<PAGE> 1
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
TREEV, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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, $.0001 par value per share (the "Common Stock")
Series A Convertible Preferred Stock, $.0001 par value per share (the
"Series A Stock")
Options to purchase shares of Common Stock, $.0001 par value per share
(the "Options")
Warrants to purchase shares of Common Stock, $.0001 par value per share
(the "Warrants")
2) Aggregate number of securities to which transaction applies:
16,270,106 shares of Common Stock
1,605,025 shares of Series A Stock
[ ] warrants
[ ] employee stock options
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):
(a) the product of (A) the average of the high and low prices of Common
Stock as reported on the Nasdaq National Market System on November
17, 2000 ($4.2422) and (B) the maximum number of shares of Common
Stock to be converted in the merger (16,270,106),
(b) the product of the product of (A) the average of the high and low
price of Series A Stock as reported on the Nasdaq National Market
System on November 17, 2000 ($11.25) and (B) the maximum number of
shares of Series A Stock to be converted in the merger (1,605,025),
(c) the aggregate value of merger consideration equal in value to
$22,780,988 to be issued to certain persons holding Options and
Warrants.
4) Proposed maximum aggregate value of transaction:
$109,855,029
5) Total fee paid:
$21,971
[ ] Fee paid previously with preliminary materials.
[X] 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:
$29,002
2) Form, Schedule or Registration Statement No.:
Registration Statement on Form F-4 (333-12894)
3) Filing Party:
CE Computer Equipment Akteingesellschaft
4) Date Filed:
November 22, 2000
<PAGE> 2
TREEV, INC.
13900 LINCOLN PARK DRIVE
HERNDON, VA 20171
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
NOVEMBER 22, 2000
Dear Stockholder:
The Board of Directors of TREEV, Inc. has unanimously approved a merger in which
CE Computer Equipment AG will acquire TREEV. Your board believes that the merger
presents an opportunity for TREEV stockholders to retain a continuing investment
in the document management industry through what your Board believes is a larger
and more geographically diverse company with substantially greater resources
than TREEV.
In the merger, for each share of TREEV common stock you own, you will receive a
fraction of a CE American Depositary Share. Each CE ADS represents one CE
ordinary share. We will determine the exact fraction by dividing:
(1) 6,650,000 minus the aggregate number of CE ADSs issuable to TREEV
Series A preferred stockholders, employee stock optionholders and
warrantholders (as described below), by
(2) the number of shares of TREEV common stock outstanding at the time of
the merger.
For information on the number of CE ADSs you would be entitled to receive under
various scenarios, see the table on page 52. Additionally, you may call
1-800-675-6399 (toll-free) at any time beginning on December 26, 2000 to find
out the fraction of a CE ADS to be issued for each share of TREEV common stock
and Series A preferred stock in the merger.
For each share of TREEV Series A preferred stock you own, you will receive CE
ADSs with a value of at least $10, although the precise value will not be
determined until just before the stockholders' meeting. Also, CE is offering to
exchange, for all outstanding TREEV warrants and employee stock options, CE ADSs
equal in value to the "fair value" of these employee stock options and warrants.
For a detailed description of how this fair value has been determined, please
see "The Exchange Offer" on pages 160-164.
CE ordinary shares are principally traded on the Neuer Markt segment of the
Frankfurt Stock Exchange and, upon closing of the merger, the CE ADSs will be
listed on the Nasdaq National Market under the symbol "CCEQ." Affiliates of CE
and TREEV will not be eligible to hold CE ADSs and instead will receive CE
ordinary shares. CE will issue a maximum of 6,650,000 CE ordinary shares in the
merger, which may be in the form of CE ADSs.
The merger agreement must be adopted by the holders of a majority of the shares
of TREEV common stock, and we have scheduled a special meeting of TREEV
stockholders on December 28, 2000 to vote on the adoption of the merger
agreement. H.T. Ardinger, Jr., M. Douglas Adkins and certain members of the
TREEV board of directors and TREEV's senior management, who collectively held
approximately 33% of the TREEV common shares outstanding as of November 6, 2000,
which is the record date for the special meeting, have agreed to vote in favor
of the adoption of the merger agreement.
Regardless of the number of shares of TREEV common stock you own or whether you
plan to attend the special meeting, it is important that your shares of TREEV
common stock be represented and voted. Voting instructions are inside.
<PAGE> 3
The accompanying proxy statement/prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain information about our company
from documents that we have filed with the Securities and Exchange Commission.
To find out how to obtain these documents, see "Where You Can Find More
Information" on page 168.
Sincerely,
/s/ JAMES J. LETO
James J. Leto
Chairman of the Board
TREEV, Inc.
FOR A DISCUSSION OF RISK FACTORS WHICH YOU SHOULD CONSIDER IN EVALUATING THE
MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 19.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE CE ORDINARY SHARES OR THE CE ADSs
TO BE ISSUED IN THE MERGER OR DETERMINED WHETHER THIS PROXY STATEMENT/PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This proxy statement/prospectus is dated November 22, 2000 and it, and a form of
proxy, are first being mailed to TREEV stockholders on or about November 27,
2000.
<PAGE> 4
TREEV, INC.
13900 LINCOLN PARK DRIVE
HERNDON, VIRGINIA 20171
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 28, 2000
To the Stockholders of
TREEV, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of TREEV, Inc.
will be held on December 28, 2000, at the Hyatt Regency Reston Hotel, 1800
Presidents Street, Reston, Virginia, commencing at 10:00 a.m., local time, for
the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of November 19, 1999, and
amended and restated as of May 8, 2000, and Amendment No. 1 thereto,
dated as of November 20, 2000 between CE Computer Equipment AG, a
German corporation, and TREEV, Inc., a Delaware corporation.
The merger agreement provides, among other things, that a wholly owned
subsidiary of Aspen Merger Corporation (acting as an agent of CE) will
be merged with and into TREEV, and that as soon as possible after the
merger there will be a share contribution between CE and Aspen Merger
Corporation, whereby TREEV will become a wholly owned subsidiary of CE.
2. To transact such other business as may properly be brought before the
TREEV special meeting or any adjournment or postponement of the TREEV
special meeting.
A copy of the merger agreement is attached as Annex A to the
accompanying proxy statement/ prospectus.
All TREEV common stockholders of record at the close of business on November 6,
2000 are entitled to notice of the TREEV special meeting. Only common
stockholders of record as of that date are entitled to vote at the TREEV special
meeting and any adjournment or postponement thereof.
The TREEV board of directors has unanimously approved the merger agreement and
the transactions contemplated by the merger agreement, including the merger, and
recommends that holders of TREEV common shares vote in favor of the adoption of
the merger agreement.
All TREEV stockholders are cordially invited to attend the meeting in person.
However, TREEV common stockholders are urged to complete the enclosed proxy card
promptly, whether or not they expect to attend the special meeting. TREEV common
stockholders can vote their shares by completing, signing, dating and returning
the enclosed proxy card in the enclosed postage-prepaid envelope.
By Order of the Board of Directors,
/s/ JULIA A. BOWEN
Julia A. Bowen
Vice President, General Counsel and
Assistant Secretary
Herndon, Virginia
November 22, 2000
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE TREEV SPECIAL MEETING.
TREEV STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES WITH THEIR PROXY
CARD.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 1
EXCHANGE RATES.............................................. 1
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE EXCHANGE
OFFER..................................................... 3
SUMMARY..................................................... 7
The Companies............................................. 7
Terms of the Merger....................................... 7
TREEV Stockholders' Meeting -- Purpose, Date, Time and
Place.................................................. 8
Stockholders Entitled to Vote; Vote Required; Voting
Agreement.............................................. 8
Recommendation of the TREEV Board of Directors............ 8
Fairness Opinion of TREEV's Financial Advisor............. 8
Interests of Directors, Executive Officers and Significant
Stockholders of TREEV in the Merger.................... 9
Stock Ownership by TREEV Directors and Executive
Officers............................................... 9
The Merger................................................ 9
The Exchange Offer........................................ 12
Comparison of Rights of Holders of TREEV Common and
Preferred Stock and CE Ordinary Shares................. 12
Risk Factors.............................................. 12
TREEV Selected Historical Financial Data.................. 13
CE Selected Historical Financial Data..................... 14
Summary Unaudited Pro Forma Condensed Consolidated
Financial Information.................................. 15
Comparative Per Share Data................................ 16
Comparative Per Share Market Price Data................... 17
RISK FACTORS................................................ 19
Risks Relating to the Merger and the Exchange Offer....... 19
Risks Relating to the Business of CE...................... 24
TREEV STOCKHOLDERS' MEETING................................. 31
Date, Time and Place...................................... 31
Matters to be Considered at the TREEV Stockholders'
Meeting................................................ 31
Stockholders Entitled to Vote; Quorum; Vote Required;
Voting Agreement....................................... 31
Voting Rights; Proxies.................................... 31
Solicitation of Proxies................................... 32
THE MERGER AND THE EXCHANGE OFFER........................... 33
Background of the Merger.................................. 33
TREEV's Reasons for the Merger; Recommendation of the
TREEV Board of Directors............................... 38
Opinion of TREEV's Financial Advisor...................... 39
CE's Reasons for the Merger............................... 49
Exchange Offer for TREEV Employee Stock Options and TREEV
Warrants............................................... 50
Merger Consideration...................................... 51
Conversion of TREEV Shares; Procedures for Exchange of
Certificates; Fractional Shares........................ 52
Material Income Tax Considerations........................ 53
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment...................................... 59
Regulatory Filings and Approvals Necessary to Complete the
Merger................................................. 60
Effective Times of the Merger and the Share
Contribution........................................... 60
Federal Securities Laws Consequences...................... 60
Stock Exchange Quotation.................................. 61
Delisting and Deregistration of TREEV Common Shares and
TREEV Series A Preferred Shares........................ 61
No Appraisal Rights....................................... 61
THE TRANSACTION DOCUMENTS................................... 62
The Merger Agreement...................................... 62
The Exchange Agent Agreement.............................. 71
The Contribution Agent Agreement.......................... 72
The TREEV Voting and Registration Rights Agreement........ 73
The Series A Preferred Stock Agreement.................... 73
INTERESTS OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
STOCKHOLDERS OF TREEV IN THE MERGER....................... 75
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................... 77
TREEV SELECTED FINANCIAL INFORMATION........................ 85
TREEV MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 86
CE SELECTED FINANCIAL INFORMATION........................... 93
CE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 94
DESCRIPTION OF CE'S BUSINESS................................ 109
DESCRIPTION OF TREEV'S BUSINESS............................. 122
SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL
STOCKHOLDERS.............................................. 127
TREEV..................................................... 127
CE........................................................ 128
MANAGEMENT AND EMPLOYEES.................................... 129
CE Management Board....................................... 129
CE Supervisory Board...................................... 130
Compensation.............................................. 130
Related Party Transactions and Relationships.............. 130
Stock Incentive Plan...................................... 131
TRADING ON THE NEUER MARKT OF THE FRANKFURT STOCK
EXCHANGE.................................................. 133
DESCRIPTION OF CE ORDINARY SHARES........................... 135
Share Capital............................................. 135
Ownership Reporting Obligations........................... 136
Shareholders' Meetings.................................... 136
Voting Rights............................................. 137
Dividends and Other Distributions......................... 137
Preemptive Rights......................................... 137
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Liquidation Rights........................................ 138
Share Repurchases by CE................................... 138
Anti-Takeover Provisions.................................. 138
Amendment of Articles of Association...................... 139
Listing Information....................................... 139
General................................................... 139
DESCRIPTION OF THE CE AMERICAN DEPOSITARY SHARES............ 140
American Depositary Shares................................ 140
Share Dividends and Other Distributions................... 140
Deposit, Withdrawal and Cancellation...................... 141
Voting Rights............................................. 142
Fees and Expenses......................................... 142
Payment of Taxes.......................................... 143
Reclassifications, Recapitalizations and Mergers.......... 143
Disclosure of Interests................................... 143
Amendment and Termination................................. 143
Limitations on Obligations and Liability to CE ADS
Holders................................................ 144
Requirements for Depositary Actions....................... 144
Pre-Release of CE ADSs.................................... 145
COMPARISON OF RIGHTS OF HOLDERS OF TREEV COMMON AND
PREFERRED STOCK AND CE ORDINARY SHARES.................... 146
THE EXCHANGE OFFER.......................................... 160
ENFORCEABILITY OF CIVIL LIABILITIES......................... 165
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS.......................................... 166
STOCKHOLDER PROPOSALS....................................... 166
LEGAL MATTERS............................................... 166
INDEPENDENT ACCOUNTANTS..................................... 166
WHERE YOU CAN FIND MORE INFORMATION......................... 168
INDEX TO CE FINANCIAL STATEMENTS............................ F-1
INDEX TO TREEV FINANCIAL STATEMENTS......................... F-43
</TABLE>
ANNEXES
<TABLE>
<S> <C>
Annex A Amended and Restated Agreement and Plan of Merger, and
Amendment No. 1 thereto
Annex B Voting and Registration Rights Agreement, and Amendment No.
1 and the Letter Agreement thereto
Annex C Opinion of Banc of America Securities LLC
</TABLE>
iii
<PAGE> 8
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements. These
forward-looking statements are not based on historical facts, but rather reflect
our current expectations concerning future results and events, and generally may
be identified by the use of forward-looking words or phrases such as "believe,"
"expect," "anticipate," "intend," "foresee," "likely," "should," "planned,"
"may," "estimated," "potential" or other similar words and phrases. Similarly,
statements that describe our objectives, plans or goals are or may be
forward-looking statements.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements of CE or TREEV to differ materially from the anticipated results,
performance or achievements expressed or implied by these forward-looking
statements. You should review carefully all information, including the financial
statements and the notes to the financial statements, included in this proxy
statement/prospectus.
The risk factors described beginning on page 19 could affect future
results, causing these results to differ materially from those expressed in our
forward-looking statements. These factors are not necessarily all of the
important factors that could cause actual results to differ materially from
those expressed in any of our forward-looking statements. Other unknown or
unpredictable factors also could have material adverse effects on our future
results. The forward-looking statements included in this proxy statement/
prospectus are made only as of the date of this proxy statement/prospectus. We
cannot assure you projected results or events will be achieved.
All subsequent written and oral forward-looking statements attributable to
CE or TREEV or any person acting on their behalf are qualified by the cautionary
statements in this section.
EXCHANGE RATES
On January 1, 1999, 11 member states of the European Union -- Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain -- introduced the Euro ("E") as a common legal currency among
those states for "paperless" exchanges, pending substitution of Euro banknotes
and coins for the national currencies of the participating member states.
Accordingly, as of January 1, 1999, fixed exchange rates were introduced,
according to which funds denominated in the currency of one participating member
state were converted into the currency of another participating member state and
national currencies were converted into the Euro. These fixed exchange rates do
not fluctuate as a result of market conditions. As a result, the Federal Reserve
Bank of New York no longer provides daily "buying rates" for the national
currencies of these 11 states. Instead it provides daily buying rates for the
Euro, which can then be used to calculate the value of the 11 national
currencies against the U.S. dollar by using the rate fixed on January 1, 1999.
It is anticipated that on July 1, 2002, the Euro will become the official legal
tender for the participating member states and that Euro banknotes and coins
will be substituted for the national currencies of those member states, which
will be withdrawn from circulation.
Fluctuations in the exchange rate between the U.S. dollar and the Euro will
affect the U.S. dollar equivalent of the Euro price of CE ordinary shares traded
on the Neuer Markt and, as a result, are likely to affect the market price of
CE's American depositary shares on the Nasdaq National Market. Such fluctuations
will also affect the U.S. dollar amounts received by holders of CE American
depositary shares on the conversion by The Bank of New York, as depositary, into
U.S. dollars of any cash dividends that may be declared in German Marks on the
CE ordinary shares.
