein.
(ii) Except as disclosed in the Filed SEC Documents or specified
in Section 4.1(f) of the Disclosure Schedule and liabilities incurred in the
ordinary course of business consistent with past practice since the date of the
most recent financial statements included in the Filed SEC Documents, there are
no liabilities of Company or its Subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, due, to become due, determined, determinable or
otherwise, having or which could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Company.
(g) Certain Information. The Proxy Statement will, at the time it is
-------------------
filed with the SEC, at any time that it is amended or supplemented, at the time
it is mailed to the stockholders of Company and at the time of the Stockholders
Meeting referred to in Section 6.2, (i) comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder and (ii) not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading; provided, however, that no representation or warranty
is made by Company with respect to statements made therein based on information
supplied by Parent or Merger Sub specifically for inclusion therein.
(h) Real Property; Other Assets.
---------------------------
(i) Section 4.1(h)(i) of the Disclosure Schedule sets forth all
of the real property owned in fee by Company and its Subsidiaries (the "Owned
Real Property").
(ii) Company or one of its Subsidiaries has good and marketable
title to each parcel of Owned Real Property and to each other asset reflected in
the latest balance sheet of Company included in the Filed SEC Documents (other
than any such other asset disposed of or consumed in the ordinary course of
business or as specified in Section 4.1(h)(ii) of the Disclosure Schedule) free
and clear of all Liens except (A) those reflected or reserved against in the
latest balance sheet of Company included in the Filed SEC Documents, (B) taxes
and general and special assessments not in default and payable without penalty
and interest, and (C) other Liens that individually or in the aggregate would
not have a Material Adverse Effect on Company.
(ii) Company has heretofore made available to Parent true,
correct and complete copies of all leases, subleases and other agreements (the
"Real Property Leases") under which Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property or facility (the "Leased Real Property"), including all modifications,
amendments and supplements thereto. Except in each case where the failure could
11
<PAGE>
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company: (A) Company or one of its Subsidiaries has a valid
and subsisting leasehold interest in each parcel of Leased Real Property free
and clear of all Liens and each Real Property Lease is in full force and effect,
(B) all rent and other sums and charges payable by Company or its Subsidiaries
as tenants thereunder are current in all material respects, (C) no termination
event or condition or uncured default of a material nature on the part of
Company or any such Subsidiary or, to Company's knowledge, the landlord, exists
under any Real Property Lease, and (D) Company or one of its Subsidiaries is the
sole undisputed lessee of each Leased Real Property, is in actual possession
thereof and is entitled to quiet enjoyment thereof in accordance with the terms
of the applicable Real Property Lease.
(i) Software.
--------
(i) Section 4.1(i)(i) of the Disclosure Schedule sets forth
under the caption "Owned Software" a true, correct and complete list of all
computer programs (source code or object code) owned by Company or any
Subsidiary of Company, including without limitation any computer programs in the
development or testing phase (collectively, the "Owned Software"), and Section
4.1(i)(i) of the Disclosure Schedule sets forth under the caption "Licensed
Software" a true, correct and complete list of all computer programs (source
code or object code) licensed to Company or any Subsidiary of Company by another
person (other than any off-the-shelf computer program that is so licensed under
a shrink wrap license) (collectively, the "Licensed Software" and, together with
the Owned Software, the "Software").
(ii) Except as specified in Section 4.1(i)(ii) of the Disclosure
Schedule, Company, directly or through its Subsidiaries, has good, marketable
and exclusive title to, and the valid and enforceable power and unqualified
right to sell, license, lease, transfer, use or otherwise exploit, all versions
and releases of the Owned Software and all copyrights thereof, free and clear of
all Liens. Company, directly or through its Subsidiaries, is in actual
possession of the source code and object code for each computer program included
in the Owned Software, and Company, directly or through its Subsidiaries, is in
possession of all other documentation (including without limitation all related
engineering specifications, program flow charts, installation and user manuals)
and know-how required for the effective use of the Software as currently used in
Company's business or as offered or represented to Company's customers or
potential customers. Company, directly or through its Subsidiaries, is in actual
possession of the object code and user manuals for each computer program
included in the Licensed Software. The Software constitutes all of the computer
programs necessary to conduct Company's business as now conducted, and includes
all of the computer programs used in the development, marketing, licensing, sale
or support of the products and the services presently offered by Company.
Except as specified in Section 4.1(i)(ii) of the Disclosure Schedule, no person
other than Company and its Subsidiaries has any right or interest of any kind or
nature in or with respect to the Owned Software or any portion thereof or any
rights to sell, license, lease, transfer, use or otherwise exploit the Owned
Software or any portion thereof.
(iii) Section 4.1(i)(iii) of the Disclosure Schedule sets forth a
true, correct and complete list, by computer program, of (A) all persons other
than Company and its Subsidiaries that have been provided with the source code
or have a right to be provided with the
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<PAGE>
source code (including any such right that may arise after the occurrence of any
specified event or circumstance, either with or without the giving of notice or
passage of time or both) for any of the Owned Software, and (B) all source code
escrow agreements relating to any of the Owned Software (setting forth as to any
such escrow agreement the source code subject thereto and the names of the
escrow agent and all other persons who are actual or potential beneficiaries of
such escrow agreement), and identifies with specificity all agreements and
arrangements pursuant to which the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby would
entitle any third party or parties to receive possession of the source code for
any of the Owned Software or any related technical documentation. Except as
specified in Section 4.1(i)(iii) of the Disclosure Schedule, no person (other
than Company and its Subsidiaries and any person that is a party to a contract
referred to in clause (v) of the first sentence of Section 4.1(l) that restricts
such person from disclosing any information concerning such source code) is in
possession of, or has or has had access to, any source code for any computer
program included in the Owned Software.
(iv) There are no defects in any computer program included in
the Software that would adversely affect the functioning thereof in accordance
with any published specifications therefor or which would cause the Owned
Software or, to Company's knowledge, the Licensed Software, to fail to be Year
2000 compliant in all material respects. Without limiting the generality of the
foregoing, all of the Owned Software and, to Company's knowledge, all of the
Licensed Software has the following properties and capabilities: (A) the
capability to correctly recognize and accurately process dates expressed as a
four-digit number (or the binary equivalent or other machine readable iteration
thereof) (collectively, the "Four-Digit Dates"); (B) the capability to
accurately execute calculations using Four-Digit Dates; (C) the functionality
(both on-line and batch), including entry, inquiry, maintenance and update, to
support processing involving Four-Digit Dates; (D) the capability to generate
interfaces and reports that support processing involving Four-Digit Dates; (E)
the capability to generate and successfully transition, without human
intervention, into the year 2000 using the correct system date and to thereafter
continue processing with Four-Digit Dates; and (F) the capability to provide
correct results in forward and backward data calculations spanning century
boundaries, including the conversion of pre-2000 dates currently stored as two-
digit dates; provided, however, that no representation or warranty is made as to
the effect that defects in computer programs, hardware or systems provided by
third parties (or the inability of any such programs, hardware or systems, other
than those contemplated by the documentation for the Software to be used in
conjunction with the Software, to properly exchange date data with the Software)
may, when used in conjunction with the Software, have on the foregoing
capabilities. Each computer program included in the Software is in machine
readable form and contains all current revisions. Section 4.1(i)(iv) of the
Disclosure Schedule sets forth a true, correct and complete list of any current
developments or maintenance efforts with respect to the Owned Software,
including without limitation the development of new computer programs,
enhancements or revisions to existing computer programs included in the Owned
Software.
(v) Except as specified in Section 4.1(i)(v) of the Disclosure
Schedule, none of the sale, license, lease, transfer, use, reproduction,
distribution, modification or other exploitation by Company, any Subsidiary of
Company or any of their respective successors or assigns of any version or
release of any computer program included in the Software obligates or
13
<PAGE>
will obligate Company, any Subsidiary of Company or any of their respective
successors or assigns to pay any royalty, fee or other compensation to any other
person.
(vi) Neither Company nor any of its Subsidiaries markets, or has
marketed, and none of them has supported or is obligated to support, any
Licensed Software.
(vii) Except as specified in Section 4.1(i)(vii) of the
Disclosure Schedule, no agreement, license or other arrangement pertaining to
any of the Software (including without limitation any development, distribution,
marketing, user or maintenance agreement, license or arrangement) to which
Company or any Subsidiary of Company is a party will terminate or become
terminable by any party thereto as a result of the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(j) Intellectual Property.
---------------------
(i) Section 4.1(j)(i) of the Disclosure Schedule sets forth a
true, correct and complete list (including, to the extent applicable,
registration, application or file numbers) of all patents, trademarks, trade
names, service marks, domain names and registered copyrights used by Company or
any Subsidiary of Company in connection with the conduct of Company's business,
and all registrations of or applications for registration of any of the
foregoing, including any additions thereto or extensions, continuations,
renewals or divisions thereof (setting forth the registration, issue or serial
number and a description of the same) (collectively, together with all trade
dress, trade secrets, processes, formulae, designs, know-how and other
intellectual property rights that are so used, the "Intellectual Property").
Parent has heretofore been furnished with true, correct and complete copies of
each U.S. registration or application for U.S. registration covering any of the
Intellectual Property which is registered with, or in respect of which any
application for registration has been filed with, any U.S. Governmental Entity.
(ii) The Intellectual Property includes all of the intellectual
property rights owned or licensed by Company and its Subsidiaries that are
reasonably necessary to conduct Company's business as it is now conducted, and
includes all of the intellectual property rights owned or licensed by Company
and its Subsidiaries that are used in the development, marketing, licensing or
support of the Software. Except as specified in Section 4.1(j)(ii) of the
Disclosure Schedule, (A) Company, directly or through its Subsidiaries, has
good, marketable and exclusive title to, and the valid and enforceable power and
unqualified right to use, the Intellectual Property free and clear of all Liens
and (B) no person or entity other than Company and its Subsidiaries has any
right or interest of any kind or nature in or with respect to the Intellectual
Property or any portion thereof or any rights to use, market or exploit the
Intellectual Property or any portion thereof.
(k) No Infringement. Except as specified in Section 4.1(k) of the
---------------
Disclosure Schedule, neither the existence nor the sale, license, lease,
transfer, use, reproduction, distribution, modification or other exploitation by
Company, any Subsidiary of Company or any of their respective successors or
assigns of any Software or Intellectual Property, as such Software or
Intellectual Property, as the case may be, is or was, or is currently
contemplated to be, sold,
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licensed, leased, transferred, used or otherwise exploited by such persons,
does, did or will (i) infringe on any patent, trademark, copyright or other
right of any other person, (ii) constitute a misuse or misappropriation of any
trade secret, know-how, process, proprietary information or other right of any
other person, or (iii) entitle any other person to any interest therein, or
right to compensation from Company, any Subsidiary of Company or any of their
respective successors or assigns, by reason thereof. Except as specified in
Section 4.1(k) of the Disclosure Schedule, neither Company nor any of its
Subsidiaries has received any complaint, assertion, threat or allegation or
otherwise has notice of any lawsuit, claim, demand, proceeding or investigation
involving matters of the type contemplated by the immediately preceding sentence
or is aware of any facts or circumstances that could reasonably be expected to
give rise to any such lawsuit, claim, demand, proceeding or investigation.
Except as specified in Section 4.1(k) of the Disclosure Schedule, there are no
restrictions on the ability of Company, any Subsidiary of Company or any of
their respective successors or assigns to sell, license, lease, transfer, use,
reproduce, distribute, modify or otherwise exploit any Software or Intellectual
Property.
(l) Material Contracts. There have been made available to Parent and
------------------
its representatives true, correct and complete copies of all of the following
contracts to which Company or any of its Subsidiaries is a party or by which any
of them is bound (collectively, the "Material Contracts"): (i) contracts with
any current officer or director of Company or any of its Subsidiaries; (ii)
contracts pursuant to which Company or any of its Subsidiaries licenses other
persons to use the Software and pursuant to which other persons license Company
or any of its Subsidiaries to use the Licensed Software; (iii) contracts (A) for
the sale of any of the assets of Company or any of its Subsidiaries, other than
contracts entered into in the ordinary course of business or (B) for the grant
to any person of any preferential rights to purchase any of its assets; (iv)
contracts which restrict Company or any of its Subsidiaries from competing in
any line of business or with any person in any geographical area or which
restrict any other person from competing with Company or any of its Subsidiaries
in any line of business or in any geographical area; (v) contracts which
restrict Company or any of its Subsidiaries from disclosing any information
concerning or obtained from any other person or which restrict any other person
from disclosing any information concerning or obtained from Company or any of
its Subsidiaries; (vi) indentures, credit agreements, security agreements,
mortgages, guarantees, promissory notes and other contracts relating to the
borrowing of money; and (vii) all other agreements, contracts or instruments
entered into outside of the ordinary course of business or which are material to
Company. Except as specified in Section 4.1(l) of the Disclosure Schedule, all
of the Material Contracts are in full force and effect and are the legal, valid
and binding obligation of Company and/or its Subsidiaries, enforceable against
them in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). Except as specified in Section 4.1(l) of the
Disclosure Schedule, neither Company nor any of its Subsidiaries is in breach or
default in any material respect under any Material Contract nor, to the
knowledge of Company, is any other party to any Material Contract in breach or
default thereunder in any material respect.
15
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(m) Litigation, etc. As of the date hereof, except as specified in
---------------
Section 4.1(m) of the Disclosure Schedule, (i) there is no suit, claim, action,
proceeding (at law or in equity) or investigation pending or, to the knowledge
of Company, threatened against Company or any of its Subsidiaries before any
court or other Governmental Entity, and (ii) neither Company nor any of its
Subsidiaries is subject to any outstanding order, writ, judgement, injunction,
decree or arbitration order or award that, in any such case described in clauses
(i) and (ii), has had or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Company. As of the date hereof,
there are no suits, claims, actions, proceedings or investigations pending or,
to the knowledge of Company, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
(n) Compliance with Applicable Laws. All federal, state, local and
-------------------------------
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits") necessary for each
of Company and its Subsidiaries to own, lease or operate its properties and
assets and to carry on its business as now conducted have been obtained or made,
and there has occurred no default under any such Permit, except for the lack of
Permits and for defaults under Permits which lack or default could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company. Except as disclosed in the Filed SEC Documents or in
Section 4.1(n) of the Disclosure Schedule, Company and its Subsidiaries are in
compliance with all applicable statutes, laws, ordinances, rules, orders and
regulations of any Governmental Entity, except for non-compliance which could
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company.
(o) Environmental Laws. Except as specified in Section 4.1(o) of the
------------------
Disclosure Schedule and as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company: (A)
neither Company nor any of its Subsidiaries has violated or is in violation of
any Environmental Law; (B) none of the Owned Real Property or Leased Real
Property (including without limitation soils and surface and ground waters) are
contaminated with any Hazardous Substance in quantities which require
investigation or remediation under Environmental Laws; (C) neither Company nor
any of its Subsidiaries is liable for any off-site contamination; (D) neither
Company nor any of its Subsidiaries has any liability or remediation obligation
under any Environmental Law; (E) no assets of Company or any of its Subsidiaries
are subject to pending or threatened Liens under any Environmental Law; (F)
Company and its Subsidiaries have all Permits required under any Environmental
Law ("Environmental Permits"); and (G) Company and its Subsidiaries are in
compliance with their respective Environmental Permits.
(p) Taxes. Except as specified in Section 4.1(p) of the Disclosure
-----
Schedule:
(i) Except where the failure to do so could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Company, each of Company and each Subsidiary of Company (and any affiliated or
unitary group of which any such person was a member) has (A) timely filed all
federal, state, local and foreign returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be filed by or for it
in respect of any Taxes (as hereinafter defined) and has caused such Returns as
so filed to be true, correct and complete, (B) established reserves that are
reflected in Company's
16
<PAGE>
most recent financial statements included in the Filed SEC Documents and that as
so reflected are adequate for the payment of all Taxes not yet due and payable
with respect to the results of operations of Company and its Subsidiaries
through the date hereof, and (C) timely withheld and paid over to the proper
taxing authorities all Taxes and other amounts required to be so withheld and
paid over. Each of Company and each Subsidiary of Company (and any affiliated or
unitary group of which any such person was a member) has timely paid all Taxes
that are shown as being due on the Returns referred to in the immediately
preceding sentence.
(ii) (A) There has been no taxable period since 1991 for which
a Return of Company or any of its Subsidiaries has been examined by the Internal
Revenue Service (the "IRS"), (B) all examinations described in clause (A) have
been completed without the assertion of material deficiencies, and (C) except
for alleged deficiencies which have been finally and irrevocably resolved,
Company has not received formal or informal notification that any deficiency for
any Taxes, the amount of which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company, has been
or will be proposed, asserted or assessed against Company or any of its
Subsidiaries by any federal, state, local or foreign taxing authority or court
with respect to any period.
(iii) Neither Company nor any of its Subsidiaries has (A)
executed or entered into with the IRS or any other taxing authority any
agreement or other document that continues in force and effect beyond the
Effective Time and that extends or has the effect of extending the period for
assessments or collection of any federal, state, local or foreign Taxes, (B)
executed or entered into with the IRS or any other taxing authority any closing
agreement or other similar agreement (nor has Company or any of its Subsidiaries
received any ruling, technical advice memorandum or similar determination)
affecting the determination of Taxes required to be shown on any Return not yet
filed, or (C) requested any extension of time to be granted to file after the
Effective Time any Return required by applicable law to be filed by it.
(iv) Neither Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Company or any of its
Subsidiaries. None of the assets of Company or any of its Subsidiaries is
required to be treated as being owned by any other person pursuant to the "safe
harbor" leasing provisions of Section 168(f)(8) of the Internal Revenue Code of
1954 as formerly in effect.
(v) Neither Company nor any of its Subsidiaries is a party to,
is bound by or has any obligation under any tax sharing agreement or similar
agreement or arrangement.
(vi) Company has not agreed to make, nor is it required to
make, any material adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(vii) Neither Company nor any of its Subsidiaries is, or has
been, a United States Real Property Holding Corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
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(viii) Except for the group of which Company is presently a
member, Company has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code, other than as a common parent
corporation, and each of Company's Subsidiaries has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, except where Company was the common parent of such affiliated group.
(ix) Neither Company nor any Subsidiary is a party to any
agreement, contract, arrangement or plan that has resulted, or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
For purposes of this Agreement, "Taxes" shall mean all federal, state,
local, foreign income, property, sales, excise, employment, payroll, franchise,
withholding and other taxes, tariffs, charges, fees, levies, imposts, duties,
licenses or other assessments of every kind and description, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority.