1
<PAGE> 9
CE publishes its financial statements in German Marks. For your
convenience, the following table sets forth, for the periods indicated, the
average, high, low and period-end noon buying rates for German Marks expressed
in German Marks per $1.00 and noon buying rates for Euros expressed in Euros per
$1.00.
<TABLE>
<CAPTION>
PERIOD-
YEAR ENDED DECEMBER 31, AVERAGE(1) HIGH LOW END
----------------------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C>
1995.......................................... DM1.43 DM1.57 DM1.34 DM1.43
1996.......................................... DM1.50 DM1.57 DM1.43 DM1.55
1997.......................................... DM1.73 DM1.87 DM1.54 DM1.79
1998.......................................... DM1.76 DM1.86 DM1.56 DM1.68
1999.......................................... E0.94 E1.00 E0.84 E1.00
2000(through September 30, 2000).............. E1.07 E1.18 E0.97 E1.13
</TABLE>
---------------
(1) The average of the noon buying rates on the last business day of each month
during the relevant period.
2
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE EXCHANGE OFFER
Q: HOW WILL CE AND TREEV COMBINE THEIR BUSINESSES?
A: In order to reconcile German and U.S. legal requirements, CE and TREEV will
combine their businesses in two steps. First, TREEV will merge with a wholly
owned subsidiary of Aspen Merger Corporation (which has been formed by two
members of CE's management board and is acting, for this purpose, as an
agent of CE). As soon as possible after that merger, Aspen Merger
Corporation and CE will complete a share contribution as a result of which
TREEV will become a wholly owned subsidiary of CE. Once the first-step
merger occurs, the TREEV common shares and Series A preferred shares will
convert automatically into the right to receive CE ADSs or CE ordinary
shares and the parties will be unconditionally obligated to complete the
share contribution. Generally, when we refer to "the merger" in this proxy
statement/prospectus, we mean both the first-step merger and the second-step
share contribution as a single integrated transaction.
Q: WHY ARE TREEV AND CE PROPOSING TO MERGE?
A: TREEV and CE believe that the merger will create a leading licensor of
enterprise-wide software in the market for integrated document and content
management software. The merger and the exchange offer provide TREEV's
common stockholders, Series A preferred stockholders, employee stock
optionholders and warrantholders the opportunity to participate in the
growth of the business conducted by CE and TREEV following the merger and
the exchange offer.
Q: WHAT WILL I RECEIVE IN THE MERGER OR THE EXCHANGE OFFER?
A: If you hold TREEV common shares or Series A preferred shares, you will
receive CE American depositary shares (which we also refer to in this proxy
statement/ prospectus as CE ADSs) in exchange for your TREEV shares. If you
hold employee stock options or warrants to acquire TREEV common shares and
you accept the exchange offer, you will also receive CE ADSs. However,
persons who are affiliates of TREEV or CE will not be eligible to hold CE
ADSs and will instead receive CE ordinary shares in the merger and the
exchange offer. If you decline to accept the exchange offer with respect to
your employee stock options and warrants, those employee stock options and
warrants will be treated in accordance with their terms.
Q: WHAT IS A CE ADS?
A: A CE ADS is an American depositary share that represents one CE ordinary
share and that has been created to allow U.S. stockholders to more easily
hold and trade interests in CE on U.S. markets after the merger and exchange
offer. The Bank of New York will be the depositary that will deliver the CE
ADSs and hold the CE ordinary shares represented by the CE ADSs. The CE
ordinary shares will continue to be listed on the Neuer Markt segment of the
Frankfurt Stock Exchange, and CE ADSs will be listed on the Nasdaq National
Market.
Q: HOW MANY CE ADSS OR CE ORDINARY SHARES WILL I RECEIVE IN THE MERGER OR THE
EXCHANGE OFFER?
A: In the merger and the exchange offer being made to TREEV's employee stock
optionholders and warrantholders, CE will issue an aggregate of 6,650,000 CE
ordinary shares, which may be in the form of CE ADSs. Affiliates of CE and
TREEV will not be eligible to hold CE ADSs and instead will receive CE
ordinary shares. The 6,650,000 CE ADSs will be allocated among TREEV's
common stockholders, Series A preferred stockholders, employee stock
optionholders and warrantholders as follows:
- each holder of employee stock options or warrants to buy TREEV common
shares will be able to exchange its employee stock options or warrants
for CE ADSs with a value equal to the "fair value" of
3
<PAGE> 11
the employee stock options or warrants exchanged;
- each share of TREEV Series A preferred stock will be converted into the
right to receive the number of CE ADSs which, as of the third trading
day prior to the TREEV stockholders' meeting, have a value equal to
$10.00; however, if the average closing price of TREEV common shares on
the Nasdaq National Market during the 15-trading-day period ending three
trading days prior to the TREEV stockholders' meeting is greater than
$3.976, each share of TREEV Series A preferred stock will be converted
into the right to receive CE ADSs with a value of greater than $10.00 as
of the end of such period, determined pursuant to a formula that is set
forth in the merger agreement; and
- each share of TREEV common stock will be converted into the right to
receive a proportionate number of the CE ADSs that remain after the
allocations to TREEV's employee stock optionholders, warrantholders and
Series A preferred stockholders described above.
For purposes of this allocation, the value of each CE ADS will be
determined based upon the average closing price of CE ordinary shares on
the Neuer Markt segment of the Frankfurt Stock Exchange during the 15-
trading-day period ending three trading days prior to the TREEV
stockholders' meeting.
CE and TREEV have established a toll-free telephone number that TREEV
stockholders in the United States and Canada may call at any time beginning
on December 26, 2000 to learn the fraction of a CE ADS which they would be
entitled to receive in the merger for each share of TREEV common stock and
Series A preferred stock. This toll-free telephone number is
1-800-675-6399. See page 52 for a table showing the consideration that a
TREEV common stockholder would be entitled to receive in exchange for each
TREEV common share, based upon certain assumptions and a range of possible
average closing prices of CE ordinary shares and TREEV common shares. Based
upon the same assumptions as set forth on page 52 and the per share closing
prices of CE ordinary shares and TREEV common shares on November 6, 2000,
each TREEV common share would have been converted into the right to receive
0.29 of a CE ADS.
You will not receive a fraction of a CE ADS, but will instead receive a
cash payment.
Q: HOW WILL THE MERGER AND THE EXCHANGE OFFER AFFECT ME?
A: After the merger and the exchange offer, TREEV stockholders and TREEV
employee stock optionholders and warrantholders who accept the exchange
offer will own ordinary shares or ADSs representing shares of a German
corporation. There are differences between the rights of shareholders of a
German corporation, such as CE, and the rights of stockholders of a Delaware
corporation, such as TREEV. See "Comparison of Rights of Holders of TREEV
Common and Preferred Stock and CE Ordinary Shares" and "Description of CE
American Depositary Shares."
Q: WHAT DO I NEED TO DO NOW IF I AM A TREEV STOCKHOLDER?
A: After carefully reading and considering the information in this proxy
statement/ prospectus, you should indicate on the enclosed proxy card how
you want to vote, and sign and submit it in the enclosed return envelope so
that your shares may be represented and voted at the TREEV stockholders'
meeting on December 28, 2000. If you sign and submit your proxy card but do
not indicate how you want to vote, your shares will be voted in favor of the
adoption of the merger agreement. If you do not vote or you abstain, it will
have the effect of voting against adoption of the merger agreement.
Q: IF MY SHARES ARE HELD IN THE NAME OF MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You
4
<PAGE> 12
should instruct your broker to vote your shares by following the directions
provided by your broker. If you do not give instructions to your broker,
your shares will not be voted, which will have the effect of voting against
adoption of the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY SIGNED PROXY CARD?
A: You can change your vote at any time before your proxy is voted at the TREEV
stockholders' meeting. You can do this in any one of the following three
ways:
- first, you can send to TREEV, prior to the TREEV stockholders meeting, a
written notice stating that you would like to revoke your proxy,
- second, you can complete and submit a new proxy card,
- third, you can attend the TREEV stockholders' meeting and vote in
person. Simply attending the TREEV stockholders' meeting will not revoke
your proxy; you must vote at the TREEV stockholders' meeting to do so.
If you have instructed a broker to vote your shares, you must follow
instructions received from your broker to change your vote.
Q: SHOULD I SEND IN MY TREEV STOCK CERTIFICATES NOW?
A: No. After the merger is completed, The Bank of New York, as exchange agent,
will send you written instructions for exchanging your TREEV stock
certificates for CE ADSs.
Q: WHEN WILL THE EXCHANGE OFFER FOR TREEV EMPLOYEE STOCK OPTIONS AND WARRANTS
COMMENCE, AND WHEN WILL IT EXPIRE?
A: The exchange offer will commence when CE notifies TREEV employee stock
optionholders and warrantholders of the "fair value" of their employee stock
options and warrants and mails to such holders with this proxy
statement/prospectus an acceptance form to use to accept the exchange offer.
The exchange offer must be open for at least 20 U.S. business days and is
currently scheduled to expire at 5:00 p.m., New York time, on January 2,
2001, unless CE extends the exchange offer, in which case it will expire at
5:00 p.m., New York time, on the last day of the extension.
Q: HOW DO I PARTICIPATE IN THE EXCHANGE OFFER?
A: If you hold TREEV employee stock options or warrants, to accept the exchange
offer you should complete and sign the acceptance form that has been
provided to you and return it (with your warrant certificates, if you hold
TREEV warrants) to The Bank of New York, the exchange agent for the exchange
offer, at the appropriate address specified on the acceptance form before
the expiration date of the offer. For more information on the timing of the
exchange offer, extensions of the offer period and your rights to withdraw
your TREEV employee stock options or warrants from the offer before the
final expiration date, please see "The Exchange Offer" beginning on page
160.
Q: WHEN DO YOU EXPECT THE MERGER AND THE EXCHANGE OFFER TO BE COMPLETED?
A: We are working to satisfy all the conditions to the merger as quickly as
possible. In addition to receiving stockholder approval, we must satisfy the
other conditions set forth in the merger agreement. We expect to complete
the merger shortly after the expiration of the exchange offer, and we
currently expect that the exchange offer will expire on January 2, 2001.
Q: WHAT ARE THE TAX CONSEQUENCES TO ME OF THE MERGER AND THE EXCHANGE OFFER?
A: We expect that if the merger is completed as contemplated by the merger
agreement, you will not recognize a gain or loss for U.S. federal income tax
purposes as a result of exchanging TREEV common shares or Series A preferred
shares for CE ADSs or CE ordinary shares. However, you may recognize a gain
with respect to cash payments received instead of a fractional CE ADS or CE
ordinary share.
5
<PAGE> 13
Assuming that the exchange offer is treated for tax purposes as part of the
plan of reorganization, we expect that you will also not recognize a gain
or loss for U.S. federal income tax purposes as a result of exchanging
TREEV warrants for CE ADSs or CE ordinary shares pursuant to the exchange
offer. However, you may recognize a gain with respect to cash payments
received instead of a fractional CE ADS or CE ordinary share. In addition,
you may be subject to tax (and corresponding withholding) as a result of
exchanging TREEV employee stock options for CE ADSs or CE ordinary shares
pursuant to the exchange offer.
We urge you to consult your own tax advisor to determine the tax
consequences particular to your situation.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or the exchange offer, or if you
would like additional copies of this proxy statement/ prospectus, you should
call or email Investor Relations of TREEV at 1-703-476-2260 or at
[email protected].
6
<PAGE> 14
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus, and may not contain all of the information that is
important to you. To understand the merger and the exchange offer fully and for
a complete description of the legal terms of the merger and the exchange offer,
you should read carefully the entire proxy statement/prospectus and the
documents to which we have referred you. See "Where You Can Find More
Information" on page 168. The merger agreement is attached as Annex A to this
proxy statement/prospectus. We encourage you to read it, as it is the legal
document that governs the merger and the exchange offer.
THE COMPANIES
CE COMPUTER EQUIPMENT AG
Herforder Str. 155A
33609 Bielefeld
Germany
Telephone: +49 521 9318 01
CE is a leading European producer of systems for integrated document
management and archiving. CE has been active as a systems integrator in the
German market for document management and archiving systems since 1984. Since
1995, CE has developed into a supplier of standard software products for
integrated document and output management systems.
TREEV, INC.
13900 Lincoln Park Drive
Herndon, Virginia 20171
U.S.A.
Telephone: +1 703 478 2260
TREEV is a leading developer and marketer of document management
technologies. TREEV provides client/server and Internet solutions for document
management, document imaging, enterprise report management, and workflow process
reengineering. TREEV's suite of software products allows organizations to
capture electronically, manage, store and distribute large volumes of
information to geographically dispersed enterprises. This information includes
computer reports, engineering drawings, scanned images, office documents,
photos, voice files and video clips. TREEV's software products have been
installed in more than 2,000 banks, Fortune 1000 corporations, and government
agencies.
TERMS OF THE MERGER
CE has appointed Aspen Merger Corporation, which has been formed by two
members of CE's management board solely for this purpose, to act as its agent
for the first-step merger and the second-step share contribution. In this
capacity, a wholly owned subsidiary of Aspen Merger Corporation will merge with
and into TREEV, with TREEV continuing as the surviving corporation. As soon as
possible after the effective time of the merger, Aspen Merger Corporation, as an
agent of CE, will transfer to CE as a contribution-in-kind all of the issued and
outstanding common shares of the surviving corporation and, in exchange for that
contribution-in-kind, CE will issue to Aspen Merger Corporation and cause to be
delivered to The Bank of New York for the account of Aspen Merger Corporation
and for the benefit of the former stockholders of TREEV and the former
optionholders and warrantholders of TREEV who validly accept the option and
warrant exchange offer, CE ordinary shares. This share contribution will be
effected in accordance with the German Stock Corporation Act and will be
consummated by registering the increase of the stated share capital of CE with
the commercial register (Handelsregister) for CE. After the merger and issuance
of new CE ordinary shares in the share contribution, you will be able to
surrender your TREEV shares to The Bank of New York, which is acting as the
exchange agent in the merger, and receive in exchange CE ADSs or, if you are an
affiliate of CE or TREEV, CE ordinary shares. Upon surrender of TREEV shares for
exchange, the exchange agent will, if applicable, deposit the corresponding
number of CE ordinary shares under the deposit agreement for the issuance of CE
ADSs. Upon deposit of the CE ordinary shares, The Bank of New York, in its
capacity as depositary for CE ADSs, will deliver the CE ADSs to you or to a
person you designate.
After the merger, you will be entitled to receive ordinary shares, or (if
you are not an affiliate of CE or TREEV) ADSs representing shares, of a German
corporation. There are differences between the rights of shareholders of a
German corporation, such as CE, and the rights of
7
<PAGE> 15
stockholders of a Delaware corporation, such as TREEV. See "Comparison of Rights
of Holders of TREEV Common and Preferred Stock and CE Ordinary Shares" on page
146. The CE ADSs will be listed on the Nasdaq National Market System under the
symbol "CCEQ". See "The Merger -- Stock Exchange Quotation" on page 61.
TREEV STOCKHOLDERS' MEETING -- PURPOSE, DATE, TIME AND PLACE
The purposes of the TREEV stockholders' meeting are to consider and vote
upon:
- a proposal to adopt the merger agreement; and
- any other business as may properly be brought before the TREEV
stockholders' meeting.
The TREEV stockholders' meeting will be held on December 28, 2000, at the
Hyatt Regency Reston Hotel, 1800 Presidents Street, Reston, Virginia, commencing
at 10:00 a.m., local time.
STOCKHOLDERS ENTITLED TO VOTE; VOTE REQUIRED; VOTING AGREEMENT
November 6, 2000 is the record date for the TREEV stockholders' meeting.
Only TREEV stockholders as of the close of business on the record date are
entitled to notice of, and to vote at, the TREEV stockholders' meeting. As of
the record date, there were 16,270,106 TREEV common shares outstanding. Each
TREEV common share will be entitled to one vote on each matter to be acted upon
at the TREEV stockholders' meeting.