(q) Benefit Plans. Section 4.1(q) of the Disclosure Schedule sets
-------------
forth a true, correct and complete list of all the employee benefit plans (as
that phrase is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained or contributed to (or to
which Company has any obligation to contribute) for the benefit of any current
or former employee, officer or director of the Company or any of its
Subsidiaries ("Company ERISA Plans") and any other benefit or compensation plan,
program or arrangement maintained or contributed to (or to which Company has any
obligation to contribute) for the benefit of any current or former employee,
officer or director of the Company or any of its Subsidiaries (Company ERISA
Plans and such other plans being referred to as "Company Plans"). Company has
furnished or made available to Parent and its representatives a true, correct
and complete copy of every document pursuant to which each Company Plan is
established or operated (including any summary plan descriptions), a written
description of any Company Plan for which there is no written document, and the
three most recent annual reports, financial statements and actuarial valuations
with respect to each Company Plan. Except as specified in Section 4.1(q) of the
Disclosure Schedule:
(i) none of the Company ERISA Plans is a "multiemployer plan"
within the meaning of ERISA;
(ii) none of the Company Plans promises or provides retiree
health benefits or retiree life insurance benefits to any person;
(iii) none of the Company Plans provides for payment of a
benefit, the increase of a benefit amount, the payment of a contingent benefit
or the acceleration of the payment or vesting of a benefit by reason of the
execution of this Agreement or the consummation of the transactions contemplated
by this Agreement;
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<PAGE>
(iv) neither Company nor any of its Subsidiaries has an
obligation to adopt, or is considering the adoption of, any new benefit or
compensation plan, program or arrangement or, except as required by law, the
amendment of an existing Company Plan;
(v) each Company ERISA Plan intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the IRS that it is so qualified and nothing has occurred since the date of such
letter that could reasonably be expected to affect the qualified status of such
Company ERISA Plan;
(vi) each Company Plan has been operated in accordance with its
terms and the requirements of all applicable law, and no prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code has occurred with
respect to any Company ERISA Plan;
(vii) neither Company nor any of its Subsidiaries or members of
their "controlled group" has incurred any direct or indirect liability under
ERISA or the Code in connection with the termination of, withdrawal from or
failure to fund, any Company ERISA Plan or other retirement plan or arrangement,
and no fact or event exists that could reasonably be expected to give rise to
any such liability;
(viii) the aggregate accumulated benefit obligations of each
Company ERISA Plan subject to Title IV of ERISA (as of the date of the most
recent actuarial valuation prepared for such Company ERISA Plan and based on the
discount rate and other actuarial assumptions used in such valuation) do not
exceed the fair market value of the assets of such Company ERISA Plan (as of the
date of such valuation);
(ix) Company is not aware of any claims relating to the Company
Plans, other than routine claims for benefits; and
(x) None of the Company Plans provides for benefits or other
participation therein, and Company has received no claims or demands for
participation in or benefits under any Company Plan, by any individual
classified or treated by the Company as an independent contractor;
provided, however, that the failure of the representations set forth in clauses
(v), (vi), (vii), (ix) and (x) to be true and correct shall not be deemed to be
a breach of any such representation unless such failures could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Company.
(r) Absence of Changes in Benefit Plans. Except as disclosed in the
-----------------------------------
Filed SEC Documents or in Section 4.1(r) of the Disclosure Schedule, since the
date of the most recent audited financial statements included in the Filed SEC
Documents, neither Company nor any of its Subsidiaries has adopted or agreed to
adopt any collective bargaining agreement or any Company Plan.
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(s) Labor Matters.
-------------
(i) Except as specified in Section 4.1(s)(i) of the Disclosure
Schedule, neither Company nor any of its Subsidiaries is a party to any
employment, labor or collective bargaining agreement, and there are no
employment, labor or collective bargaining agreements which pertain to employees
of Company or any of its Subsidiaries. Company has heretofore made available to
Parent true, complete and correct copies of the agreements set forth in Section
4.1(s)(i) of the Disclosure Schedule, together with all amendments,
modifications, supplements or side letters affecting the duties, rights and
obligations of any party thereunder.
(ii) No employees of Company or any of its Subsidiaries are
represented by any labor organization and, to the knowledge of Company, no labor
organization or group of employees of Company or any of its Subsidiaries has
made a pending demand for recognition or certification. There are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority and, to the knowledge of Company, there are no
organizing activities involving Company or any of its Subsidiaries pending with
any labor organization or group of employees of Company or any of its
Subsidiaries.
(iii) Except as specified in Section 4.1(s)(iii) of the
Disclosure Schedule, there are no (A) unfair labor practice charges, grievances
or complaints pending or threatened in writing by or on behalf of any employee
or group of employees of Company or any of its Subsidiaries, or (B) complaints,
charges or claims against Company or any of its Subsidiaries pending, or
threatened in writing to be brought or filed, with any Governmental Entity or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment of any individual by Company or
any of its Subsidiaries.
(t) Brokers. No broker, investment banker, financial advisor or
-------
other person, other than Adams, Harkness & Hill, the fees and expenses of which
will be paid by Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Company.
(u) Written Opinion of Financial Advisor. Company has received the
------------------------------------
written opinion of Adams, Harkness & Hill, dated August 26, 1998 (a true,
correct and complete copy of which has been delivered to Parent by Company), to
the effect that, based upon and subject to the matters set forth therein and as
of the date thereof, the Merger Consideration is fair to the holders of Shares
from a financial point of view, and such opinion has not been withdrawn or
modified.
(v) Voting Requirements. The affirmative votes of each of (i) the
-------------------
holders of two-thirds of the outstanding Shares entitled to vote at the
Stockholders Meeting with respect to the approval of this Agreement, taken as a
whole, (ii) the affirmative vote of the holders of two-thirds of the outstanding
Common Shares entitled to vote at the Stockholders Meeting with respect to the
approval of this Agreement, taken separately, and (iii) the affirmative vote of
the holders of two-thirds of the outstanding Preferred Shares entitled to vote
at the Stockholders
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Meeting with respect to the approval of this Agreement, taken separately, are
the only votes of the holders of any class or series of Company's capital stock
or other securities required in connection with the consummation by Company of
the Merger and the other transactions contemplated hereby to be consummated by
Company. The restrictions contained in Chapters 110C, 110D, 110E and 110F of the
Massachusetts General Laws are not applicable to the transactions contemplated
hereby, including the transactions contemplated by the Stock Option Agreement
and the Stockholder Agreement.
Section 4.2 Representations and Warranties of Parent and Merger Sub.
-------------------------------------------------------
Parent and Merger Sub represent and warrant to Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
------------------------------------------
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated.