The approval of the holders of a majority of the TREEV common shares
outstanding as of the close of business on the record date is required to adopt
the merger agreement.
Simultaneously with the execution of the merger agreement, H.T. Ardinger,
Jr., M. Douglas Adkins and the members of the TREEV board of directors and
TREEV's senior management listed below, who collectively held approximately 33%
of the TREEV common shares outstanding as of the record date, entered into a
voting and registration rights agreement with CE in which each has agreed to
appear for the purpose of obtaining a quorum at the TREEV stockholders meeting
and to vote all TREEV common shares or other equity securities owned by him, or
with respect to which he has voting power or control, in favor of the adoption
of the merger agreement. Each such person also delivered to CE an irrevocable
proxy covering the total number of TREEV common shares beneficially owned by him
to vote such shares in favor of the adoption of the merger agreement. The
members of the TREEV board of directors and senior management who executed the
voting and registration rights agreement and the irrevocable proxy are James J.
Leto, Robert P. Bernardi, John F. Burton, C. Alan Peyser, Thomas A. Wilson, Mark
A. Paiewonsky, Richard G. McMahon and Brian H. Hajost.
ACCORDINGLY, 33% OF THE TREEV COMMON SHARES ENTITLED TO VOTE AT THE SPECIAL
MEETING ARE ALREADY ASSURED OF BEING VOTED IN FAVOR OF THE MERGER AGREEMENT.
RECOMMENDATION OF THE TREEV BOARD OF DIRECTORS
The TREEV board of directors has unanimously approved the merger agreement
and the transactions contemplated by the merger agreement, including the merger,
and recommends that holders of TREEV common shares vote in favor of the adoption
of the merger agreement.
FAIRNESS OPINION OF TREEV'S FINANCIAL ADVISOR
Banc of America Securities LLC has given its opinion to the TREEV board of
directors that the consideration to be received by the TREEV security holders
was fair, as of the date of the merger agreement, to TREEV from a financial
point of view.
The full text of the written opinion of Banc of America Securities, which
sets forth assumptions made, matters considered and the scope of the review
undertaken, is attached hereto as Annex C. The written opinion of Banc of
America Securities is not a recommendation as to how TREEV stockholders should
vote in regard to the adoption of the merger agreement. We encourage TREEV
stockholders to read the opinion of Banc of America Securities in its entirety.
8
<PAGE> 16
INTERESTS OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT STOCKHOLDERS OF TREEV
IN THE MERGER
In determining how to vote at the TREEV stockholders' meeting, TREEV common
stockholders should be aware that officers, directors and significant
stockholders of TREEV may have interests in the merger that are different from
the interests of other stockholders. These include the following:
- It is expected that following the merger, the CE supervisory board will
vote upon a resolution to appoint Thomas A. Wilson, a director and the
president and chief executive officer of TREEV, to the CE management
board. In addition, it is expected that following the merger, the
shareholders of CE will be asked to vote upon a resolution to appoint
James J. Leto, chairman of TREEV's board of directors, to the CE
supervisory board.
- Severance agreements between TREEV and Mr. Wilson, Brian H. Hajost, Mark
A. Paiewonsky, Thomas Giampa, Richard McMahon, Jud Cairns and Steven
Wood, Julia A. Bowen and Janice Raleigh provide benefits to those
employees if they are terminated by TREEV without cause or resign their
employment for "good reason" within two years of the merger.
- The 1997 Directors' Stock Option Plan and stock options granted under
TREEV's employee stock option plans with respect to Messrs. Wilson,
Hajost, Paiewonsky, Giampa, McMahon, Cairns and Wood, and Mses. Bowen
and Raleigh, who are officers and key employees of TREEV, provide for
the acceleration of the vesting of stock options upon consummation of
the merger.
- Directors, executive officers and other employees of TREEV who become
employees of CE may be granted convertible bonds to acquire CE ordinary
shares pursuant to the CE stock incentive plan.
- CE has entered into a voting and registration rights agreement with the
directors, officers and stockholders of TREEV identified under "--
Stockholders Entitled to Vote; Vote Required; Voting Agreement" pursuant
to which CE granted registration rights for the CE ADSs and CE ordinary
shares to be received by these individuals in the merger.
- For six years after the merger, CE will maintain in effect all rights to
indemnification in favor of the current and former directors and
officers of TREEV as provided in its certificate of incorporation and
its by-laws.
- For six years after the merger, CE will provide to the current directors
and officers of TREEV directors' and officers' liability insurance of
the same kind and scope as is currently provided by TREEV. CE will not
be required, however, to pay more than 175% of the annual premiums
currently paid by TREEV.
For a more detailed discussion of these interests, please see "Interests of
Directors, Executive Officers and Significant Stockholders of TREEV in the
Merger," beginning on page 75.
STOCK OWNERSHIP BY TREEV DIRECTORS AND EXECUTIVE OFFICERS
As of the record date, all executive officers and directors of TREEV as a
group beneficially owned 1,673,799 TREEV common shares, representing
approximately 10.3% of the TREEV common shares entitled to vote at the TREEV
stockholders' meeting.
THE MERGER
Conditions to the Merger
We will complete the merger only if each of the following conditions is
satisfied or waived:
- the registration statement of which this proxy statement/prospectus
forms a part has been declared effective and no stop order suspending
its effectiveness is in effect;
- TREEV common stockholders adopt the merger agreement;
- no court or governmental order prohibits the merger or makes the merger
illegal;
- the CE ADSs to be issued in the merger are authorized for listing on the
Nasdaq
9
<PAGE> 17
National Market, subject to official notice of issuance;
- each of CE and TREEV receives from its accountants "comfort" letters
dated as of the date the registration statement becomes effective and as
of the date of the closing;
- there have not occurred, and are not reasonably likely to occur, events
that could reasonably be expected to have a material adverse effect on
the business, operations, properties, financial condition, assets or
liabilities (including, without limitation, contingent liabilities) or
prospects of TREEV or CE;
- Messrs. Wilson, Hajost and Paiewonsky, senior executives of TREEV,
execute employment agreements with CE;
- no holder of TREEV Series A preferred shares exercises the change of
control right pursuant to the Certificate of Designations of the TREEV
Series A preferred shares that becomes exercisable as a result of the
merger;
- the registration rights agreements executed in favor of the holders of
warrants issued in connection with the placement of the TREEV Series K
and Series L convertible preferred shares and the related registration
statements of TREEV have been terminated;
- TREEV files with the Secretary of State of the State of Delaware
certificates of elimination with respect to its retired and redeemed
series of TREEV preferred shares;
- each of TREEV and CE certifies to the other that its representations and
warranties in the merger agreement are true and correct in all material
respects and that its obligations under the merger agreement have been
complied with in all material respects; and
- each of TREEV and CE obtains an opinion from its tax advisors that the
merger will qualify as a reorganization for U.S. federal income tax
purposes.
No Solicitation of Competing Transactions
The merger agreement generally prohibits TREEV from soliciting any proposal
from, or providing information to or negotiating with, another party for the
sale or transfer of all or any portion of TREEV's assets or capital stock or any
business combination with TREEV.
However, TREEV may consider an unsolicited proposal for a competing
transaction and provide information to the party making such a proposal if the
TREEV board of directors determines in good faith that it must do so to comply
with its fiduciary duties to TREEV's stockholders under applicable law. TREEV
must notify CE if any such proposal is made.
Termination of the Merger Agreement
The TREEV board of directors and the CE management board can jointly agree
to terminate the merger agreement at any time without completing the merger. In
addition, the merger agreement may be terminated:
- by either company, if the merger is not completed by March 31, 2001;
- by either company, if a governmental authority has issued a final and
nonappealable order permanently prohibiting the merger;
- by CE if the TREEV board of directors withdraws or modifies its
recommendation of the merger agreement or refuses to reaffirm its
recommendation upon CE's request, recommends a competing transaction or
fails to recommend against a tender or exchange offer for 25 per cent or
more of the outstanding shares of any class or series of TREEV capital
stock;
- by either company if the TREEV common stockholders do not adopt the
merger agreement;
- by CE if any holder of TREEV Series A preferred shares exercises a
change of control right that becomes exercisable as a result of the
merger;
- by either company, if the other company breaches any of the
representations, warranties or covenants it made in the merger
agreement, such that the conditions to
10
<PAGE> 18
closing relating to the representations and warranties or covenants
would not be satisfied;
- by CE upon any breach of the voting and registration rights agreement it
entered into with the TREEV stockholders identified under "--
Stockholders Entitled to Vote; Vote Required; Voting Agreement" by any
such TREEV stockholder;
- by TREEV upon three business days' notice to CE of the existence of a
competing transaction involving consideration which the TREEV board of
directors determines in good faith to be more favorable to TREEV
stockholders than the merger; or
- by CE if more than 6,650,000 CE ordinary shares would be issued in
connection with the merger and the exchange offer.
Termination Fees and Expenses
TREEV is required to pay CE a termination fee of $2,685,000, assuming CE
has not materially breached the merger agreement, if:
- TREEV terminates the merger agreement upon three business day's notice
to CE of the existence of a competing transaction involving
consideration which the TREEV board of directors determines in good
faith to be more favorable to TREEV stockholders than the merger; or
- CE terminates the merger agreement because the TREEV board of directors
withdraws or modifies its recommendation of the merger agreement or
refuses to reaffirm its recommendation upon CE's request, recommends a
competing transaction or fails to recommend against a tender or exchange
offer for 25 per cent or more of the outstanding shares of any class or
series of TREEV capital stock; or
- (1) CE terminates the merger agreement because the TREEV stockholders do
not adopt the merger agreement, (2) a proposal for a competing
transaction has been made public at or prior to the failure to adopt the
merger agreement and (3) within 15 months after termination, TREEV
consummates, or enters into a definitive agreement with respect to, a
competing transaction.
All costs and expenses will be paid by the party incurring them, except:
- TREEV will reimburse CE's expenses up to $1.2 million if (1) TREEV is
obligated to pay CE the termination fee as described above or (2) CE
terminates the merger agreement because TREEV has breached any of its
representations, warranties or covenants in the merger agreement (or if
any of TREEV's representations and warranties become untrue), such that
the conditions to CE's obligations to complete the merger cannot be
satisfied; and
- CE will reimburse TREEV's expenses up to $1.2 million if TREEV
terminates the merger agreement because CE has breached any of its
representations, warranties or covenants in the merger agreement (or if
any of CE's representations and warranties become untrue), such that the
conditions to TREEV's obligations to complete the merger cannot be
satisfied.
Material Income Tax Consequences
It is a condition to the merger that each of CE and TREEV has received an
opinion from their respective tax advisors to the effect that the merger will
constitute a tax-free reorganization for U.S. federal income tax purposes.
Accounting Treatment
We expect the merger to be treated under U.S. GAAP as a purchase of TREEV
by CE for accounting and financial reporting purposes. Therefore, the total
consideration paid by CE in connection with the merger will be allocated to
TREEV's assets and liabilities based on their fair values with any excess being
treated as goodwill and amortized over its estimated useful life.
No Appraisal Rights
TREEV common stockholders and Series A preferred stockholders are not
entitled to appraisal rights under the DGCL in connection with the merger. See
"The Merger -- No Appraisal Rights."
11
<PAGE> 19
THE EXCHANGE OFFER
Subject to the satisfaction of the conditions to the merger, CE is offering
to each holder of TREEV employee stock options that are outstanding immediately
prior to the effective time of the merger (whether or not such employee stock
options are then vested and exercisable), and to each holder of warrants to
acquire TREEV common shares that are outstanding immediately prior to the
effective time of the merger (whether or not such warrants are then
exercisable), to acquire each such employee stock option and warrant in exchange
for that fraction of a CE ordinary share (to be delivered to holders that are
not affiliates of TREEV or CE in the form of a fraction of a CE ADS) equal to
the "fair value" of such employee stock option or warrant. See "The
Merger -- Exchange Offer for TREEV Employee Stock Options and TREEV Warrants" on
page 50 and "The Exchange Offer" on page 160.
COMPARISON OF RIGHTS OF HOLDERS OF TREEV COMMON AND PREFERRED STOCK AND CE
ORDINARY SHARES
The rights of TREEV stockholders are governed by Delaware law and TREEV's
restated certificate of incorporation (including the Certificate of Designations
with respect to the TREEV Series A preferred shares) and by-laws. After the
merger, TREEV stockholders will own CE ordinary shares or CE ADSs. The rights of
CE shareholders are governed by German law and CE's articles of association. The
rights of holders of CE ADSs will be governed by the deposit agreement among CE,
The Bank of New York (as depositary) and holders of CE ADSs, pursuant to which
the CE ADSs will be issued. See "Comparison of Rights of Holders of TREEV Common
and Preferred Stock and CE Ordinary Shares" on page 146 and "Description of the
CE American Depositary Shares" on page 140.
RISK FACTORS
There are risks that you should consider in evaluating how to vote at the
TREEV stockholders' meeting. See "Risk Factors" beginning on page 19.
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<PAGE> 20
TREEV SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected financial data for the five years
ended December 31, 1999 and the nine months ended September 30, 2000 and 1999.
The statement of operations data for each of the five years ended December 31,
1999 and the balance sheet data as of those dates have been derived from TREEV's
Consolidated Financial Statements. The Consolidated Financial Statements for
each of the four years ended December 31, 1999 have been audited by Ernst &
Young LLP. The Consolidated Financial Statements for the year ended December 31,
1995 have been audited by other independent auditors. The historical financial
data for the nine months ended September 30, 2000 and 1999 have been derived
from TREEV's unaudited Consolidated Financial Statements. The financial data
should be read in conjunction with TREEV's Consolidated Financial Statements,
related notes, and other financial information included in this proxy
statement/prospectus.
STATEMENT OF OPERATIONS DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................. $16,721 $22,157 $ 31,209 $ 28,202 $ 35,806 $39,477 $69,151
Net loss................. (8,063) (3,026) (2,636) (7,344) (11,339) (17,341) (24,963)
Net loss applicable to
common shares.......... (9,074) (4,037) (3,984) (8,692) (14,310) (21,071) (34,896)
Net loss per common
share.................. $ (0.59) $ (0.32) $ (0.30) $ (1.12) $ (2.27) $ (4.08) $ (9.64)
======= ======= ======== ======== ======== ======= =======
</TABLE>
BALANCE SHEET DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total assets............................. $19,928 $23,291 $19,522 $26,860 $36,778 $49,964
Working capital.......................... (6,177) 2,202 2,516 9,980 9,893 13,454
Long-term debt........................... 322 120 43 1,108 88 1,264
Redeemable preferred stock............... -- -- -- 6,548 9,857 15,478
Stockholders' equity (deficit)........... (461) 7,425 7,530 7,969 11,717 10,185
</TABLE>
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<PAGE> 21
CE SELECTED HISTORICAL FINANCIAL DATA
The following tables contain selected historical financial data of CE for
each of the years in the three-year period ended December 31, 1999 and for the
six-month periods ended June 30, 1999 and 2000.
CE's financial statements have been prepared in accordance with U.S. GAAP.
The selected historical financial data of CE has been derived from, and should
be read in conjunction with, CE's consolidated financial statements as of and
for the years ended December 31, 1997, 1998 and 1999, including the notes
thereto, and the condensed consolidated financial statements for the six-month
periods ended June 30, 1999 and 2000, included in this proxy
statement/prospectus.