(b) Authority; Noncontravention. Parent and Merger Sub have the
---------------------------
requisite corporate power and authority to enter into this Agreement. The
execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly authorized by the Executive Committee of the Board of Directors
of Parent and the Board of Directors of Merger Sub and have been duly approved
by Parent as sole stockholder of Merger Sub, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by each of Parent and Merger Sub and, assuming this
Agreement constitutes a valid and binding obligation of Company, constitutes a
valid and binding obligation of each of Parent and Merger Sub, enforceable
against each such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principals of equity. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions of this Agreement will not (i) conflict with any of the provisions of
the certificate of incorporation or bylaws of Parent or Merger Sub, in each case
as amended to the date of this Agreement, (ii) subject to the governmental
filings and other matters referred to in Section 4.2(c), conflict with, result
in a breach of or default (with or without notice or lapse of time, or both)
under, or give rise to a material obligation, a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture, or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which Parent or Merger Sub is a party or by which Parent or
Merger Sub or any of their respective assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in Section
4.2(c), contravene any law, rule or regulation, or any order, writ, judgment,
injunction, decree, determination or award currently in effect, which, in the
case of clauses (ii) and (iii) above, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
(c) Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration or filing with, or notice to, any Governmental Entity which
has not been received or made is required by or with respect to Parent or Merger
Sub in connection with the execution and
21
<PAGE>
delivery of this Agreement by Parent or Merger Sub or the consummation by Parent
or Merger Sub, as the case may be, of any of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the HSR Act with respect to the Merger, (ii) the filing with the SEC of
such reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (iii) the filing of the
Massachusetts Articles of Merger with the Massachusetts State Secretary and the
filing of the Georgia Certificate of Merger with the Georgia State Secretary and
appropriate documents with the relevant authorities of other states in which
Company is qualified to do business, and (iv) any other consents, approvals,
authorizations, filings or notices the failure to make or obtain which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
(d) Certain Information. None of the information supplied or to be
-------------------
supplied by Parent or Merger Sub specifically for inclusion in the Proxy
Statement will, at the time it is so supplied, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(e) Financing. Parent and Merger Sub collectively have cash on hand
---------
or financing commitments from financially responsible third parties, or a
combination thereof, in an aggregate amount sufficient to enable Parent and
Merger Sub to (i) pay in full the Merger Consideration and all fees and expenses
payable by Parent and Merger Sub in connection with this Agreement and the
transactions contemplated thereby and (ii) satisfy and discharge such of
Company's existing indebtedness as, pursuant to its terms, will become due and
payable prior to its stated maturity as a result of the consummation of the
transactions contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS OF COMPANY
Section 5.1 Conduct of Business of Company. Except as expressly
------------------------------
provided for herein, during the period from the date of this Agreement to the
Effective Time, Company shall, and shall cause each of its Subsidiaries to, act
and carry on its business only in the ordinary course of business consistent
with past practice and, to the extent consistent therewith, use reasonable
efforts to preserve intact its current business organizations, keep available
the services of its current key officers and employees and preserve the goodwill
of those engaged in material business relationships with Company, and to that
end, without limiting the generality of the foregoing, Company shall not, and
shall not permit any of its Subsidiaries to, without the prior consent of
Parent:
(i) (A) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, securities or other property) in
respect of, any of its outstanding capital stock (other than, with respect to a
Subsidiary of Company, to its corporate parent), (B) split, combine or
reclassify any of its outstanding 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
22
<PAGE>
outstanding capital stock, or (C) purchase, redeem or otherwise acquire any
shares of outstanding capital stock or any rights, warrants or options to
acquire any such shares, except, in the case of this clause (C), for the
acquisition of Shares from holders of Options in full or partial payment of the
exercise price payable by such holder upon exercise of Options;
(ii) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options outstanding on the date of
this Agreement;
(iii) amend its articles of organization, by-laws or other
comparable charter or organizational documents;
(iv) directly or indirectly acquire, make any investment in, or
make any capital contributions to, any person other than in the ordinary course
of business consistent with past practice;
(v) directly or indirectly sell, pledge or otherwise dispose
of or encumber any of its properties or assets that are material to its
business, except for sales, pledges or other dispositions or encumbrances in the
ordinary course of business consistent with past practice;
(vi) (A) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to Company or any direct or indirect wholly
owned Subsidiary of Company or (B) make any loans or advances to any other
person, other than to Company or to any direct or indirect wholly owned
Subsidiary of Company and other than routine advances to employees consistent
with past practice, except, in the case of clause (A), for borrowings under the
Existing Credit Agreement (as hereinafter defined) in the ordinary course of
business consistent with past practice or pursuant to Advances provided for in
Section 6.11;
(vii) grant or agree to grant to any officer, employee or
consultant any increase in wages or bonus, severance, profit sharing,
retirement, deferred compensation, insurance or other compensation or benefits,
or establish any new compensation or benefit plans or arrangements, or amend or
agree to amend any existing Company Plans, except as may be required under
existing agreements or by law;
(viii) accelerate the payment, right to payment or vesting of any
bonus, severance, profit sharing, retirement, deferred compensation, stock
option, insurance or other compensation or benefits;
(ix) enter into or amend any employment, consulting, severance
or similar agreement with any individual, except with respect to new hires of
non-officer employees in the ordinary course of business consistent with past
practice;
23
<PAGE>
(x) adopt or enter into a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other material reorganization or any agreement relating to an Acquisition
Proposal (as hereinafter defined);
(xi) make any tax election or settle or compromise any income
tax liability of Company or of any of its Subsidiaries involving on an
individual basis more than $50,000;
(xii) make any change in any method of accounting or accounting
practice or policy, except as required by any changes in generally accepted
accounting principles;
(xiii) enter into any agreement, understanding or commitment that
restrains, limits or impedes Company's ability to compete with or conduct any
business or line of business;
(xiv) except as specified in Section 5.1 of the Disclosure
Schedule, plan, announce, implement or effect any reduction in force, lay-off,
early retirement program, severance program or other program or effort
concerning the termination of employment of employees of Company or its
Subsidiaries;
(xv) accelerate the collection of any account receivable or
delay the payment of any account payable, or otherwise reduce the assets or
increase the liabilities of Company or any of its Subsidiaries otherwise than in
the ordinary course of business consistent with past practice, in any such case
with the purpose or effect of using the resulting increase in the cash flow of
Company or any of its Subsidiaries to reduce the total indebtedness of Company
and its Subsidiaries for money borrowed; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of this
Section 5.1.
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.1 Preparation of the Proxy Statement. As soon as practicable
----------------------------------
following the date hereof, Company and Parent shall jointly prepare a proxy
statement (the "Proxy Statement"), in accordance with the Exchange Act and the
rules and regulations under the Exchange Act, with respect to the transactions
contemplated hereby. Company, Parent and Merger Sub shall cooperate with each
other in the preparation of the Proxy Statement. Company and Parent shall use
all reasonable efforts to respond promptly to any comments made by the SEC with
respect to the Proxy Statement and to cause the Proxy Statement to be mailed to
the stockholders of Company at the earliest practicable date.
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Section 6.2 Stockholders Meeting. Company shall take all action
--------------------
necessary, in accordance with the MBCL, the Exchange Act and other applicable
law and its articles of organization and by-laws, to convene and hold a special
meeting of the stockholders of Company (the "Stockholders Meeting") as promptly
as practicable after the date hereof for the purpose of considering and voting
upon this Agreement and to solicit proxies pursuant to the Proxy Statement in
connection therewith. Subject to the provisions of Section 6.6(b), the Board of
Directors of Company shall recommend that the holders of Shares vote in favor of
the approval of this Agreement at the Stockholders Meeting and shall cause such
recommendation to be included in the Proxy Statement. At the Stockholders
Meeting, Parent and Merger Sub shall vote any Shares beneficially owned by them
(which may be voted by them pursuant to applicable law) in favor of the approval
of this Agreement.
Section 6.3 Access to Information; Confidentiality. Each of Parent and
--------------------------------------
Company shall, and shall cause each of its Subsidiaries to, afford to the other
and its officers, employees, counsel, financial advisors and other
representatives access during the period prior to the Effective Time to all its
properties, books, contracts, commitments, Returns, personnel and records and,
during such period, each of Parent and Company shall, and shall cause each of
its Subsidiaries to, furnish as promptly as practicable to the other such
information concerning its business, properties, financial condition, operations
and personnel as the other may from time to time request. Any such
investigation by Parent or Company shall not affect the representations or
warranties contained in this Agreement. Except as required by law, Parent and
Company will hold, and will cause its directors, officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any non-public information obtained from the other in
confidence to the extent required by, and in accordance with the provisions of,
the letter agreement, dated June 9, 1998, between Parent and Company with
respect to confidentiality and other matters.
Section 6.4 Reasonable Best Efforts. On the terms and subject to the
-----------------------
conditions set forth in this Agreement, each of the parties shall use its
reasonable best efforts to take, or cause to be taken, all actions, and do, or
cause to be done, and assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including the satisfaction of the respective conditions set
forth in Article VII.
Section 6.5 Public Announcements. Parent and Merger Sub, on the one
--------------------
hand, and Company, on the other hand, shall consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release, SEC filing (including without limitation the Proxy Statement) or
other public statements with respect to the transactions contemplated hereby,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, by court process or by obligations pursuant to any listing
agreement with any national securities exchange.
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Section 6.6 No Solicitation; Acquisition Proposals.
--------------------------------------
(a) During the period from and including the date of this Agreement to
and including the Effective Time, Company shall not, and shall not authorize or
permit any of its Subsidiaries, or any of its or their affiliates, officers,
directors, employees, agents or representatives (including without limitation
any investment banker, financial advisor, attorney or accountant retained by
Company or any of its Subsidiaries), to, directly or indirectly, initiate,
solicit or encourage (including by way of furnishing information or assistance),
or take any other action to facilitate, any inquiries, any expression of
interest or the making of any proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal, or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal; provided, however, that nothing in this Agreement shall
prohibit the Board of Directors of Company, prior to the time at which this
Agreement shall have been approved by Company's stockholders, from furnishing
information to, or entering into, maintaining or continuing discussions or
negotiations with, any person that makes an unsolicited, bona fide written
Acquisition Proposal after the date hereof if, and to the extent that, the Board
of Directors of Company, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that (i) such Acquisition
Proposal would be more favorable to Company's stockholders than the Merger, and
(ii) the failure to take such action would result in a breach by the Board of
Directors of Company of its fiduciary duties to Company's stockholders under
applicable law, and, prior to furnishing any non-public information to such
person, Company receives from such person an executed confidentiality agreement
with provisions no less favorable to Company than the letter agreement relating
to the furnishing of confidential information of Company to Parent referred to
in the last sentence of Section 6.3. Company shall promptly (and, in any event
within 24 hours) notify Parent after receipt of any Acquisition Proposal or any
request for information relating to Company or any of its Subsidiaries or for
access to the properties, books or records of Company or any of its Subsidiaries
by any person who has informed Company that such person is considering making,
or has made, an Acquisition Proposal (which notice shall identify the person
making, or considering making, such Acquisition Proposal and shall set forth the
material terms of any Acquisition Proposal received), and Company shall keep
Parent informed in reasonable detail of the terms, status and other pertinent
details of any such Acquisition Proposal.
(b) During the period from and including the date of this Agreement
to and including the Effective Time, neither the Board of Directors of Company
nor any committee thereof shall withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Parent or Merger Sub, the approval of
this Agreement or the transactions contemplated hereby or the recommendation
referred to in the penultimate sentence of Section 6.2; provided, however, that
nothing contained in this Agreement will prohibit the Board of Directors of
Company from withdrawing or modifying the recommendation referred to in the
penultimate sentence of Section 6.2 following the receipt by Company after the
date hereof, under circumstances not involving any breach of the provisions of
Section 6.6(a), of an unsolicited Acquisition Proposal if, and to the extent
that, the Board of Directors of Company, after consultation with and based upon
the advice of independent legal counsel, determines in good faith that (i) the
transactions contemplated by such Acquisition Proposal would be more favorable
to Company's stockholders than the transactions contemplated hereby, and (ii)
the failure to take such action would result in a
26
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breach by the Board of Directors of Company of its fiduciary duties to Company's
stockholders under applicable law; and provided further that nothing contained
in this Agreement will prohibit the Board of Directors of Company from, to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal.