CONSOLIDATED STATEMENTS OF INCOME DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------
2000 1999 1999 1998 1997
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................... DM60,891 DM38,373 DM98,110 DM45,427 DM19,441
Net income (loss)................ 1,792 (1,337) 2,407 1,908 772
Net income (loss) per common
share.......................... DM 0.09 DM (0.07) DM 0.12 DM 0.13 DM 0.07
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
2000 1999 1998 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Working capital.......................... DM 59,190 DM 56,811 DM 24,847 DM(1,715)
Intangible assets........................ 26,126 29,924 31,364 636
Total assets............................. 168,806 156,615 106,142 31,985
Long-term obligations.................... 27,649 27,004 9,171 6,909
Shareholders' equity..................... DM 76,774 DM 74,982 DM 72,575 DM 2,647
</TABLE>
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<PAGE> 22
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The tables that follow show CE's unaudited condensed consolidated financial
data, pro forma for (1) the acquisition of Insiders Information Management by CE
and (2) the pending merger between CE and TREEV. CE is providing the unaudited
pro forma condensed consolidated financial information, prepared in accordance
with U.S. GAAP, to provide TREEV stockholders with a picture of what the results
of operations and financial position of the combined businesses of CE, Insiders
and TREEV might have looked like had the transactions occurred on an earlier
date. For more detailed information, you should read "Unaudited Pro Forma
Condensed Consolidated Financial Information" on pages 77 through 84.
This unaudited pro forma financial information has been presented in
response to U.S. Securities and Exchange Commission requirements, and does not
purport to represent the actual financial position of CE on the date of this
proxy statement/prospectus or at the beginning of the periods indicated or to
project the financial position of CE for any future period.
The selected unaudited pro forma consolidated financial data of CE have
been derived from the unaudited pro forma condensed consolidated financial
statements included in this proxy statement/prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------
(in thousands)
<S> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents................................... DM 5,804
Goodwill and intangible assets, net......................... 270,167
Total assets................................................ 449,990
Long-term obligations....................................... 56,988
Total shareholders' equity.................................. 281,963
Working capital............................................. 46,084
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
(in thousands, (in thousands,
except per share except per share
amounts) amounts)
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenue..................................................... DM 85,474 DM 156,078
Net loss.................................................... (44,280) (72,533)
Net loss per common share................................... (1.66) (2.73)
Weighted average shares outstanding......................... 26,596,875 26,596,875
</TABLE>
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<PAGE> 23
COMPARATIVE PER SHARE DATA
The following table sets forth unaudited historical per share data of CE
and TREEV and the combined per share information on an unaudited pro forma basis
after giving effect to the merger between CE and TREEV and the acquisition of
Insiders by CE. Book value per common share is computed by dividing
shareholders' equity by the number of common shares outstanding at the end of
the period. Equivalent pro forma information reflects the earnings per share and
book value per share that each share would have been entitled to if the merger
occurred on January 1, 2000. You should read this information together with
CE's, TREEV's and Insiders' Consolidated Financial Statements and the unaudited
pro forma condensed consolidated financial information included in this proxy
statement/prospectus. The pro forma combined per share information is not
necessarily indicative of the operating results or financial position that would
have been achieved if the transactions had been consummated as of the beginning
of the period presented, nor is it necessarily indicative of the future
operating results or financial position of the combined companies.
The TREEV historical balance sheet information and related pro forma
adjustments to the unaudited pro forma combined balance sheet as of June 30,
2000, have been translated into German Marks at the June 30, 2000 rate of
exchange of $1.00 = DM 2.0404. The TREEV historical statements of income
information for the six months ended June 30, 2000, and related pro forma
adjustments to the unaudited pro forma combined statements of income, have been
translated into German Marks at the weighted-average rates of exchange for the
six months ending June 30, 2000 of $1.00 = DM 2.0395.
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------
TREEV PRO
CE TREEV FORMA
HISTORICAL HISTORICAL EQUIVALENT(1) PRO FORMA
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Net income (loss) per common share.......... DM 0.09 DM(0.83) DM (2.86) DM (1.66)
Cash dividends per common share............. -- -- -- --
Book value per common share................. 3.98 0.27 0.92 10.60
</TABLE>
---------------
(1) The TREEV pro forma equivalent share calculation is based upon an assumed
exchange ratio of 0.29 of a CE ADS per TREEV common share, determined in
accordance with the formula set forth in the merger agreement, based on the
following assumptions:
- the aggregate fair value of the TREEV employee stock options and
warrants is $22,780,988, and 922,753 CE ADSs will be issuable to TREEV
employee stock optionholders and warrantholders in the exchange offer;
- there are 1,605,025 TREEV Series A preferred shares and 16,270,106 TREEV
common shares outstanding;
- the "parent closing price" is $19.82 (equal to E23.00, the closing price
per CE ordinary share as reported on the Neuer Markt segment of the
Frankfurt Stock Exchange on November 6, 2000, converted into U.S.
dollars at the rate of E0.8616 per U.S.$1.00); and
- the closing price per TREEV common share is $4.813 (equal to the closing
price per share as reported on the Nasdaq National Market System on
November 6, 2000).
16
<PAGE> 24
COMPARATIVE PER SHARE MARKET PRICE DATA
The following table sets forth the high and low market prices for TREEV
common shares and TREEV Series A preferred shares reported on the Nasdaq
National Market and for CE ordinary shares reported on the Neuer Markt segment
of the Frankfurt Stock Exchange on November 19, 1999, the last full trading day
immediately preceding the initial public announcement of the proposed merger, on
May 8, 2000, the last full trading day immediately preceding the public
announcement of the amendment and restatement of the merger agreement, and on
November 17, 2000, the last practicable day for which high and low market prices
were available at the time this proxy statement/prospectus was mailed, as well
as the "equivalent stock price" of TREEV common shares and TREEV Series A
preferred shares on each of those days. The "equivalent stock price" of TREEV
common shares represents the applicable market price for CE ordinary shares on
the applicable date, multiplied by an assumed exchange ratio of 0.29 of a CE ADS
per TREEV common share. The "equivalent stock price" of TREEV Series A preferred
shares represents the applicable market price for CE ordinary shares on the
applicable date, multiplied by an assumed exchange ratio of 0.60 of a CE ADS per
TREEV Series A preferred share. See "The Merger -- Merger Consideration."
The assumed exchange ratios for the TREEV common shares and Series A
preferred shares were determined in accordance with the formulas set forth in
the merger agreement, based on the following assumptions:
- the aggregate fair value of the TREEV employee stock options and
warrants is $22,780,988, and 922,753 CE ADSs will be issuable to TREEV
employee stock optionholders and warrantholders in the exchange offer;
- there are 1,605,025 TREEV Series A preferred shares and 16,270,106 TREEV
common shares outstanding;
- the "parent closing price" is $19.82 (equal to E23.00, the closing price
per CE ordinary share as reported on the Neuer Markt segment of the
Frankfurt Stock Exchange on November 6, 2000, converted into U.S.
dollars at the rate of E0.8616 per U.S.$1.00); and
- the closing price per TREEV common share is $4.813 (equal to the average
closing price per share as reported on the Nasdaq National Market System
on November 6, 2000).
<TABLE>
<CAPTION>
TREEV COMMON TREEV EQUIVALENT
CE ORDINARY SHARES SHARES COMMON STOCK PRICE
(E PER SHARE) ($ PER SHARE) ($ PER SHARE)
------------------ ------------------ ------------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
November 19, 1999.............. E 76.00 E 74.00 $ 3.69 $ 2.94 $12.72 $10.13
May 8, 2000.................... E148.95 E145.00 $ 6.17 $ 6.13 $21.28 $21.12
November 17, 2000.............. E 19.50** E 18.00** $ 4.55 $ 3.94 $15.69 $13.59
</TABLE>
<TABLE>
<CAPTION>
TREEV
CE ORDINARY TREEV SERIES A EQUIVALENT SERIES A
SHARES PREFERRED SHARES PREFERRED STOCK PRICE
(E PER SHARE) ($ PER SHARE) ($ PER SHARE)
------------------ ---------------- -----------------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
November 19, 1999.............. E 76.00 E 74.00 $ 7.00 $ 5.88 $10.94 $ 9.18
May 8, 2000.................... E148.95 E145.00 $15.03* $15.03* $23.48 $23.48
November 17, 2000.............. E 19.50** E 18.00** $12.50 $10.00 $20.83 $16.67
</TABLE>
---------------
* Prices are at May 4, 2000, as there was no trading of the Series A preferred
stock on May 8, 2000.
** Prices are after CE's one-to-five stock split.
17
<PAGE> 25
BECAUSE THE TREEV COMMON SHARE EXCHANGE RATIO AND THE TREEV SERIES A PREFERRED
SHARE EXCHANGE RATIO WILL NOT BE DETERMINED UNTIL THE THIRD TRADING DAY PRIOR TO
THE TREEV STOCKHOLDERS MEETING, AND BECAUSE THE MARKET PRICE OF CE ORDINARY
SHARES THAT TREEV STOCKHOLDERS WILL RECEIVE IN THE MERGER MAY INCREASE OR
DECREASE PRIOR TO THE DATE OF THE TREEV STOCKHOLDERS MEETING, TREEV STOCKHOLDERS
SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR TREEV COMMON SHARES, TREEV SERIES A
PREFERRED SHARES AND CE ORDINARY SHARES AND THE CURRENT EXCHANGE RATIO BETWEEN
THE EURO AND THE U.S. DOLLAR PRIOR TO MAKING ANY DECISION WITH RESPECT TO THE
MERGER.
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<PAGE> 26
RISK FACTORS
You should consider the following risks in deciding whether to adopt the
merger agreement and whether to accept the exchange offer. These risks should be
considered along with the other information included in this proxy
statement/prospectus. We have separated the risks into two groups:
- risks relating to the merger and the exchange offer, and
- risks relating to the business of CE.
RISKS RELATING TO THE MERGER AND THE EXCHANGE OFFER
FIXED NUMBER OF CE ADSS MAY RESULT IN LOWER VALUE OF MERGER CONSIDERATION TO
TREEV COMMON STOCKHOLDERS
TREEV common stockholders are not assured of receiving CE ADSs in the
merger with a set market value, a maximum market value or a minimum market
value. Regardless of the market prices of CE ordinary shares and TREEV common
shares and Series A preferred shares at the time of the merger, CE will issue no
more than a total of 6,650,000 ordinary shares in connection with the merger and
the exchange offer for TREEV employee stock options and warrants. Each TREEV
Series A preferred share will be converted into CE ADSs with a market value of
at least $10.00, and each outstanding TREEV employee stock option and warrant
will be exchangeable for CE ADSs with a market value equal to the "fair value"
of such employee stock option or warrant (calculated as generally accepted using
the "Black-Scholes" methodology). TREEV common stockholders will receive a
proportionate number of the CE ADSs that remain after the allocations to TREEV's
Series A preferred stockholders, employee stock optionholders and
warrantholders. The number of CE ADSs into which each TREEV common share will be
converted, and the market value of those CE ADSs, is subject to change and will
depend upon, among other things, the market values of CE ordinary shares and
TREEV common shares immediately prior to the merger.
MARKET VALUE OF CE ORDINARY SHARES AND CE ADSS MAY FLUCTUATE PRIOR TO AND
FOLLOWING THE MERGER AND THE EXCHANGE OFFER AND MAY BE VOLATILE FOLLOWING THE
MERGER AND THE EXCHANGE OFFER
The actual number of CE ADSs to be issued for each TREEV common share,
Series A preferred share, warrant and employee stock option will be determined
three trading days prior to the date of the TREEV stockholders' meeting. The
market values of CE ordinary shares, TREEV common shares and TREEV Series A
preferred shares when the merger and the exchange offer are completed are likely
to vary from the market prices at the date of this proxy statement/prospectus,
the date of determination of the merger consideration and the exchange offer
consideration and the date of the TREEV stockholders' meeting, and may do so for
many reasons, including:
- changes in the business, operations or prospects of CE or TREEV,
- market assessments of the likelihood that the merger will be completed,
- changes in the exchange rate between the Euro and the U.S. dollar, and
- general market and economic conditions.
Because the market value of the CE ordinary shares issued in the merger and
the exchange offer may be lower on the closing date than the market value of CE
ordinary shares at the time the merger consideration and exchange offer
consideration is calculated:
- TREEV Series A preferred shareholders may receive CE ordinary shares
with a market value, on the closing date, that is less than $10.00 or
that is less than the market value of the TREEV Series A preferred
shares on the closing date, and
19
<PAGE> 27
- TREEV employee stock optionholders and warrantholders may receive CE
ordinary shares with a market value, on the closing date, that is less
than the "fair value" of their options and warrants.
In addition, TREEV common stockholders are not guaranteed to receive CE
ordinary shares with a minimum or set market value on the closing date.
The number of ordinary shares issued by CE will be not be adjusted for
changes in the market prices of CE ordinary shares or TREEV shares, and TREEV
will not be able to "walk away" from the merger or resolicit the vote of its
stockholders solely because of changes in the market prices of CE ordinary
shares or TREEV shares after the TREEV stockholders' meeting. We urge you to
obtain current market quotations for CE ordinary shares and TREEV common shares
and Series A preferred shares and the current exchange rate between the Euro and
the U.S. dollar. See the table under "The Merger -- Merger Consideration" for
examples of the impact of changes in the market prices of CE ordinary shares or
TREEV common shares on the value of the consideration to be received in the
merger.
CE WILL FACE CHALLENGES THAT MAY PREVENT IT FROM SUCCESSFULLY INTEGRATING TREEV,
AND CE'S BUSINESS MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER
Achieving the expected benefits of the merger will depend, in part, on the
successful integration of our technology, operations and personnel. The process
of integrating our companies may be more costly or more difficult than we
expect, may be disruptive to CE's business following the merger if not completed
in accordance with its terms and in a timely and efficient manner and may cause
an interruption of, or a loss of momentum in, CE's business. CE may encounter
substantial costs, difficulties and delays in integrating the operations of CE
and TREEV, including as a result of:
- loss of key employees or customers,
- failures or delays in obtaining new contracts from present and potential
customers as a result of their concerns related to CE's integration of
TREEV's business,
- possible inconsistencies in standards, controls, procedures and
policies, business cultures and compensation structures between CE and
TREEV and the need to implement, integrate and harmonize various
business-specific operating procedures and systems, as well as
company-wide financial, accounting, information and other systems, and
- the diversion of management's attention from the day-to-day business of
CE and TREEV as a result of the need to deal with integration issues.
The success of the merger will depend, in part, on the ability of CE to
realize the anticipated benefits from combining the businesses of CE and TREEV.
In addition, the diversion of management attention and any difficulties
encountered in the transition and integration process could have an adverse
effect on the revenues, levels of expenses and operating results of CE following
the merger. We cannot assure you when or how successfully CE will be able to
complete the necessary integration or that CE will realize any of the
anticipated benefits.
TREEV'S DIRECTORS AND EXECUTIVE OFFICERS HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO SUPPORT THE MERGER
The directors and executive officers of TREEV participate in arrangements
that provide them with interests in the merger that are different from, or in
addition to, yours. These interests include:
- It is expected that following the merger, the CE supervisory board will
vote upon a resolution to appoint Thomas A. Wilson, a director and the
chief executive officer of TREEV, to the CE management board. In
addition, it is expected that following the merger, the shareholders of
CE will be asked to vote upon a resolution to appoint James J. Leto,
chairman of TREEV's board of directors, to the CE supervisory board.
20
<PAGE> 28
- Severance agreements between TREEV and Messrs. Wilson, Hajost,
Paiewonsky, Giampa, McMahon, Cairns and Wood, and Mses. Bowen and
Raleigh provide benefits to those employees if they are terminated by
TREEV without cause or resign their employment for "good reason" within
two years of the merger.
- It is a condition to CE's obligation to close the merger that Messrs.
Wilson, Hajost and Paiewonsky have entered into employment agreements
with CE with respect to their employment following the merger. The terms
of those agreements have not yet been agreed upon.
- The 1997 Directors' Stock Option Plan and stock options granted under
TREEV's employee stock option plans with respect to Messrs. Wilson,
Hajost, Paiewonsky, Giampa, McMahon, Cairns and Wood and Mses. Bowen and
Raleigh provide for the acceleration of the vesting of stock options
upon consummation of the merger.
- Directors, executive officers and other employees of TREEV who become
employees of CE may be granted convertible bonds to acquire CE ordinary
shares pursuant to the CE stock incentive plan.
- CE has entered into a voting and registration rights agreement with the
directors, officers and stockholders of TREEV identified under "The
Transaction Documents -- The TREEV Voting and Registration Rights
Agreement" pursuant to which CE granted registration rights for the CE
ADSs and CE ordinary shares to be received by these individuals in the
merger.
- For six years after the merger, CE will maintain in effect all rights to
indemnification in favor of the current and former directors and
officers of TREEV as provided in its certificate of incorporation and
its by-laws.
- For six years after the merger, CE will provide to the current directors
and officers of TREEV directors' and officers' liability insurance of
the same kind and scope as is currently provided by TREEV. CE will not
be required, however, to pay more than 175% of the annual premiums
currently paid by TREEV.
As a result of these interests, TREEV's directors and executive officers
could be more likely to vote to approve the merger agreement than if they did
not have these interests. You should consider whether these interests may have
influenced these directors and executive officers to support and recommend the
merger.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT TREEV'S SHARE PRICE AND
FUTURE BUSINESS AND OPERATIONS
If the merger is not completed for any reason, TREEV may be subject to a
number of material risks, including the following:
- TREEV may be required to pay CE a termination fee of $2.685 million and
may be required to reimburse CE for up to $1.2 million of CE's expenses.
- the market prices of TREEV common shares and Series A preferred shares
may decline to the extent that their current market prices reflect an
assumption that the merger will be completed.
- TREEV will have to pay its costs related to the merger, such as legal,
accounting and financial advisory fees, except in limited circumstances
in which CE may be required to reimburse some of these costs.
TREEV may be required to repay to CE up to $5 million that will become due
in accordance with the terms of an existing promissory note between CE and
TREEV. In order to assist TREEV in funding operational losses that it had
incurred during the third quarter of 2000, on October 10, 2000, CE and TREEV
amended and restated a promissory note that was executed on May 25, 1999 and
amended and restated on September 6, 1999 (in the principal amount of
$1,100,000), and amended and restated on October 7, 1999 (in the principal
amount of $900,000), and amended and restated on May 5, 2000 (in the principal
amount of $2,500,000) to provide for an additional $500,000 loan (bringing the
total principal
21
<PAGE> 29
amount to $5,000,000) at an interest rate of 13.5% per annum, due December 31,
2000. On November 21, 2000, CE and TREEV further amended and restated the
promissory note to increase the principal amount to reflect accrued but unpaid
interest and to extend the maturity date to November 20, 2002. See "The Merger
-- Background of the Merger."
TREEV common shares and Series A preferred shares are listed on the Nasdaq
National Market, which requires companies to comply with certain listing and
maintenance requirements. In 1997, TREEV fell below the requirement to maintain
net tangible assets of at least $4 million. TREEV appealed to a Nasdaq Listing
Qualifications Panel, who allowed TREEV to continue to trade on Nasdaq but
required TREEV to have a minimum of $6 million in net tangible assets to ensure
long-term compliance with the requirement. TREEV achieved net tangible assets in
excess of $6 million at the end of 1997. As of September 30, 2000, however,
TREEV again fell below the $4 million net tangible asset requirement. If the
merger is not effected, there can be no assurance that TREEV will be able to
comply with the net tangible asset requirement.
TREEV has had net losses in each period of its operations since its
inception, except for four fiscal quarters, and it had an accumulated deficit at
September 30, 2000 of $142 million. If the merger is not effected, there can be
no assurance that TREEV will not experience adverse results of operations in the
future.
TREEV's customers may, in response to the announcement of the proposed
merger, delay or defer licensing decisions. Any delay or deferral in licensing
decisions by TREEV customers could have a material adverse effect on TREEV's
business, regardless of whether or not the merger is ultimately completed.
Similarly, current and prospective TREEV employees may experience uncertainty
about their future role with CE following the merger. This uncertainty may
adversely affect TREEV's ability to attract and retain key management,
marketing, technical, sales and other personnel.
PROTECTING STOCKHOLDER RIGHTS MAY PROVE MORE DIFFICULT IN A GERMAN CORPORATION
THAN IN A DELAWARE CORPORATION
CE's corporate affairs are governed by its articles of association and by
the laws of Germany. The rights of shareholders of CE and the responsibilities
of members of the CE supervisory board and the CE management board are different
from those established under the statutes or case law in Delaware, the state in
which TREEV is incorporated. Therefore, CE's public shareholders may have more
difficulty in protecting their interests in the face of actions by the CE
management board, the CE supervisory board or controlling shareholders than they
would as stockholders of a Delaware corporation.
The differences in the rights of holders of CE ordinary shares compared to
holders of TREEV shares include the following:
- Under Delaware law, stockholder action may be taken by written consent,
without a meeting of stockholders. Under the German Stock Corporation
Act, shareholders may only exercise their corporate rights in
shareholders' meetings exclusively; German law does not permit
shareholders to act by written consent outside of shareholders'
meetings.
- TREEV's certificate of incorporation and by-laws do not require
stockholders to give TREEV advance notice of director nominations or
business to be presented at an annual stockholders' meeting. Under the
German Stock Corporation Act, only shareholders holding in the aggregate
at least five percent of CE's nominal capital or shares in an aggregate
amount of at least E500,000 may require that modified or additional
resolutions be presented at a shareholders' meeting. In addition,
advance notice of such request must be given not later than ten days
after the notice of the shareholders' meeting is published. Accordingly,
holders of CE ordinary shares might have fewer possibilities to
influence any business to be presented at CE shareholders' meetings than
TREEV stockholders do at TREEV stockholders' meetings.
- Under Delaware law, a stockholder may initiate a derivative action to
enforce a right of a corporation if the corporation fails to do so and
may commence a class action suit on behalf of
22
<PAGE> 30
himself and other similarly situated stockholders. The German Stock
Corporation Act does not provide for class actions and does not
generally permit shareholder derivative suits. It might therefore be
more difficult for a TREEV holder of CE ordinary shares to enforce its
shareholder rights or the rights of the corporation.
- According to TREEV's by-laws, vacancies on the TREEV board of directors
as a result of the removal of directors without cause are filled by a
vote of the TREEV common shares and vacancies resulting from the removal
of a director with cause are filled by either the vote of the TREEV
common shares or the TREEV board of directors. Vacancies occurring on
the management board of a German stock corporation like CE for any
reason are filled by the supervisory board. As a result TREEV holders of
CE ADSs might have less influence on the election of management board
members in case of vacancies.
See "Comparison of Rights of Holders of TREEV Common and Preferred Stock
and CE Ordinary Shares."
CONSEQUENCES OF FAILURE TO EXCHANGE TREEV EMPLOYEE STOCK OPTIONS AND WARRANTS
CE's objective in making the exchange offer is to acquire all of the TREEV
employee stock options and warrants outstanding immediately prior to the
effective time of the merger. As a result of the merger, all TREEV employee
stock options outstanding under the 1997 Director Stock Option Plan will
immediately vest and become exercisable. If these options are not exchanged in
the exchange offer, they will continue to be exercisable for one year following
the merger as options to acquire shares of common stock of the surviving
corporation of the merger (and not of CE). All other TREEV employee stock
options outstanding under TREEV's employee stock option plans will become
exercisable immediately prior to the merger; if the options are not exercised
prior to the merger and are not exchanged in the exchange offer, they will
terminate at the time of the merger without any payment therefor. Most of the
outstanding TREEV warrants will, if not exercised prior to the merger and not
exchanged in the exchange offer, remain outstanding following the merger as
warrants to acquire shares of common stock of the surviving corporation of the
merger (and not of CE). Three outstanding TREEV warrants will, if not exercised
prior to the merger and not exchanged in the exchange offer, be converted at the
time of the merger into a warrant to acquire CE ordinary shares.
No decision has currently been made by CE whether or how to acquire any
TREEV warrants or stock options under the 1997 Director Stock Option Plan which
are not tendered in, and remain outstanding following, the exchange offer.
Therefore, after the completion of the exchange offer, untendered and
outstanding TREEV warrants and stock options under the 1997 Director Stock
Option Plan may remain outstanding until their expiration date (which, in the
case of the stock options outstanding under the 1997 Director Stock Option Plan,
is one year from the date of the consummation of the merger). In addition, even
if a decision to acquire these TREEV employee stock options or warrants was
made, there could be a substantial period of time between the expiration of the
exchange offer and the subsequent acquisition.
In addition, after the completion of the merger, CE will cause TREEV to
delist the TREEV common shares from the Nasdaq National Market and to seek
permission from the U.S. Securities and Exchange Commission to cease filing
periodic reports with the U.S. Securities and Exchange Commission and to
deregister the TREEV common shares under the Exchange Act. As a result, the
market for TREEV common shares will be illiquid and the value of any TREEV
employee stock options and warrants outstanding after the expiration of the
exchange offer could be substantially lower than their value before the exchange
offer expires.
23
<PAGE> 31
RISKS RELATING TO THE BUSINESS OF CE
CE'S PERFORMANCE DEPENDS ON CONTINUED MARKET ACCEPTANCE OF ITS PRIMARY SOFTWARE
PRODUCTS IN A RAPIDLY EVOLVING INDUSTRY ENVIRONMENT
A substantial part of CE's revenues comes from the licensing, servicing and
maintenance of its archiving and document management software. During fiscal
years 1998 and 1999, archiving and document management related software license,
service and maintenance fees accounted for approximately 83.0% and 87.4%,
respectively, of CE's total revenues. The archiving and document management
industry is characterized by rapid technological change, changes in customer
requirements, frequent new product and services introductions and enhancements,
and emerging industry standards. CE's performance following the merger will
depend to a large degree upon its ability to introduce new versions of the CE
Document Server, CE ARCHIV and ARCIS or other products that meet the evolving
needs of its and TREEV's customers. If CE is unable to address the needs of
these customers successfully and to respond to technological advances on a
cost-effective and timely basis, or if new versions of its and TREEV's products
are not accepted by the market, CE's business, operating results and financial
condition could be materially adversely affected.
THE UNPREDICTABILITY OF CE'S SALES CYCLE MAY LEAD TO FLUCTUATIONS IN OPERATING
RESULTS IF ITS REVENUES ARE BELOW EXPECTATIONS
CE generally ships its software products shortly after receipt of an order
and typically does not have a significant backlog of unfulfilled orders. CE's
software license revenues for any quarter are substantially dependent on orders
that are booked and shipped in that quarter and cannot be predicted with any
degree of certainty. As a result, CE's historical quarterly performance has
fluctuated considerably. Accordingly, shortfalls in revenues may cause
significant variations in operating results in any quarter. Factors that could
cause these fluctuations include:
- the unpredictable timing of orders and the long sales cycles for CE's
products (CE's sales cycle is typically between six and 15 months);
- the timing and market acceptance of new product releases or product
enhancements by either CE or its competitors;
- any change in CE's pricing policy or the pricing policies of its
competitors;
- the timing of product implementations, which are highly dependent on
CE's customers' resources and discretion;
- economic conditions which may affect CE's customers' and potential
customers' budgets for information technology expenditures; and
- the time it takes newly hired sales and consulting personnel to become
fully productive.
Because of these factors, CE believes that period-to-period comparisons of
its results of operations are not necessarily meaningful. In addition, it is
possible that in some future quarters CE's results of operations will be below
the expectations of public market analysts and investors, and in that case the
trading prices of CE ordinary shares or CE ADSs could be materially adversely
affected.
CE'S FIRST, SECOND AND THIRD QUARTER REVENUES TEND TO BE LESS THAN CE'S FOURTH
QUARTER REVENUES
CE's software license revenues are typically strongest in its fourth fiscal
quarter, which ends on December 31, and weakest in its first fiscal quarter,
which ends on March 31. CE's fourth fiscal quarter generally has the highest
revenues and operating results as its sales force attempts to meet fiscal
year-end sales quotas and customers tend to make purchase decisions in
connection with their calendar year-end budgeting procedures. CE has implemented
quarterly sales goals in order to reduce the concentration of sales revenues in
the fourth fiscal quarter. CE cannot assure you, however, that this policy will
achieve its intended effect. In addition, CE's third fiscal quarter includes the
months of July and August when both
24
<PAGE> 32
sales and billable customer services activity, as well as customer purchase
decisions, are reduced, particularly in Europe, due to summer vacation
schedules. As a result of these seasonal factors, CE has historically
experienced operating losses in its first fiscal quarter and could experience
operating losses in this quarter in the future, which may have a material
adverse effect on CE's business, operating results and financial condition.
CE'S SUCCESS WILL CONTINUE TO DEPEND ON ITS RELATIONSHIP WITH SIEMENS
The success of one of CE's principal product lines, ARCIS, has depended,
and will continue to depend for the foreseeable future, on CE's relationship
with Siemens. During fiscal year 1999, approximately 12.9% of CE's revenues were
derived from sales to Siemens. Although CE's ARCIS products operate in other
computing environments, CE's competitive advantage in this area consists largely
of:
- CE's access to markets worldwide using the Siemens distribution channel;
- CE's contacts with important existing and potential customers
established through CE's partnership with Siemens; and
- CE's ability to support its products worldwide through Siemens.
Although CE believes that its relationship with Siemens is good, Siemens
can use other archiving and document management systems. If Siemens for any
reason decides to terminate or scale down its cooperative efforts with CE, or if
Siemens closes or sells parts of its business units, CE's market position would
be weakened.
CE'S BUSINESS CAN BE ADVERSELY AFFECTED BY ITS FAILURE TO ACHIEVE SALES AFTER
EXTENSIVE INVESTMENT OF TIME AND RESOURCES IN PROSPECTIVE CUSTOMERS
Purchasing and implementing CE's products involves a significant commitment
of resources by CE to its prospective customers. CE's sales cycle associated
with the license of its products typically lasts between six and 15 months.
During this time, CE invests significant time and resources in a prospective
customer, including costs associated with multiple site visits, product
demonstrations and feasibility studies. Any failure to achieve a sale after CE
has made extensive investments of time and money in any prospective customer
could adversely affect its business. CE expects that individual software license
fees, and therefore the size of the financial commitment required from
prospective customers, will continue to increase in amount as CE's products are
used to manage and access increasingly complex information in geographically
dispersed enterprises. As a result, CE's sales process may increasingly be
subject to delays and lengthy approval processes of its customers. See
"Description of CE's Business -- Products and Services" and "-- Sales and
Distribution."
RAPID GROWTH COULD STRAIN CE'S ADMINISTRATIVE, FINANCIAL AND OPERATIONAL
RESOURCES
CE has grown significantly in the last few years, will grow significantly
as a result of the merger, and expects to continue to grow rapidly. CE's rapid
growth has sometimes strained, and may in the future strain, its administrative
and other resources. CE's ability to manage growth will depend in part on its
ability to improve its administrative, financial and operational controls. CE
cannot assure you that its administrative, financial and operational controls
will be adequate to support its growth. If CE is unable to manage growth
effectively, the quality of its services, its ability to retain key personnel
and its business, operating results and financial condition could be materially
adversely affected.
IF CE FAILS TO MAKE SUCCESSFUL ACQUISITIONS AND INTEGRATE ACQUIRED BUSINESSES,
ITS FUTURE GROWTH AND BUSINESS COULD BE ADVERSELY AFFECTED
In the last two years, CE made several strategic acquisitions. CE has
agreed to acquire TREEV and in the future CE plans to continue to acquire
related businesses as an important element of its growth strategy of enhancing
its existing products and distribution channels as well as expanding the
geographic
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and industry scope of its business. CE's ability to implement this strategy will
depend on its ability to identify appropriate acquisition targets, to complete
acquisitions and to integrate the operations, technologies, products and
personnel of acquired businesses. CE's ability to make acquisitions will be
limited by its financial resources, including available cash capacity and the
market value and liquidity of its shares. Acquisitions could divert management
resources from CE's other operations. CE could also incur substantial expenses
following an acquisition, including expenses of integrating an acquired
business.