(c) Nothing in this Section 6.6, and no action taken by the Board of
Directors of the Company pursuant to this Section 6.6, will (i) have any effect
on Company's obligations under the first sentence of Section 6.2, which
obligations shall be absolute and unconditional, (ii) permit Company to
terminate this Agreement except in accordance with the provisions of Section
8.1, (iii) permit Company to enter into any agreement providing for any
transaction contemplated by an Acquisition Proposal for as long as this
Agreement remains in effect, or (iv) affect in any manner any other obligation
of Company under this Agreement.
(d) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer, proposal or other indication of interest regarding any of the
following (other than the transactions contemplated by this Agreement or the
Stock Option Agreement with Parent or Merger Sub) involving Company: (i) any
merger, consolidation, share exchange, recapitalization, business combination or
other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of all or substantially all the assets of Company
and its Subsidiaries, taken as a whole, in a single transaction or series of
related transactions; (iii) any tender offer or exchange offer for 20% percent
or more of the outstanding shares of capital stock of Company or the filing of a
registration statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
Section 6.7 Consents, Approvals and Filings. Upon the terms and subject
-------------------------------
to the conditions hereof, each of the parties hereto shall (a) make promptly its
respective filings, and thereafter make any other required submissions, under
the HSR Act and the Exchange Act, with respect to the Merger and the other
transactions contemplated hereby and (b) use its reasonable best efforts to
take, or cause to be taken, all appropriate 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 Merger and the other
transactions contemplated hereby, including without limitation using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and parties
to contracts with Company and its Subsidiaries as are necessary for the
consummation of the Merger and the other transactions contemplated hereby and to
fulfill the conditions to the Merger; provided, however, that in no event shall
Parent or any of its Subsidiaries be required to agree or commit to divest, hold
separate, offer for sale, abandon, limit its operation of or take similar action
with respect to any assets (tangible or intangible) or any business interest of
it or any of its Subsidiaries (including without limitation the Surviving
Corporation after consummation of the Merger) in connection with or as a
condition to receiving the consent or approval of any Governmental Entity
(including without limitation under the HSR Act). In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall use their reasonable best efforts to take all such action.
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Section 6.8 Board Action Relating to Stock Option Plans. As soon as
-------------------------------------------
practicable following the date of this Agreement, the Board of Directors of
Company (or, if appropriate, any committee administering a Stock Option Plan)
shall adopt such resolutions and take such actions as may be required to cause
each outstanding Option to be automatically converted, at the Effective Time,
into a Substitute Option in accordance with Section 2.2 and shall make such
other changes to the Stock Option Plans as it deems appropriate to give effect
to the Merger (subject to the approval of Parent, which shall not be
unreasonably withheld).
Section 6.9 Employee Benefit Matters.
------------------------
(a) From and after the Effective Time, Parent shall, and shall cause
its Subsidiaries (including the Surviving Corporation) to, honor and provide for
payment of all accrued obligations and benefits under all Company Plans and
employment or severance agreements between Company and persons who are or had
been employees of Company or any of its Subsidiaries at or prior to the
Effective Time ("Covered Employees"), all in accordance with their respective
terms.
(b) From and after the Effective Time, Parent shall, and shall cause
its Subsidiaries (including the Surviving Corporation) to, provide Covered
Employees who remain in the employ of Parent or any such Subsidiary employee
benefits that are reasonably comparable to the employee benefits provided to
similarly situated employees of Parent or any such Subsidiary who are not
Covered Employees. To the extent that Covered Employees are included in any
benefit plan of Parent or its Subsidiaries, Parent agrees that the Covered
Employees shall receive credit under such plan (other than any such plan
providing for sabbaticals) for service prior to the Effective Time with Company
and its Subsidiaries to the same extent such service was counted under similar
Company Plans for purposes of eligibility, vesting, eligibility for retirement
(but not for benefit accrual) and, with respect to vacation, disability and
severance, benefit accrual. To the extent that Covered Employees are included
in any medical, dental or health plan other than the plan or plans they
participated in at the Effective Time, Parent agrees that any such plans shall
not include pre-existing condition exclusions, except to the extent such
exclusions were applicable under the similar Company Plan at the Effective Time,
and shall provide credit for any deductibles and co-payments applied or made
with respect to each Covered Employee in the calendar year of the change.
(c) Notwithstanding anything in this Agreement to the contrary, from
and after the Effective Time, the Surviving Corporation will have sole
discretion over the hiring, promotion, retention, firing and other terms and
conditions of the employment of employees of the Surviving Corporation. Except
as otherwise provided in this Section 6.9, nothing herein shall prevent Parent
or the Surviving Corporation from amending or terminating any Company Plan in
accordance with its terms.
Section 6.10 Indemnification; Directors' and Officers' Insurance.
---------------------------------------------------
(a) For a period of five years after the Effective Time, the
provisions with respect to indemnification set forth in the certificate of
incorporation and bylaws of Merger Sub as in effect on the date of this
Agreement (true, correct and complete copies of which have been
28
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provided to Company) shall not be amended, repealed or otherwise modified in any
manner that would adversely affect the rights thereunder of individuals who at
any time prior to the Effective Time were directors or officers of Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including without limitation the transactions contemplated by this Agreement),
unless such modification is required by law.
(b) For a period commencing at the Effective Time and expiring not
later than the fifth anniversary of the Effective Time, Parent shall cause to be
maintained in effect policies of directors' and officers' liability insurance,
for the benefit of those persons who are covered by Company's directors' and
officers' liability insurance policies at the Effective Time, providing coverage
with respect to matters occurring prior to the Effective Time that is at least
equal to the coverage provided under Company's current directors' and officers'
liability insurance policies, to the extent that such liability insurance can be
maintained at an annual cost to Parent not greater than 150 percent of the
premium for the current Company directors' and officers' liability insurance;
provided that if such insurance cannot be so maintained at such cost, Parent
shall maintain as much of such insurance as can be so maintained at a cost equal
to 150 percent of the current annual premiums of Company for such insurance.
Section 6.11 Credit Arrangements.
-------------------
(a) During the period from and after the date hereof to the earlier of
the Effective Time and the termination of this Agreement pursuant to Section
8.1, Company shall not (i) modify, amend or supplement, or waive any rights
under or in relation to, or enter into any agreement or arrangement inconsistent
with, the Forbearance Agreement, the Overadvance Note or the Loan Documents (or
request any of the foregoing from Silicon Valley Bank), (ii) make any payments
on account of any outstanding borrowings or other obligations under the Loan
Documents, except (A) mandatory payments of accrued interest on outstanding
principal balances under the Loan Documents as contemplated by Section 5(b) and
Section 7 of the Forbearance Agreement and (B) mandatory payments in respect of
Overadvances as contemplated by Section 6 of the Forbearance Agreement, or (iii)
effect any advance under the Overadvance Facility (each, an "Advance"), except
with Parent's prior written consent obtained in accordance with the provisions
of Section 6.11(b).
(b) Company may request that Parent consent to one or more Advances to
be used by Company solely to finance its working capital requirements in the
ordinary course of business consistent with past practice. Each request for
Parent's consent to an Advance under this Section 6.11(b) shall set forth the
proposed amount thereof, the intended use of the proceeds thereof and
confirmation that the conditions set forth in Section 6.11(c) are then satisfied
(it being understood that Company shall request an Advance only to the extent
that Company's other uncommitted sources of working capital are at the time
inadequate to satisfy Company's working capital requirements). Subject to
Company's compliance with this Section 6.11(b) and the satisfaction of the
conditions set forth in Section 6.11(c), Parent shall consent to an Advance so
long as the making of such Advance would not result in all Advances in the
aggregate exceeding $3,000,000; provided, however, that Parent, in its sole and
absolute discretion, may consent to one or more Advances that would result in
all Advances in the aggregate exceeding $3,000,000 or at a time when all
Advances in the aggregate already exceed $3,000,000.
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<PAGE>
(c) The obligation of Parent to consent to any Advance shall be
subject to the satisfaction on the date that any Advance is to be made (an
"Advance Date") of the following conditions:
(i) The Forbearance Agreement, the Overadvance Note and the
Loan Documents shall be in full force and effect without modification, amendment
or supplement, and neither Company nor Silicon Valley Bank shall have (A) waived
any rights thereunder without Parent's prior written consent or (B) taken or
omitted to take (or expressed any intention to take or omit to take) any action
in contravention thereof.
(ii) Company shall not have taken or omitted to take (or
expressed any intention to take or omit to take) any action in contravention of
the provisions of this Section 6.11 or the Cash Management Plan set forth in
Annex 6.11 to this Agreement.
(iii) All conditions to the obligations of Parent and Merger
Sub to effect the Merger set forth in Section 7.1(b) and Sections 7.2(a),
7.2(b), 7.2(c) and 7.2(d) shall have been satisfied (with the references in
Sections 7.2(a) and 7.2(b) to the "Closing Date" being deemed for purposes of
this Section 6.11(b)(ii) to be references to the applicable Advance Date).