CE expects that competition for appropriate acquisition targets may be
significant. CE may compete with other software companies with similar
acquisition strategies, some of which may be larger and have greater financial
and other resources than CE has. CE believes that competition for acquisition
targets in its industry is based on a number of factors, including price, terms,
size, access to capital and the ability to offer cash, stock or other forms of
consideration. CE cannot assure you that it will be able to identify and acquire
suitable companies on acceptable terms or that, once acquired, CE will be able
to successfully and efficiently integrate any such companies.
CE DEPENDS INCREASINGLY ON THIRD PARTIES FOR CERTAIN SERVICES
Increasingly, CE depends upon third parties for certain services, such as
consulting (including project management and conceptual design), pre-sales,
end-user training and customer support. CE cannot assure you that any third
parties upon whom it relies will be capable of providing the quality of service
that CE's customers require.
CE MUST ATTRACT AND RETAIN SKILLED PERSONNEL WITH KNOWLEDGE OF THE DOCUMENT
MANAGEMENT INDUSTRY
CE's future success and ability to increase its revenues will depend in
significant part upon its ability to attract and retain skilled management,
sales, support, service, marketing and product development personnel,
particularly with expertise in the archiving and document management industry.
There is intense competition for skilled personnel. Recruiting such personnel is
becoming increasingly difficult because of the worldwide growth of the high
technology industry. In the past, CE has experienced difficulty in locating
candidates with appropriate qualifications. CE cannot assure you that it will be
successful in attracting and retaining skilled personnel, and the failure to do
so could have a material adverse effect on CE's business, operating results and
financial condition. See "Description of CE's Business -- Employees."
CE DEPENDS ON THE CONTINUED EMPLOYMENT OF A LIMITED NUMBER OF KEY EMPLOYEES WHO
ARE SKILLED IN DOCUMENT MANAGEMENT AND OTHER TECHNOLOGIES
CE's success depends to a significant extent upon the efforts and ability
of its senior management, including its co-founders, and its sales and product
development personnel. Although CE has entered into employment agreements with
CE's senior management and key employees, the loss of the services of any member
of CE's senior management team or other key employees could have a material
adverse effect on CE's business, operating results and financial condition. See
"Management and Employees."
DEPENDENCE ON THE ACCEPTANCE OF THE INTERNET
CE's products are increasingly based on technologies related to the
Internet. The general growth of the Internet market represents an important
environment for CE. The future success of CE's products that are based on
Internet technologies depends materially upon continued growth in the use of the
Internet. Such growth is generally expected, but cannot be predicted with
certainty. Various risks typically connected with the Internet, particularly
unsatisfactory security technology, occasional network overloads, slower
progress in the expansion of Internet infrastructure, uneven product and service
quality, stifling government regulation and unsettled issues with regard to the
protection of intellectual property and other legal problems could harm the
continuing general acceptance of the Internet. A decline in Internet usage could
seriously damage the business of CE.
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INCREASED COMPETITION MAY RESULT IN PRICE REDUCTIONS AND DECREASED DEMAND FOR
CE'S PRODUCTS AND SERVICES
The market for archiving and document management software is intensely
competitive and characterized by rapid technological change. In addition, it is
significantly affected by new product introductions and the market activities of
participants in CE's industry. CE's products are targeted at the market for
open, client/server software solutions. CE's competitors are diverse and offer a
variety of solutions directed at various segments of the archiving and document
management market. Growing competition may force CE to reduce the price of its
products and services, may reduce revenues and gross margins and may lower
market share, any of which could have a material adverse effect on CE's
business, operating results and financial condition. Several of the competitors
in CE's market have longer operating histories, significantly greater financial,
technical, marketing and other resources, significantly greater name recognition
and a larger installed customer base than CE does. In addition, several of CE's
existing competitors and other potential competitors have well established
relationships with some of CE's current and potential customers and strategic
partners, have extensive knowledge of the enterprise software industry and have
the resources to enable them to more easily offer a single vendor solution. As a
result, some of CE's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the development, promotion and sale of their products than CE can.
CE also expects to face additional competition as other established and emerging
companies enter the market for archiving and document management systems.
CE'S BUSINESS CAN BE ADVERSELY AFFECTED BY PROBLEMS ASSOCIATED WITH
INTERNATIONAL OPERATIONS
CE currently markets its products in 15 countries in Europe and, following
the merger, will also market its products in the United States. CE's future
revenue growth depends upon the successful continued expansion of its sales,
marketing, support and service organizations, through direct or indirect
channels, in the various countries around the world where CE's potential
customers are located. Such expansion would require CE to establish new offices,
hire new personnel and manage operations in widely disparate geographies,
economies, legal systems, languages and cultures. CE's operations are also
affected by other factors inherent in international business activities, such
as:
- general economic conditions, government and regulatory policies and
business conditions in the markets CE serves;
- differing business practices;
- difficulties in staffing and managing foreign operations;
- the complexity of managing different tax regimes;
- differing import and export licensing and other legal requirements;
- tariffs and other restrictions on trade;
- exposure to varying legal standards; and
- longer accounts receivable payment cycles.
In addition, some of CE's competitors have more experience with the issues
associated with international operations than CE does.
CE'S RESULTS OF OPERATIONS CAN BE ADVERSELY AFFECTED BY FOREIGN EXCHANGE
FLUCTUATIONS
Because of CE's increasingly multinational operations, its operating
results are subject to significant fluctuation based upon changes in the
exchange rates of certain currencies in relation to the Euro, particularly the
U.S. dollar. Changes to the value of the Euro relative to the other currencies
in which CE generates revenues could adversely affect its results of operations.
Even when foreign currency expenses substantially offset revenues in the same
currency, CE's profits may be diminished when reported in Euros or German Marks
in its financial statements. Due to the constantly changing currency exposures
and the
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volatility of currency exchange rates, CE may experience currency losses in the
future, and exchange rate fluctuations could affect CE's future results of
operations.
UNDETECTED ERRORS OR DEFECTS IN CE'S SOFTWARE COULD ADVERSELY AFFECT THE
PERFORMANCE OF CE'S SOFTWARE AND REDUCE THE DEMAND FOR ITS PRODUCTS
CE's software products could contain errors or defects that CE has not been
able to detect which could adversely affect its performance and reduce demand
for its products. CE regularly introduces new releases and new versions of its
products. In the past CE has discovered software defects in certain of its new
products and enhancements after they have been introduced, and as a result CE
has experienced distribution delays or lost revenues during the period of time
required to correct these errors. Any such defects or errors could result in
adverse customer reactions and negative publicity regarding CE and its products,
since its customers and potential customers are highly sensitive to defects in
CE's software. Any defects or errors in new products or enhancements could
result in the loss of orders or a delay in the receipt of orders and could
result in reduced revenues, delay in market acceptance, diversion of development
resources, product liability claims or increased service and warranty costs, any
of which may have a material adverse effect on CE's business, results of
operations or financial condition. See "Description of CE's Business -- Product
Research and Development."
CE'S BUSINESS COULD BE ADVERSELY AFFECTED IF IT IS UNABLE TO PROTECT ITS
PROPRIETARY TECHNOLOGY
CE relies upon a combination of copyright, trademark and trade secret laws,
trade secrets, confidentiality procedures, contractual provisions and license
arrangements to establish and protect its proprietary rights. CE enters into
agreements with its employees and customers that seek to limit and protect the
distribution of its proprietary information. CE cannot assure you that the steps
it has taken to protect its proprietary rights, however, will be adequate to
deter misappropriation of its proprietary information. In addition, CE may not
be able to detect unauthorized use of its intellectual property or take
appropriate steps to enforce its intellectual property rights. The laws of
certain countries in which CE sells its products do not protect its software and
intellectual property rights to the same extent as the laws of Germany and the
United States. Unauthorized copying or misuse of CE's products or CE's
proprietary information could materially and adversely affect its business,
results of operations or financial condition. See "Description of CE's Business
-- Proprietary Rights."
OTHERS COULD CLAIM THAT CE INFRINGES THEIR INTELLECTUAL PROPERTY
Although CE believes that its products do not infringe upon the
intellectual property rights of others, and that it has all the rights necessary
to utilize the intellectual property employed in its business, CE is subject to
the risk of claims alleging infringement of third-party intellectual property
rights. These claims could require CE to spend significant sums in litigation,
pay damages, divert significant management resources, cause shipment delays,
require CE to enter into royalty or licensing agreements, cause CE to
discontinue the use of the challenged trade names or technology or develop
non-infringing intellectual property. Therefore, these claims could have a
material adverse affect on its business, operating results or financial
condition. See "Description of CE's Business -- Proprietary Rights."
TRADING IN CE ORDINARY SHARES AND CE ADSS COULD CONTINUE TO BE SUBJECT TO
EXTREME PRICE FLUCTUATIONS
The market for shares in technology companies, particularly those traded on
the Neuer Markt segment of the Frankfurt Stock Exchange and the Nasdaq National
Market, is subject to extreme price and volume fluctuations which can affect the
market prices of the shares traded. Factors that can contribute to these
fluctuations include:
- CE's actual or anticipated results of operations;
- customer orders or new products or contracts;
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- changes in CE's earnings or revenue estimates;
- changes in financial estimates by securities analysts;
- market conditions and trends in CE's industry;
- announcements by CE's competitors;
- regulatory actions;
- lack of liquidity of the CE ADSs on the Nasdaq National Market; and
- general state of the securities markets (with particular emphasis on the
technology sector).
In addition, fluctuations in the exchange rate between the U.S. dollar and
the Euro would affect the dollar equivalent of the Euro price of the CE ordinary
shares on the Neuer Markt and, as a result, would be likely to affect the market
price of the CE ADSs on the Nasdaq National Market.
THE LACK OF AN EXISTING AND ESTABLISHED TRADING MARKET FOR CE ADSS COULD MAKE IT
DIFFICULT TO LIQUIDATE THE INVESTMENT IN CE ADSS
There is no existing trading market for CE ADSs and CE cannot assure you
that an active trading market will be established. CE has applied for approval
for listing of its CE ADSs on the Nasdaq National Market and expects to receive
approval for listing on the Nasdaq National Market at the time of the completion
of the merger. CE ADSs may experience volatility until trading values become
established. As a result, it could be difficult to make sales of CE ADSs in the
market at any particular time.
CE IS CONTROLLED BY TWO SHAREHOLDERS WHO CAN DELAY OR HINDER A CHANGE IN CONTROL
OF CE OR PREVENT OTHER MAJOR TRANSACTIONS
Following the completion of the merger, CE management board members Thomas
Wenzke and Hans-Jurgen Brintrup will together own approximately 36.2% of the
outstanding CE ordinary shares. Under German law, 75% of the share capital that
is represented at any shareholders' meeting is required to approve certain
matters, including capital increases. Therefore, a person or group of persons
who together hold more than 25% of the votes will have the ability to exercise
significant influence over certain matters that require shareholder approval and
will have the power to delay or hinder a change in control of CE and other major
corporate transactions. Although there is no single shareholder who will control
more than 25% of the outstanding CE ordinary shares following the merger,
Messrs. Wenzke and Brintrup acting together will hold, and in the event that not
all of the CE ordinary shares are represented at a shareholders' meeting, either
of them acting individually may hold, shares representing more than 25% of the
voting power at the meeting.
FUTURE SALES BY EXISTING SHAREHOLDERS COULD DEPRESS THE MARKET PRICE OF CE
ORDINARY SHARES OR CE ADSS
If CE's shareholders or holders of CE ADSs sell substantial amounts of CE
ordinary shares or CE ADSs in the public market following the merger, the market
price of CE ordinary shares or CE ADSs could fall. Such sales also might make it
more difficult for CE to sell shares in the future at a time and price that it
deems appropriate.
IT MAY NOT BE POSSIBLE TO ENFORCE JUDGMENTS OF UNITED STATES COURTS AGAINST CE
CE is a German stock corporation. All the current members of the CE
supervisory board and the current members of the CE management board are
non-residents of the United States. In addition, a substantial portion of CE's
assets and the assets of such persons are located outside the United States. As
a result, it may not be possible to effect service of process within the United
States upon CE or such persons, or to enforce any judgments against CE or such
persons obtained in the United States courts based on the civil liability
provisions of the securities laws of the United States. In addition, awards of
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punitive damages and actions brought in the United States or elsewhere may be
unenforceable in Germany. See "Enforceability of Civil Liabilities."
THE GERMAN TAKEOVER CODE MAY MAKE AN ACQUISITION OF CE MORE DIFFICULT
In accordance with the requirements of the Neuer Markt segment of the
Frankfurt Stock Exchange, CE has adopted the Takeover Code recommended by the
Stock Exchange Expert Commission at the German Federal Ministry of Finance.
Although this Takeover Code does not have the force of law, it is generally
complied with by companies whose shares are traded in the German public
securities markets. The regulations of the Takeover Code may make it difficult
or undesirable for a potential purchaser to acquire a substantial percentage of
CE ordinary shares, may provide a defense against hostile takeovers or may delay
and impede a change in control or management of CE. This could include
transactions that would otherwise make it possible for CE shareholders to
receive a premium for their shares above the then-current market price. It is
also possible that these regulations will limit the possibilities of
shareholders to vote for plans that they regard as being in their interest. See
"Description of CE Ordinary Shares -- Anti-Takeover Provisions."
RISKS ASSOCIATED WITH LOCATION IN GERMANY
As a German stock corporation with a large portion of its operations
located in Germany, CE is affected by all social, political and economic
conditions in Germany. Labor costs, corporate taxes and employee benefit
expenses in Germany are high and weekly working hours are shorter compared to
many other European Union member states, the United States and Japan.
CE DOES NOT EXPECT TO PAY DIVIDENDS
CE has never declared or paid any dividends and currently intends to retain
all available earnings that may be generated by its operations for the
development and growth of its business. As a result, CE does not currently
anticipate paying any cash dividends on its ordinary shares.
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TREEV STOCKHOLDERS' MEETING
DATE, TIME AND PLACE
The TREEV stockholders' meeting will be held on December 28, 2000, at the
Hyatt Regency Hotel, 1800 Presidents Street, Reston, Virginia, commencing at
10:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE TREEV STOCKHOLDERS' MEETING
The purposes of the TREEV stockholders' meeting are to consider and vote
upon:
- a proposal to adopt the merger agreement; and
- any other business as may properly be brought before the TREEV
stockholders' meeting.
The TREEV board has unanimously approved the merger and unanimously
recommends that TREEV common stockholders vote FOR adoption of the merger
agreement.
STOCKHOLDERS ENTITLED TO VOTE; QUORUM; VOTE REQUIRED; VOTING AGREEMENT
Record Date. The TREEV board of directors has fixed November 6, 2000 as
the record date for determining stockholders entitled to notice of and to vote
at the TREEV stockholders' meeting.
Quorum. The presence in person or by properly executed proxy of holders of
a majority of the issued and outstanding TREEV common shares is necessary to
constitute a quorum at the TREEV stockholders' meeting. Abstentions and broker
non-votes will each be treated as shares that are present for purposes of
determining whether a quorum is present.
Vote Required. Adoption of the merger agreement requires the affirmative
vote of holders of a majority of the outstanding TREEV common shares.
Accordingly, abstentions and broker non-votes are equivalent to negative votes
for purposes of adopting the merger agreement.
Voting Agreement. Simultaneously with the execution of the merger
agreement, H.T. Ardinger, Jr., M. Douglas Adkins and the members of the TREEV
board of directors and TREEV's senior management identified below, who
collectively held approximately 33% of the TREEV common shares outstanding as of
the record date, entered into a voting and registration rights agreement with CE
in which each has agreed to appear for the purpose of obtaining a quorum at the
TREEV stockholders meeting and to vote all TREEV common shares or other equity
securities owned by him, or with respect to which he has voting power or
control, in favor of the adoption of the merger agreement. Each such person also
delivered to CE an irrevocable proxy covering the total number of TREEV common
shares beneficially owned by him to vote such shares in favor of the adoption of
the merger agreement.
The members of the TREEV board of directors and senior management who
executed the voting and registration rights agreement and the irrevocable proxy
are James J. Leto, Robert P. Bernardi, John F. Burton, C. Alan Peyser, Thomas A.
Wilson, Mark A. Paiewonsky, Richard G. McMahon and Brian H. Hajost.
ACCORDINGLY, 33% OF THE TREEV COMMON SHARES ENTITLED TO VOTE AT THE SPECIAL
MEETING ARE ALREADY ASSURED OF BEING VOTED IN FAVOR OF THE MERGER AGREEMENT.
VOTING RIGHTS; PROXIES
As of the record date, there were 16,270,106 TREEV common shares issued and
outstanding, each of which entitles its holder to one vote. As of the record
date, directors and executive officers of TREEV as a group beneficially owned
1,673,799 TREEV common shares. The TREEV Series A preferred shares have no
voting rights.
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ALL TREEV COMMON SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL,
UNLESS SUCH PROXIES HAVE BEEN PREVIOUSLY REVOKED, BE VOTED IN ACCORDANCE WITH
THE INSTRUCTIONS INDICATED IN THE PROXIES. IF NO INSTRUCTIONS ARE INDICATED, THE
TREEV COMMON SHARES WILL BE VOTED IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT.
TREEV's board of directors does not know of any matters other than as
described in the accompanying notice of the TREEV stockholders' meeting that
will come before the TREEV stockholders' meeting. If any other matter or matters
are properly presented for action at the TREEV stockholders' meeting, the
persons named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on the matters in accordance with their best judgment, unless
authorization is withheld.
A TREEV common stockholder giving a proxy in response to this proxy
solicitation may revoke it at any time prior to the TREEV stockholders' meeting
in any one of the following three ways:
- first, such TREEV common stockholder can send to the assistant secretary
of TREEV a written notice stating that he or she would like to revoke
the proxy,
- second, such TREEV common stockholder can complete and submit a new
proxy card,
- third, such TREEV common stockholder can attend the TREEV stockholders'
meeting and vote in person. Simply attending the TREEV stockholders'
meeting will not revoke the proxy; such TREEV common stockholder must
vote at the TREEV stockholders' meeting.
If a TREEV common stockholder has instructed a broker to vote his or her
common shares, such TREEV common stockholder must follow instructions received
from such broker in order to change his or her vote.
Votes cast by proxy or in person at the TREEV stockholders' meeting will be
tabulated by the inspector(s) of election appointed for the meeting and such
inspector(s) will determine whether or not a quorum is present.
SOLICITATION OF PROXIES
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the TREEV board of directors for use at the TREEV stockholders'
meeting.
The expenses of the solicitation of proxies for use at the TREEV
stockholders' meeting will be borne by TREEV. In addition to solicitation by
mail, proxies may be solicited by directors, officers or other employees of
TREEV in person or by telephone, telegram or other means of communication. These
persons will receive no additional compensation for solicitation of proxies, but
may be reimbursed for reasonable out-of-pocket expenses in connection with the
solicitation.
THE MATTERS TO BE CONSIDERED AT THE TREEV STOCKHOLDERS' MEETING ARE OF
GREAT IMPORTANCE TO THE TREEV STOCKHOLDERS. ACCORDINGLY, TREEV STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
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THE MERGER AND THE EXCHANGE OFFER
BACKGROUND OF THE MERGER
On April 13, 1999, Hans-Jurgen Brintrup, a member of the CE management
board, and Dieter Huttenberger, an independent consultant engaged by CE, visited
TREEV's booth at the Association for Information and Image Management
International trade fair in Atlanta, Georgia, and met with Thomas Wilson, then
president and chief operating officer of TREEV, Michael Guido, executive vice
president, sales, of TREEV, and Brian Hajost, then executive vice president,
corporate development, of TREEV. On April 14, 1999, Messrs. Brintrup and
Huttenberger and Messrs. Wilson, Guido and Hajost and Jorge Forgues, then chief
financial officer and senior vice president of TREEV, met to discuss TREEV's
capital structure and, in general, the possibility of a business combination
transaction between CE and TREEV. The parties determined that a combination
might be possible; however, specific terms were not discussed.
From April 15 to April 22, Messrs. Hajost and Forgues spoke several times
by telephone with Peter Schmerler, director of sales of CE, to confirm CE's
ability to finance a cash acquisition of TREEV. During these conversations, Mr.
Hajost indicated that TREEV would only consider being acquired by a non-U.S.
company if the consideration was all-cash. On April 22, Messrs. Schmerler and
Huttenberger and Peter Mysliwietz, a consultant of CE, visited TREEV's
headquarters in Herndon, Virginia and received from Mr. Hajost and Steven Wood,
product manager of TREEV, a general introduction to TREEV and its products,
including a product demonstration. On April 23, Messrs. Schmerler, Mysliwietz
and Huttenberger traveled with Mr. Hajost to TREEV's Denver, Colorado facility,
where they met with Thomas Stocker, TREEV's site manager, and received a tour of
the Denver facility as well as an introduction to TREEV's services capability.
On April 24, in a combined meeting and conference call, Thomas Wenzke, a member
of the CE management board, and Messrs. Brintrup, Schmerler, Mysliwietz and
Huttenberger of CE, and Messrs. Wilson, Leto, Hajost and Forgues of TREEV,
discussed the meetings of the preceding days and determined that Messrs. Hajost
and Forgues should next meet with representatives of CE in Germany. During this
conversation, a possible price range for a cash transaction was discussed on a
preliminary basis; however, any decision regarding a possible price range was
deferred until the completion of CE's due diligence review of TREEV. From April
28 to May 1, Messrs. Forgues and Hajost toured CE's facilities in Munich and
Bielefeld, Germany.
On May 4, 1999, TREEV's senior management briefed its board of directors
regarding a possible acquisition of TREEV by CE, and the board of directors
authorized senior management to enter into discussions with CE concerning such a
transaction. From May 5 to May 8, Messrs. Forgues, Hajost and Wood and Herbert
Welch, an independent consultant to TREEV, met with members of CE's management
to demonstrate TREEV's products and to discuss TREEV's product and service
offerings. On May 7, 1999, TREEV and CE executed a non-binding memorandum of
understanding with respect to a possible acquisition of TREEV by CE, which
contemplated that further due diligence by CE of TREEV would commence during the
week of May 10th and that, through May 18th, TREEV would not solicit or
entertain offers from, or negotiate with, a third party in connection with a
possible business combination with TREEV. The memorandum of understanding did
not specify any terms of the possible transaction. It did provide, however, that
a proposed range of the purchase price to be offered to TREEV stockholders was
to be negotiated between CE and TREEV during the week of May 17, 1999.
On May 17, 1999, Messrs. Brintrup, Wenzke and Schmerler met with Messrs.
Leto, Wilson and Forgues at TREEV's Herndon, Virginia headquarters to discuss
the terms of the proposed acquisition, including a possible price range,
structure of the transaction, strategy and synergy potentials. During this
meeting, the parties, subject to the satisfaction of certain conditions,
including satisfactory completion of CE's due diligence review of TREEV, agreed
provisionally to the basic terms of an acquisition, including a cash price of
$6.25 per TREEV common share. From May 18 through May 25, 1999, CE conducted due
diligence with respect to TREEV's sales, marketing, development and support
services.
On May 22, 1999, CE and TREEV executed an amended and restated memorandum
of understanding setting forth the terms provisionally agreed upon on May 17,
1999, and extending until
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June 14th the exclusivity period contained in the initial memorandum of
understanding. The amended and restated memorandum of understanding also
contemplated that CE would loan $500,000 to TREEV on May 25th, and that CE
could, in its discretion, lend an additional $1.8 million to TREEV on May 28th.
The amended and restated memorandum of understanding provided that, if CE and
TREEV did not enter into an agreement with respect to the proposed transaction
by June 14th, any amounts outstanding under these loans would be repayable in
full on August 31, 1999. On May 25, 1999, TREEV executed a promissory note
pursuant to which CE lent $500,000 to TREEV with interest accruing at the rate
of 6% per annum.
On May 28, 1999, Messrs. Forgues and Hajost met in Germany with Messrs.
Schmerler and Wenzke and a representative of PricewaterhouseCoopers Securities.
Following CE's analysis of its preliminary due diligence review, CE determined
that it was not willing to pay the per share cash price specified in the amended
and restated memorandum of understanding. Accordingly, CE and TREEV orally
agreed to terminate the memorandum of understanding. CE also decided not to loan
TREEV the additional amount of $1.8 million. At this meeting, CE suggested a new
structure for the transaction, a lower purchase price (less than $5.00 per TREEV
common share), and that any business combination would have to be a
stock-for-stock merger transaction accounted for as a "pooling of interests."
On June 3, 1999, TREEV's senior management reported to its board of
directors that the proposed valuation and form of consideration for the
transaction with CE had changed substantially and that the negotiations with CE
had ended. The TREEV board of directors discussed hiring an investment bank to
consider other business combination opportunities.
On June 25, 1999, Messrs. Hajost, Schmerler and a representative of
PricewaterhouseCoopers Securities held a conference call to discuss whether or
not TREEV could agree to a share-for-share acquisition by CE. No progress was
made in reaching an agreement as a result of this call. The parties agreed to
defer any further discussions until TREEV's results for the second quarter of
1999 were available.
On July 8, 1999, TREEV's board of directors approved the retention of Banc
of America Securities for the purpose of advising TREEV concerning opportunities
for maximizing shareholder value, including the sale of TREEV.
On July 9, 1999, CE executed an engagement letter pursuant to which
PricewaterhouseCoopers Securities was formally engaged as CE's financial advisor
in connection with a possible acquisition of TREEV. Also on that date,
representatives of PricewaterhouseCoopers spoke with Mr. Forgues and
representatives of Ernst &Young, TREEV's independent auditors, regarding the
ability of CE and TREEV to engage in a stock-for-stock merger transaction
accounted for as a "pooling of interests."
Beginning July 13, 1999, Banc of America Securities and TREEV commenced
discussions with CE and PricewaterhouseCoopers Securities regarding various
issues, including due diligence, associated with a possible acquisition of TREEV
by CE. These discussions continued by telephone from time to time through the
month of July.
On July 16, 1999, CE and TREEV entered into a mutual confidentiality
agreement pursuant to which they agreed to furnish each other with confidential
and proprietary information and to keep such information confidential for a
period of three years, subject to specified exceptions. In addition, TREEV
agreed that it would not solicit or entertain offers from, or negotiate with, a
third party in connection with a possible business combination with TREEV until
July 23, 1999.
On July 29, 1999, Banc of America Securities provided a draft term sheet to
PricewaterhouseCoopers Securities setting forth basic terms for a
stock-for-stock merger transaction between CE and TREEV to be accounted for as a
"pooling of interests." The term sheet provided for an exchange ratio that would
be calculated based on the average closing price of CE ordinary shares during a
certain period prior to the signing of the merger agreement and also
contemplated a "collar" mechanism. The term sheet was never finalized or
executed by CE or TREEV.
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On August 2nd and August 3rd, representatives of TREEV and CE discussed by
telephone the proposed stock-for-stock "pooling of interests" merger in
preparation for meetings scheduled between CE and TREEV and their respective
advisors in Munich, Germany from August 4th through August 6th. CE's preliminary
proposal provided that each TREEV common share would be converted in the merger
into CE ordinary shares with a value of at least $5.00. From August 4th through
August 6th, Mr. Leto, Mr. Wilson, the chief executive officer and president of
TREEV, Mr. Hajost, the executive vice president of finance and administration of
TREEV, Julia Bowen, vice president and general counsel of TREEV, and
representatives of Banc of America Securities, met with Messrs. Wenzke, Brintrup
and Schmerler and Ulrich Thol of CE and Angel Rodriguez, head of CE's corporate
development group, and a representative of CE's financial advisor,
PricewaterhouseCoopers Securities, in Munich and discussed the terms of the
proposed transaction, including the possible structure of a transaction and a
possible price range. In addition, during the meetings, representatives of both
PricewaterhouseCoopers Securities and Banc of America Securities gave
presentations regarding the respective companies and a possible transaction.
On August 12, 1999, the parties agreed to but did not execute a new
exclusivity agreement that would have expired on October 15, 1999. On August 17,
1999, CE and TREEV executed an exclusivity agreement which provided that, prior
to September 30, 1999, TREEV would not solicit or entertain offers from, or
negotiate with, a third party in connection with a possible business combination
with TREEV. On August 22 and 23, 1999, Messrs. Wenzke, Brintrup and Schmerler
traveled to TREEV's headquarters in Herndon, Virginia to meet with
representatives of TREEV to continue discussions concerning a possible merger.
Beginning on September 2, 1999, and continuing until the merger agreement
was executed in November 1999, representatives of CE conducted their legal due
diligence review of TREEV. In early September, Ernst &Young (on behalf of TREEV)
commenced its due diligence review of CE.
On September 6, 1999, CE and TREEV amended and restated the promissory note
that had been executed on May 25, 1999 for an initial principal amount of
$500,000 to provide for an additional $600,000 loan (bringing the total
borrowing to $1,100,000) at an interest rate of 13.5% per annum, due June 2000.
On October 6, 1999, Messrs. Brintrup and Wenzke of CE and Messrs. Leto,
Wilson and Hajost of TREEV further discussed a possible price range for a
stock-for-stock merger.
On October 7, 1999, CE made an additional loan to TREEV in the amount of
$900,000 on the same terms as the September 6th loan.
During the third week of October, CE delivered to TREEV drafts of various
transaction documents, including the merger agreement. Beginning in late October
and continuing until the execution of the merger agreement, CE and TREEV
representatives, and CE's and TREEV's legal and financial advisors held numerous
discussions concerning the terms and conditions of the proposed transaction and
the transaction documents, and various other legal, financial and accounting
issues relating to a merger between the two companies.
On October 30th and 31st, Messrs. Leto and Wilson met with representatives
of CE, including members of the CE supervisory board and management board, as
well as a representative of CE's financial advisor, PricewaterhouseCoopers
Securities, in Majorca, Spain, and discussed various issues relating to the
merger agreement and the transactions contemplated by the merger agreement.
These issues included a discussion of a proposed exchange ratio (a minimum of
$4.00 per TREEV common share based on CE's then current share price and the then
current currency exchange rate for Euros into U.S. dollars), the value to be
received by the TREEV employee stock optionholders and a discussion of other
provisions of the proposed merger agreement, the implementation of a stock
option plan for the TREEV employees, a list of TREEV employees that were to
execute employment agreements with CE, a discussion of the terms of the proposed
voting and registration rights agreement for certain TREEV stockholders and a
discussion of the terms of a proposed agreement with the Series A preferred
stockholders. The parties also discussed a proposed stock option agreement
between CE and TREEV which would have provided CE with an option in the event of
a termination of the merger agreement under certain specified circumstances to
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purchase up to a maximum of 19.9% of the issued and outstanding TREEV common
shares. During these discussions, the TREEV management emphasized that it would
not agree to the stock option agreement. The stock option agreement was
discussed between representatives of TREEV and representatives of CE on various
conference calls that took place following the meeting in Majorca, Spain.
On November 5, 1999, the TREEV board of directors held a special meeting at
which senior management of TREEV, representatives of Cooley Godward LLP, TREEV's
legal advisors, and representatives of Banc of America Securities reviewed for
the TREEV board of directors the status of discussions with CE, and TREEV's
senior management together with representatives of Cooley Godward and Banc of
America Securities discussed with the TREEV board of directors various legal,
commercial and financial considerations of a possible transaction.
Representatives of Cooley Godward discussed with the TREEV board of directors
its fiduciary duties with regard to its consideration of a possible transaction
under applicable law. Representatives of Banc of America Securities discussed
with the TREEV board of directors their views and preliminary analyses of the
financial aspects of a possible transaction. The TREEV board of directors
advised the management team to continue to explore the possible terms and
conditions of a possible business combination transaction.