(iv) From the date hereof to the applicable Advance Date,
neither Company nor any of its Subsidiaries or any of its or their affiliates,
officers, directors, employees, agents or representatives (including without
limitation any investment banker, financial advisor, attorney or accountant
retained by Company or any of its Subsidiaries) shall have (A) initiated,
solicited or encouraged (including by way of providing information or
assistance), or taken any other action to facilitate, any inquiries, any
expression of interest or the making of any proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal or (B) entered into,
maintained or continued discussions or negotiated with any person in furtherance
of such inquiries or to obtain an Acquisition Proposal or agreed to or endorsed
any Acquisition Proposal.
(v) The making of an Advance to Company shall not cause a
default or event of default to occur under the Forbearance Agreement, the
Overadvance Note, the Loan Documents or any other obligations of Company or any
of its Subsidiaries for borrowed money or evidenced by indentures, credit
agreements, security agreements, mortgages, guarantees, promissory notes or
other contracts relating to the borrowing of money.
(vi) If a default or event of default has occurred and is
continuing under any indenture, credit agreement, security agreement, mortgage,
guaranty, promissory note or other contract relating to the borrowing of money
(including the Forbearance Agreement, the Overadvance Note and the Loan
Documents) to which the Company is a party, Company shall have obtained a
written waiver of such default or event of default or a forbearance agreement,
in each case in form and substance reasonably satisfactory to Parent.
(d) Neither Parent nor Merger Sub nor any of their respective
affiliates, directors, officers, employees or agents shall have any liability to
Company or any other person in connection with any action taken or omitted to be
taken under this Section 6.11 or in connection with any Advance or request for
an Advance; provided, however, without limiting the generality
30
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or effect of Sections 8.1(c) and 8.2, that nothing contained in this Section
6.11(d) shall relieve Parent of liability for any willful or intentional breach
by Parent of this Section 6.11.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved by
--------------------
the affirmative vote of the holders of the requisite number of shares of capital
stock of Company in the manner required pursuant to Company's articles of
organization and by-laws, the MBCL and other applicable law.
(b) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the party
invoking this condition shall have complied with its obligations under Section
6.7.
(c) HSR Act. All necessary waiting periods under the HSR Act
-------
applicable to the Merger shall have expired or been earlier terminated.
Section 7.2 Conditions to Obligations of Parent and Merger Sub. The
--------------------------------------------------
obligation of each of Parent and Merger Sub to effect the Merger is further
subject to satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Company contained in this Agreement, which representations and
warranties shall be deemed for purposes of this Section 7.2 not to include any
qualification or limitation with respect to materiality (whether by reference to
"Material Adverse Effect" or otherwise), shall be true and correct as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, have not had and
could not reasonably be expected to have a Material Adverse Effect on Company,
with the same effect as though such representations and warranties were made as
of the Closing Date, and Parent and Merger Sub shall have received a certificate
signed on behalf of Company by an authorized officer of Company to such effect.
(b) Performance of Obligations of Company. Company 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, and Parent and Merger
Sub shall have received a certificate signed on behalf of Company by an
authorized officer of Company to such effect.
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(c) No Material Adverse Change. Since the date of this Agreement,
--------------------------
Company and its Subsidiaries, taken as a whole, shall not have experienced any
Material Adverse Change.
(d) Certain Litigation. There shall not be pending or threatened any
------------------
suit, action or proceeding seeking to restrain or prohibit the Merger or seeking
to obtain from Parent or Company or any of their respective affiliates in
connection with the Merger any material damages, or seeking any other relief
that, following the Merger, would materially limit or restrict the ability of
Parent and its Subsidiaries to own and conduct both the assets and businesses
owned and conducted by Parent and its Subsidiaries prior to the Merger and the
assets and businesses owned and conducted by Company and its Subsidiaries prior
to the Merger.
(e) Consents. All consents, authorizations, orders and approvals of
--------
(or filings or registrations with) any Governmental Entity or any other person
required to be obtained or made prior to the Effective Time in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except for the filing of the articles of merger pursuant to
Section 1.3 and except where the failure to have obtained or made such consents,
authorizations, orders, approvals, filings or registrations could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent or the Surviving Corporation.
(f) Insurance. Parent and Company shall have received written
---------
confirmation reasonably satisfactory to Parent from the insurers identified on
Annex 7.2 to this Agreement as to the matters set forth on such Annex.
(g) Termination or Modification of Certain Agreements. Each of the
-------------------------------------------------
Agreement, dated December 1, 1996, between Company and SciTools Inc. (formerly
known as Scientific Toolworks, Inc.) relating to ADA Professional Developers
Tool, as amended, the Agreement, dated August 12, 1997, between Company and
Proforma Corporation relating to Provision Workbench/BPR Modelers, as amended,
and the Agreement, dated January 1, 1998, between Company and Mesa Systems
Guild, Inc. relating to Mesa/Teamwork Model Bridge, as amended, shall have been
terminated or modified on terms reasonably satisfactory to Parent.
(h) Certain Actions by Secured Lender. Silicon Valley Bank shall not
---------------------------------
have exercised any rights or remedies or taken any other action under or in
respect of the Loan Documents or the Overadvance Note (as such terms are
hereinafter defined) and shall not have failed to make any Advance requested by
Company and consented to by Parent pursuant to Section 6.11.
Section 7.3 Conditions to Obligation of Company. The obligation of the
-----------------------------------
Company to effect the Merger is further subject to satisfaction or written
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of each of Parent and Merger Sub contained in this Agreement, which
representations and warranties shall be deemed for purposes of this Section 7.3
not to include any qualification or limitation with
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<PAGE>
respect to materiality (whether by reference to "Material Adverse Effect" or
otherwise), shall be true and correct as of the Closing Date, except where the
matters in respect of which such representations and warranties are not true and
correct, in the aggregate, have not had and could not reasonably be expected to
have a Material Adverse Effect on Parent or a material adverse effect on the
economic benefits to be realized by the holders of Shares as a result of the
consummation of the Merger, with the same effect as though such representations
and warranties were made as of the Closing Date, and Company shall have received
a certificate signed on behalf of Parent and Merger Sub by an authorized officer
of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of
---------------------------------------------------
Parent and Merger Sub 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, and the Company shall have received a certificate signed on
behalf of Parent by an authorized officer of Parent to such effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination.
-----------
(a) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Effective Time, notwithstanding
approval thereof by the stockholders of Company, in any one of the following
circumstances:
(i) By mutual written consent duly authorized by the Boards of
Directors of Parent and Company.
(ii) By Parent or Company, if the Effective Time shall not have
occurred on or before December 31, 1998, otherwise than as a result of any
material breach of any provision of this Agreement by the party seeking to
effect such termination.
(iii) By Parent or Company, if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling, or taken any other action permanently restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and non-appealable, provided that neither party
may terminate this Agreement pursuant to this Section 8.1(a)(iii) if it has not
complied with its obligations under Section 6.7.
(iv) By Parent or Company, if the Stockholders Meeting shall have
been held and this Agreement shall not have been approved by the affirmative
vote of the holders of the requisite number of shares of capital stock of
Company, provided that Company may not terminate this Agreement pursuant to this
Section 8.1(a)(iv) unless it shall have paid to Parent the Fee provided for in
Section 8.1(b).
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(v) By Parent, if (A) the Board of Directors of Company or any
committee thereof shall have (1) withdrawn or modified, in a manner adverse to
Parent or Merger Sub, its approval of this Agreement or the transactions
contemplated hereby or the recommendation referred to in the penultimate
sentence of Section 6.2, (2) approved, endorsed or recommended to its
stockholders an Acquisition Proposal, or (3) resolved to do any of the foregoing
or (B) if the Stockholders Meeting shall not have been held by October 31, 1998
as a result of a breach by Company of its obligations under Section 6.2.
(vi) By Parent or Company, if (A) the other party shall have
failed to comply in any material respect with any of the material covenants and
agreements contained in this Agreement to be complied with or performed by such
party at or prior to such date of termination, and such failure continues for 20
business days after the actual receipt by such party of a written notice from
the other party setting forth in detail the nature of such failure, or (B) the
representations and warranties of the other party contained in this Agreement,
which representations and warranties shall be deemed for purposes of this
Section 8.1(a)(vi) not to include any qualification or limitation with respect
to materiality (whether by reference to a "Material Adverse Effect" or
otherwise), shall have been untrue in any respect on the date when made (or in
the case of any representations and warranties that are made as of a different
date, as of such different date) and the matters in respect of which such
representations and warranties shall have been untrue, in the aggregate, have
had or could reasonably be expected to have a Material Adverse Effect on such
other party.
(b) If this Agreement is terminated pursuant to:
(i) Section 8.1(a)(iv); or
(ii) Section 8.1(a)(v);
then, in such event, Company shall pay to Parent prior to such termination, in
the case of termination by Company pursuant to Section 8.1(a)(iv), or promptly
(and in any event within three business days) after such termination, in the
case of termination by Parent pursuant to Section 8.1(a)(iv) or Section
8.1(a)(v), a fee in the amount of $570,000 (the "Fee"), which amount shall be
payable in immediately available funds.
(c) If this Agreement is terminated by Company pursuant to Section
8.1(a)(vi), then, in such event, (i) Parent shall pay to or for the account of
Company promptly (and in any event within three business days) after such
termination, an amount in immediately available funds equal to $570,000 (the
"Liquidated Damages Amount") to be applied as follows: (i) first, to any
accrued and unpaid interest on any then-outstanding Advances, (ii) next, to the
principal amount of any then-outstanding Advances, and (iii) finally, to the
extent not applied pursuant to clauses (i) and/or (ii), to an account specified
by Company for such purpose. Notwithstanding anything in this Agreement to the
contrary, the payment of the Liquidated Damages Amount pursuant to the
immediately preceding sentence shall be the sole and exclusive remedy of Company
for any and all damages arising or resulting from or relating to any of the
matters referred to in Section 8.1(a)(vi) and, upon compliance by Parent with
its obligations (if any) under this Section 8.1(c), none of Parent, Merger Sub,
any other Subsidiary of Parent or any of their respective officers, directors,
employees, agents, representatives or stockholders shall have any liability or
further obligation to Company or any of its
34
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officers, directors, employees, agents, representatives or stockholders, or to
any other person in respect of any such matters.
Section 8.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this Agreement
(except for the provisions of Section 4.1(t), the last sentence of Section 6.3,
paragraphs (b) and (c) of Section 8.1, this Section 8.2 and Article IX) shall
forthwith become void and cease to have any force or effect, without any
liability on the part of any party hereto or any of its affiliates; provided,
however, that nothing in this Section 8.2 shall relieve any party to this
Agreement of liability for any willful or intentional breach of this Agreement.
Section 8.3 Amendment. Subject to any applicable provisions of the
---------
MBCL, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of this Agreement at the Stockholders Meeting, no amendment shall be
made which would reduce the amount or change the type of consideration into
which each Share shall be converted upon consummation of the Merger. This
Agreement may not be modified or amended except by written agreement executed
and delivered by duly authorized officers of each of the respective parties.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
-----------------
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c)
subject to Section 8.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in a written instrument executed and delivered by a duly authorized
officer on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.
---------------------------------------------------------
A termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of Parent, Merger Sub
or Company, action by its Board of Directors or the duly authorized designee of
its Board of Directors.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
35
<PAGE>
Section 9.2 Fees and Expenses. Whether or not the Merger shall be
-----------------
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby, except that each of Company and Parent shall
bear and pay one-half of the costs and expenses incurred in connection with the
filing of the premerger notification and report forms under the HSR Act
(including filing fees).
Section 9.3 Definitions. For purposes of this Agreement:
-----------
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks in the City of New York are required or permitted to
close;
(c) "Common Merger Consideration" means the amount of cash the right
to receive which a Common Share shall be converted into at the Effective Time
pursuant to Section 2.1(c).
(d) "Conversion Factor" means an amount equal to the quotient obtained
by dividing the Common Merger Consideration by $21.50 (i.e., the closing price
----
for shares of Parent Common Stock on August 26, 1998).
(e) "Disclosure Schedule" means the disclosure schedule delivered by
each party to the other simultaneously with the execution of this Agreement;
(f) "Environmental Laws" means any federal, state or local law
relating to: (i) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (ii) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (iii) otherwise relating to
pollution of the environment or the protection of human health;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, including the rules and regulations promulgated by the SEC pursuant
thereto;
(h) "Forbearance Agreement" means the Forbearance Agreement, dated as
of August 27, 1998, among Silicon Valley Bank, Company, Cayenne Software
Limited, Bachman GmbH and Cadre Technologies;
(i) "Hazardous Substances" means: (i) those substances defined in or
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Clean Air Act; (ii)
petroleum and petroleum products including crude oil and any fractions thereof;
(iii) natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any
other contaminant; and (vi) any substance with respect to which any Governmental
Entity requires environmental investigation, monitoring, reporting or
remediation;
36
<PAGE>
(j) "knowledge" means the actual knowledge of any executive officer of
Company or Parent, as the case may be;
(k) "Liens" means, collectively, all pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances of
any kind or nature whatsoever;
(l) "Loan Documents" has the meaning ascribed thereto in the
Forbearance Agreement, as such Loan Documents are modified by the Forbearance
Agreement;
(m) "Material Adverse Change" means any one or more changes, events or
occurrences which have had or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Company; provided, however,
that, solely for purposes of this definition insofar as it relates to changes,
events, or occurrences after the date hereof and, subject to the next following
proviso, no effect that is directly attributable to (i) the performance by
Company of its covenants hereunder, (ii) decreases in Company's consolidated
revenues, or (iii) the inability of Company or any of its Subsidiaries to
collect their respective accounts receivable after making collection efforts
consistent with past practice shall be deemed to constitute a Material Adverse
Effect on Company; provided, further, however, that the inability of Company to
pay its debts when the same are due and payable (whether or not in the ordinary
course of business or as a result of any action by any person (other than a
breach by Parent of its obligations under Section 6.11) that affects the time at
which such obligations are due and payable) shall in all events be deemed to
constitute a Material Adverse Effect on Company for purposes of this definition;
(n) a "Material Adverse Effect" with respect to any person means a
material adverse effect on (i) the ability of such person to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby or (ii) the condition (financial or otherwise), assets, liabilities
(actual or contingent), results of operations or business of such person and its
Subsidiaries taken as a whole;
(o) the "NYSE" means the New York Stock Exchange;
(p) "Overadvance Facility" has the meaning ascribed thereto in the
Forbearance Agreement;
(q) "Overadvance Note" has the meaning ascribed thereto in the
Forbearance Agreement;
(r) a "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
37
<PAGE>
(s) "Preferred Merger Consideration" means the amount of cash the
right to receive which a Preferred Share shall be converted into at the
Effective Time pursuant to Section 2.1(c).
(t) "Preferred Stockholders" means Integral Capital Partners III,
L.P., Integral Capital Partners International III, L.P., Winston Partners L.P.,
Winston II LLC and Winston II LDC;
(u) "Securities Act" means the Securities Act of 1933, as amended,
including the rules and regulations promulgated by the SEC pursuant thereto;
(v) a "Subsidiary" of any person means any other person of which (i)
the first mentioned person or any Subsidiary thereof is a general partner, (ii)
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such other person is held by the first
mentioned person and/or by any one or more of its Subsidiaries, or (iii) at
least 50% of the equity interests of such other person is, directly or
indirectly, owned or controlled by such first mentioned person and/or by any one
or more of its Subsidiaries.
Section 9.4 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent or to Merger Sub, to
Sterling Software, Inc.
300 Crescent Court
Suite 1200
Dallas, Texas 75201
Attention: Don J. McDermett, Jr., Esq.
Telecopy: (214) 981-1265
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark E. Betzen, Esq.
Telecopy: (214) 969-5100
38
<PAGE>
(ii) if to Company, to
Cayenne Software, Inc.
14 Crosby Drive
Bedford, Massachusetts 07130
Attention: Frederick H. Phillips
Telecopy: (781) 280-6018
with a copy (which shall not constitute notice) to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Peter H. Dodson, Esq.
Telecopy: (617) 951-7050
Section 9.5 Interpretation. When a reference is made in this Agreement
--------------
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for convenience of 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".
Section 9.6 Entire Agreement; Third-Party Beneficiaries. This Agreement
-------------------------------------------
constitutes the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the letter agreement referenced in
the last sentence of Section 6.3 and the Stock Option Agreement). This
Agreement is not intended to confer upon any person (including without
limitation any employees or former employees of Company), other than the parties
hereto, any rights or remedies.
Section 9.7 Governing Law. Except to the extent necessarily governed by
-------------
the GBCC, this Agreement shall be governed by, and construed in accordance with,
the laws of The Commonwealth of Massachusetts, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
Section 9.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment without
such prior written consent shall be null and void, except that Parent and/or
Merger Sub may assign this Agreement to any direct or indirect wholly owned
Subsidiary of Parent without the prior consent of Company; provided that Parent
and/or Merger Sub, as the case may be, shall remain liable for all of its
obligations under this Agreement. 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.
39
<PAGE>
Section 9.9 Enforcement. Irreparable damage would occur in the event
-----------
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any appropriate state court in The Commonwealth of Massachusetts or federal
court in Suffolk County in The Commonwealth of Massachusetts, this being in
addition to any other remedy to which they are entitled at law or in equity.
Each of the parties hereto (i) shall submit itself to the personal jurisdiction
of any appropriate state court in The Commonwealth of Massachusetts or federal
court in Suffolk County in The Commonwealth of Massachusetts in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (ii) shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (iii) shall not bring
any action relating to this Agreement or any of the transactions contemplated
hereby in any court other than any appropriate state court in The Commonwealth
of Massachusetts or federal court in Suffolk County in The Commonwealth of
Massachusetts.
Section 9.10 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
[signature page follows]
40
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
STERLING SOFTWARE, INC.
By: /s/ Don J. McDermett, Jr.
--------------------------------------------
Don J. McDermett, Jr.
Senior Vice President and General Counsel
STERLING SOFTWARE (SOUTHERN), INC.
By: /s/ Don J. McDermett, Jr.
--------------------------------------------
Don J. McDermett, Jr.
Vice President and Secretary
CAYENNE SOFTWARE, INC.
By: /s/ John J. Alexander
--------------------------------------------
John J. Alexander
President and Chief Executive Officer
41
<PAGE>
Appendix B
----------
August 26, 1998
Board of Directors
Cayenne Software, Inc.
14 Crosby Drive
Bedford, MA 01730
Members of the Board:
You have requested our opinion (the "Fairness Opinion"), as investment bankers,
as to the fairness, from a financial point of view, to both Cayenne Software,
Inc. (the "Company") and the shareholders of the Company of the consideration to
be received by the Company's shareholders in connection with the proposed merger
(the "Merger") of the Company with and into Sterling Software (Southern), Inc.,
a wholly owned subsidiary ( "Merger Sub") of Sterling Software, Inc.
("Sterling"), pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), by and among the Company, Merger Sub and Sterling. Adams, Harkness
& Hill, Inc. ("AH&H"), as part of its investment banking activities, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
At the effective time of the Merger: (i) each share of the Company's Series D
Convertible Preferred Stock, par value $1.00 per share (the "Preferred Shares")
issued and outstanding immediately prior to the effective time of the Merger,
other than any Preferred Shares owned by the Company or any subsidiary of the
Company or by Sterling, Merger Sub or any other subsidiary of Sterling, or held
by any shareholder who has the right to demand, and who properly demands,
payment for such Preferred Shares under the Massachusetts General Corporation
Law, will be converted into the right to receive $20.00 upon surrender of the
certificate at or subsequent to the effective time of the Merger; and (ii) each
share of the Company's common stock, par value $.01 per share (the "Common
Shares"), issued and outstanding immediately prior to the effective time of the
Merger, other than any Common Shares owned by the Company or any subsidiary of
the Company or by Sterling, Merger Sub or any other subsidiary of Sterling, or
held by any shareholder who has the right to demand, and who properly demands,
payment for such Common Shares under the Massachusetts General Corporation Law,
will be converted into the right to receive $0.375 upon surrender of the
certificate at or subsequent to the effective time of the Merger, provided,
however, that in the event that there shall be outstanding at the effective time
of the Merger any cash advances made to the Company with Sterling's consent
pursuant to the terms of the Merger Agreement, the amount of cash into which
each Common Share will be converted will be reduced by an amount (rounded to the
nearest one-tenth of a cent) equal to the quotient obtained by dividing (a) the
aggregate amount of such outstanding cash advances by (b) 21,333,398. The
Merger Agreement stipulates that the maximum amount of cash advances to which
Sterling is obligated to consent is $3.0 million, which, if outstanding at the
<PAGE>
Board of Directors
Cayenne Software, Inc.
August 26, 1998
Page 2 of 3
effective date of the Merger and, based on the current 21,333,398 Common Shares
outstanding, would result in each Common Share being converted to the right to
receive $0.234.
In developing the Fairness Opinion, AH&H has among other activities: (i)
reviewed the Company's Annual Reports, Reports on Form 10-K and related
financial information for the three fiscal years ended December 31, 1997, and
the Company's Reports on Form 10-Q and the related unaudited financial
information for the six month period ending June 30, 1998; (ii) reviewed
Sterling's Annual Reports, Reports on Form 10-K and related financial
information for the three fiscal years ended September 30, 1997, and Sterling's
Reports on Form 10-Q and the related unaudited financial information for the
nine month period ended June 30, 1998; (iii) analyzed certain internal financial
statements and other financial and operating data concerning the Company
prepared by the management of the Company; (iv) reviewed certain information
relating to prior periods concerning the business, earnings and assets of the
Company and Sterling furnished to AH&H by the Company and Sterling; (v)
conducted due diligence discussions with members of senior management of the
Company and Sterling, and discussed with members of senior management of the
Company and Sterling their views regarding future business, financial and
operating benefits arising from the Merger; (vi) reviewed the historical market
prices and trading activity for the Company's Common Stock and Sterling's Common
Stock and compared them with that of certain publicly traded companies (the
"Peer Group") deemed by AH&H to be relevant and comparable to the Company and
Sterling, respectively; (vii) compared the results of operations of the Company
and Sterling with that of the Peer Group; (viii) compared the financial terms of
the Merger with the financial terms of certain other mergers and acquisitions
deemed to be relevant and comparable to the Merger; (ix) participated in certain
discussions among representatives of the Company and Sterling, and their
financial and legal advisors; (x) reviewed the Merger Agreement in draft form,
and the Option Agreement between Sterling and the Company in draft form; and
(xi) reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as we deemed necessary,
including our assessment of general economic, market and monetary conditions.
Our Fairness Opinion as expressed herein is limited to the fairness, from a
financial point of view, of the proposed consideration and does not address the
Company's underlying business decision to engage in the Merger. Our Fairness
Opinion does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote on the Merger. In connection with our
review and in arriving at our Fairness Opinion, we have not independently
verified any information received from the Company, have relied on such
information, and have assumed that all such information is complete and accurate
in all material respects. With respect to any internal forecasts reviewed
relating to the prospects of the Company, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's management as to the future financial performance
and cash requirements of the Company. Our Fairness Opinion is rendered on the
basis of securities market conditions prevailing as of the date hereof and on
the conditions and prospects, financial and otherwise, of the Company as known
to us on the date hereof. We have not conducted, nor have we received copies
of, any independent valuation or appraisal of any of the assets of the Company.
In addition, we have assumed,
<PAGE>
Board of Directors
Cayenne Software, Inc.
August 26, 1998
Page 3 of 3
with your consent, that the terms set forth in the executed Merger Agreement
will not differ materially from the proposed terms provided to us in the August
24, 1998 draft Merger Agreement.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the transactions contemplated by the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the consideration is fair, from a financial point of view, to the
Company's shareholders.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
By: /s/James A. Simms
--------------------
James A. Simms
Group Head, Mergers & Acquisitions
Reliant/data/JAS
<PAGE>
APPENDIX C
----------
APPRAISAL RIGHTS STATUTE
SECTIONS 85 THROUGH 98
INCLUSIVE
OF THE
BUSINESS CORPORATION LAW
OF THE
COMMONWEALTH OF MASSACHUSETTS
__________________
SECTION 85. Dissenting stockholder; right to demand payment for Stock;
exception
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his Stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of Stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SECTION 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SECTION 87. Statement of rights of objecting stockholders in notice of meeting;
form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
Stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their Stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
C-1
<PAGE>
SECTION 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his Stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last known address as it appears in
the records of the corporation.
SECTION 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his Stock, the corporation upon which such
demand is made shall pay to him the fair value of his Stock within thirty days
after the expiration of the period during which such demand may be made.
SECTION 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such Stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the Stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held Stock had or has its
principal office in the commonwealth.
SECTION 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value of
the Stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such Stock if certificated or, if not
certificated, upon receipt of an instruction transferring such Stock to the
corporation. For this purpose, the value of the shares shall be determined as
of the day preceding the date of the vote approving the proposed corporate
action and shall be exclusive of any element of value arising from the
expectation or accomplishment of the proposed corporate action.
C-2
<PAGE>
SECTION 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SECTION 94. Notation on Stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of Stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any not certificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SECTION 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his Stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such Stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the Stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his objections
to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his Stock as provided in this chapter.
SECTION 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury Stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury Stock or securities.
SECTION 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
C-3
<PAGE>
[FORM OF PROXY FOR USE BY HOLDERS OF CAYENNE CAPITAL STOCK]
CAYENNE SOFTWARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CAYENNE SOFTWARE, INC.
FOR USE AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER __, 1998
The undersigned holder of shares of capital Stock of Cayenne Software, Inc.
("Cayenne") hereby appoints John J. Alexander and Frederick H. Phillips, and
each of them, as proxies of the undersigned, with full power of substitution and
resubstitution, to represent and vote as set forth herein all of the shares of
capital stock of Cayenne held of record by the undersigned on September __, 1998
at the Special Meeting of Stockholders of Cayenne to be held on ________,
September __, 1998, at 9:00 a..m., local time, at the offices of Ropes & Gray,
36th Floor, One International Place, Boston, Massachusetts 02110, and at any and
all postponements and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL SET FORTH ON THE OTHER SIDE HEREOF.
(Continued, and to be dated and signed, on the other side)
<PAGE>
[X] Please mark your
vote as in this example.
- -------------------------------------------------------------------------------
THE DIRECTORS OF CAYENNE SOFTWARE, INC. UNANIMOUSLY RECOMMEND
A VOTE FOR THE FOLLOWING PROPOSAL
===============================================================================
Approval of an Agreement and Plan of Merger, dated as of August 27, 1998 (the
"Merger Agreement"), among Sterling Software, Inc., a Delaware corporation
("Sterling Software"), Sterling Software (Southern), Inc., a Georgia
corporation and a wholly owned subsidiary of Sterling Software ("Merger Sub"),
and Cayenne Software, Inc., a Massachusetts corporation ("Cayenne"), pursuant
to which Cayenne will be merged with and into Merger Sub, with Merger Sub
continuing as the surviving corporation and remaining a wholly owned
subsidiary of Sterling Software.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
This proxy should be dated, signed by the
stockholder as his or her name appears
below, and returned promptly in the
enclosed envelope. Joint owners should
each sign personally, and trustees and
others signing in a representative
capacity should indicate the capacity in
which they sign.
Dated:
----------------------------------
----------------------------------------
Signature of Stockholder
----------------------------------------
Signature of Stockholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN THIS
PROXY CARD AND THE ACCOMPANYING INVESTOR LETTER IN THE ENVELOPE PROVIDED