On November 6, 1999, the CE supervisory board held a meeting during which
the members considered the terms of the merger agreement and the transactions
contemplated by the merger agreement.
From November 11 to November 13, 1999, Messrs. Wenzke and Schmerler of CE,
Messrs. Leto, Wilson and Hajost of TREEV and a representative of CE's financial
advisor, PricewaterhouseCoopers Securities, met with Horace T. Ardinger, the
largest shareholder of TREEV and M. Douglas Adkins, another large shareholder of
TREEV, to discuss the transactions and negotiate the execution of a voting
agreement by Messrs. Ardinger and Adkins.
Beginning on November 13 and continuing until the execution of the merger
agreement on November 21, 1999, senior management of CE and TREEV discussed and
negotiated provisions of the merger agreement. On November 19, 1999, senior
management of TREEV and CE tentatively agreed on the exchange ratio for the
proposed business combination (reflecting a value of approximately $4.52 per
TREEV common share based on CE's then current share price and the then current
currency exchange rate for Euros into U.S. dollars). In addition, the senior
management of CE agreed not to require the execution of the stock option
agreement as a condition to the execution of the merger agreement.
On Sunday, November 21, 1999, TREEV's board of directors met again to
continue its discussions regarding the merger and to further review with senior
management and representatives of Banc of America Securities the terms and
conditions of the proposed merger agreement. During this meeting, TREEV's board
of directors received the oral opinion of Banc of America Securities, later
confirmed in writing, that, as of such date, the consideration to be received by
TREEV's security holders in the merger was fair from a financial point of view
to TREEV. Following further discussion, the TREEV board of directors unanimously
determined that the merger was fair to and in the best interests of TREEV and
its stockholders, approved the merger agreement and the transactions
contemplated thereby and resolved to recommend that TREEV stockholders vote to
adopt the merger agreement.
Late in the evening of November 21, 1999, CE and TREEV executed the merger
agreement dated as of November 19, 1999. CE and the stockholders of TREEV named
below, including directors and members of the senior management, executed the
voting and registration rights agreement pursuant to which each such stockholder
agreed to vote his TREEV common shares in favor of the merger, the merger
agreement and the transactions contemplated by the merger agreement. In
addition, each such stockholder also granted an irrevocable proxy in favor of CE
to vote his TREEV common shares in favor of the merger, the merger agreement and
any other matter that could reasonably be expected to facilitate the merger. The
directors who executed such agreement were James J. Leto, Robert P. Bernardi,
John F. Burton and C. Alan Peyser, the members of the TREEV senior management
were Thomas A. Wilson, Mark A. Paiewonsky, Richard G. McMahon and Brian H.
Hajost and the stockholders were Horace T.
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Ardinger, Jr. and Douglas Adkins. On the morning of November 22, 1999, TREEV and
CE each issued a press release announcing the execution of the merger agreement.
The CE supervisory board approved the merger agreement and the transactions
contemplated by the merger agreement on December 14, 1999 by written consent.
On March 22, 2000, CE executed a letter waiver in favor of TREEV waiving
compliance with a closing condition contained in the November 19, 1999 merger
agreement that would have required that TREEV earn net income for the quarter
ended December 31, 1999 of at least $1.00.
Following extensive review with their independent public accountants, CE
and TREEV concluded that CE would not account for its acquisition of TREEV as a
"pooling of interests" under applicable U.S. accounting rules (which would have
enabled CE to treat the companies as if they had always been combined for
accounting and financial reporting purposes). As a result, CE and TREEV began to
discuss the possibility of accounting for the merger as a purchase transaction
(which would require that the total consideration paid by CE in connection with
the merger be allocated to TREEV's assets and liabilities based on their fair
values, with any excess being treated as goodwill and amortized over its useful
life) rather than as a pooling of interests. Simultaneously, CE provided Banc of
America Securities with due diligence materials in order to enable Banc of
America Securities to be in a position to issue a fairness opinion in connection
with the TREEV board's approval of any related amendment to the merger agreement
if requested by the TREEV board.
On May 5, 2000, the TREEV board of directors held a special meeting at
which senior management of TREEV reviewed for the TREEV board of directors the
status of discussions with CE. The TREEV board of directors advised the
management team to continue to explore the possibility of modifying the merger
agreement so that the merger could be accounted for as a purchase transaction.
On May 5, 2000, CE and TREEV amended and restated the promissory note that
was executed on May 25, 1999 and amended and restated on September 6, 1999 (in
the principal amount of $1,100,000), and the promissory note that was executed
on October 7, 1999 (in the principal amount of $900,000) to provide for an
additional $2,500,000 loan (bringing the total principal amount to $4,500,000)
at an interest rate of 13.5% per annum, due October 1, 2000. The business
purpose for the $2,500,000 increase in principal was to assist TREEV in funding
operational losses that it had incurred during the first quarter of 2000.
In the evening of May 5, 2000, CE provided TREEV a draft of an amended and
restated merger agreement and a draft of an amendment to the voting and
registration rights agreement, which contemplated that CE would account for the
merger as a purchase transaction. On May 6, 2000, Ms. Bowen and representatives
of Cooley Godward provided comments on the draft amended and restated merger
agreement and the draft amendment to the voting agreement to representatives of
Shearman & Sterling.
On Sunday, May 7, 2000, TREEV's board of directors met again to continue
its discussions regarding the possibility of accounting for the merger as a
purchase transaction (rather than as a pooling of interests) and to review with
senior management and representatives of Banc of America Securities the proposed
changes to the merger agreement that would be necessary if the merger was not
accounted for as a pooling of interests and that were reflected in the draft
amended and restated merger agreement. During this meeting, TREEV's board of
directors received the oral opinion of Banc of America Securities, confirmed in
writing on May 8, 2000, that, as of such date, the consideration to be received
by TREEV's security holders in the merger as contemplated by the amended and
restated merger agreement was fair from a financial point of view to TREEV.
Following further discussion, the TREEV board of directors unanimously
determined that the merger was fair to and in the best interests of TREEV and
its stockholders, approved the amended and restated merger agreement and the
transactions contemplated thereby, authorized members of the TREEV senior
management to execute the amended and restated merger agreement and resolved to
recommend that TREEV stockholders vote to adopt the amended and restated merger
agreement.
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Late in the evening on May 8, 2000, CE and TREEV executed the amended and
restated merger agreement. CE and the TREEV stockholders who had signed the
voting and registration rights agreement executed an amendment to the voting and
registration rights agreement pursuant to which each such stockholder affirmed
his obligations under the voting and registration rights dated as of November
19, 1999 to vote his TREEV common shares in favor of the merger, the amended and
restated merger agreement and the transactions contemplated by the amended and
restated merger agreement. In addition, each such stockholder also granted a new
irrevocable proxy in favor of CE to vote his TREEV common shares in favor of the
merger, the amended and restated merger agreement and any other matter that
could reasonably be expected to facilitate the merger. On the morning of May 9,
2000, TREEV and CE issued a joint press release announcing that they no longer
intended that the merger would be accounted for as a "pooling of interests" and
announcing the execution of the amended and restated merger agreement.
On May 23, 2000, the CE supervisory board approved the amended and restated
merger agreement and the transactions contemplated thereby by written consent.
On October 10, 2000, CE and TREEV amended and restated the promissory note
that was executed on May 5, 2000 (in the principal amount of $4,500,000) to
provide for an additional $500,000 loan (bringing the total principal amount to
$5,000,000) at an interest rate of 13.5% per annum, due December 31, 2000.
On November 20, 2000, CE and TREEV executed an amendment to the amended and
restated merger agreement to reflect certain changes to the implementation of
the merger and the exchange offer, to amend or remove certain closing conditions
and exhibits, to extend the termination date and to reflect a five-for-one stock
split of CE.
On November 21, 2000, CE and TREEV further amended and restated the
promissory note executed on October 10, 2000 to increase the principal amount to
reflect accrued but unpaid interest and to extend the maturity date to November
20, 2002.
TREEV'S REASONS FOR THE MERGER; RECOMMENDATION OF THE TREEV BOARD OF DIRECTORS
The TREEV board believes that the merger of CE and TREEV represents a
unique strategic opportunity for two companies with similar business operations
and that the high-quality products of each company will expand the geographic
reach of their operations. The TREEV board believes that the combined company
will have greater exposure to key markets; a stronger management team; a larger
base of operations; and greater operational efficiencies, earning power and
growth potential than TREEV would have on its own. In reaching its conclusions
and recommendations, the TREEV board consulted with the management of TREEV, its
financial and legal advisors and considered a number of additional factors,
including the following:
- the terms and conditions of the merger agreement, including the merger
consideration;
- the opinions that Banc of America Securities rendered to the TREEV board
on November 21, 1999, subsequently confirmed in writing, and on May 7,
2000, subsequently confirmed in writing as of May 8, 2000, to the effect
that, as of such dates, the merger consideration to be received by TREEV
security holders was fair to TREEV from a financial point of view;
- the presentation and analysis provided to the TREEV board by Banc of
America Securities;
- the belief that a combination of the companies should result in a number
of cost savings and marketing opportunities, as the combination will
provide the opportunity to spread certain financial and administrative
functions over a larger operational and revenue base;
- the belief that the combined company will be able to take advantage of
the best personnel and the best operating systems and practices
currently used by CE and TREEV;
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- the TREEV board's familiarity with, and review of, the business, assets,
management, competitive positions and prospects of TREEV, including
TREEV's prospects if it were to continue as an independent company;
- the TREEV board's familiarity with, and review of, the business, assets,
management, competitive positions and prospects of CE;
- the opportunity for TREEV stockholders through the receipt of CE ADSs or
CE ordinary shares in the merger to retain a continuing investment in
the software industry through a larger and more geographically
diversified company with substantially greater resources;
- the regulatory approvals required for the merger and the estimated
length of time required to complete the merger; and
- the structure of the merger, including its anticipated tax consequences
to TREEV and its stockholders, optionholders and warrantholders.
The foregoing discussion of the information and factors considered by the
TREEV board is not intended to list every point considered by the TREEV board.
It is, however, believed to include all material factors considered by the TREEV
board. In view of the wide variety of information and points considered, the
TREEV board did not find it practical to, and did not, assign any relative or
specific importance to the factors listed above, and individual directors may
have given differing weights to different factors.
The TREEV board has unanimously:
- determined that the merger is in the best interests of TREEV and its
stockholders, optionholders and warrantholders and declared that the
merger agreement is advisable; and
- approved the merger and the merger agreement.
THE TREEV BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF TREEV VOTE
FOR ADOPTION OF THE MERGER AGREEMENT FOR THE REASONS DISCUSSED ABOVE.
OPINION OF TREEV'S FINANCIAL ADVISOR
In July 1999, the TREEV board of directors retained Banc of America
Securities to act as its financial advisor in connection with a possible
business combination or sale involving TREEV. Banc of America Securities is a
nationally recognized investment banking firm. Banc of America Securities is
regularly 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. TREEV selected Banc of America
Securities to act as its financial advisor on the basis of Banc of America
Securities' experience in transactions similar to the merger.
Banc of America Securities delivered an initial fairness opinion to the
TREEV board of directors on November 21, 1999, stating that the consideration to
be received by TREEV security holders in the merger was fair to TREEV from a
financial point of view, as of that date. The opinion was based upon the
material provisions of the transaction contemplated by the November 19, 1999
draft of the merger agreement presented to the TREEV board of directors on that
date, which contemplated, among other things, that the merger would be accounted
for as a pooling of interests. The November 21, 1999 fairness opinion was based
upon, among other factors, valuation analyses including comparable company
analysis, precedent transaction analysis, discounted cash flow analysis and
contribution analysis for TREEV and CE, as well as analysis of
dilution/accretion under the transaction, based upon then available information.
Thereafter, CE and TREEV concluded that CE would not account for the
acquisition of TREEV as a pooling of interests under applicable U.S. accounting
rules, and CE and TREEV began to discuss the possibility of amending the merger
agreement to enable CE to account for the merger as a purchase transaction. On
May 7, 2000, TREEV's board of directors met to continue its discussions
regarding the
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possibility of accounting for the merger as a purchase transaction and to review
with Banc of America Securities the proposed changes to the merger agreement. At
that meeting, Banc of America Securities delivered a new opinion to the TREEV
board of directors, stating that the consideration to be received by TREEV
security holders under the amended and restated merger agreement remained fair
from a financial point of view to TREEV, as of that date. This opinion was
subsequently confirmed in writing as of May 8, 2000. The TREEV board of
directors did not limit the investigations made or procedures followed by Banc
of America Securities in rendering this opinion.
We have attached the full text of Banc of America Securities' written
opinion to the TREEV board of directors as Annex C, which is hereby incorporated
in its entirety. You should read this opinion carefully and in its entirety in
connection with this proxy statement/prospectus. However, we have also included
the following summary of Banc of America Securities' opinion, which is qualified
in its entirety by reference to the full text of the opinion.
Banc of America Securities' opinion is directed to the TREEV board of
directors. It does not constitute a recommendation to you on how to vote with
respect to the merger. The opinion addresses only the financial fairness of the
consideration to be received by TREEV security holders in the merger. The
opinion does not address the relative merits of the merger or any alternatives
to the merger, the underlying decision of the TREEV board of directors to
proceed with or effect the merger or any other aspect of the merger. In
furnishing its opinion, Banc of America Securities did not admit that it is an
expert within the meaning of the term "expert" as used in the Securities Act,
nor did it admit that its opinion constitutes a report or valuation within the
meaning of the Securities Act. Statements to that effect are included in Banc of
America Securities' opinion.
Banc of America Securities:
- reviewed publicly available financial statements and other business and
financial information of TREEV and CE;
- reviewed internal financial statements and other financial and operating
data concerning TREEV and CE;
- analyzed financial forecasts prepared by the managements of TREEV and
CE;
- discussed the past and current operations, financial condition and
prospects of TREEV with senior executives of TREEV and discussed the
past and current operations, financial condition and prospects of CE
with senior executives of CE;
- discussed with senior executives of TREEV and CE information relating to
strategic and operational benefits anticipated from the merger; Banc of
America Securities noted that such strategic and operational benefits
were not quantified by either TREEV or CE;
- reviewed the pro forma impact of the merger on CE's earnings per share,
consolidated capitalization and financial ratios;
- reviewed and considered in the analysis, information prepared by the
senior managements of TREEV and CE relating to the relative
contributions of TREEV and CE to the combined company;
- reviewed the reported prices and trading activity for TREEV common
shares and CE ordinary shares;
- compared the financial performance of TREEV and CE and the prices and
trading activity of TREEV common shares and CE ordinary shares with that
of certain other publicly traded companies Banc of America Securities
deemed relevant;
- compared the financial terms of the merger to financial terms, to the
extent publicly available, of other business combination transactions
Banc of America Securities deemed relevant;
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- participated in discussions and negotiations among representatives of
TREEV and CE and their financial and legal advisors, as requested by
TREEV;
- reviewed the May 5, 2000 draft amended and restated merger agreement and
related documents; and
- performed other analyses and considered other factors as Banc of America
Securities deemed appropriate.
Banc of America Securities reviewed the May 5, 2000 draft amended and
restated merger agreement in its preparation of its opinion. While TREEV and CE
had the opportunity to agree to add, delete or alter material terms of the
amended and restated merger agreement prior to its execution, the final amended
and restated merger agreement was substantially similar to the May 5, 2000 draft
amended and restated merger agreement.
Banc of America Securities did not assume any responsibility to
independently verify the information listed above. Instead, with the consent of
the TREEV board of directors, Banc of America Securities relied on the
information as being accurate and complete in all material respects. Banc of
America Securities also made the following assumptions with the consent of the
TREEV board of directors:
- with respect to the financial forecasts for TREEV and CE provided to
Banc of America Securities by the management of each company, on the
advice of TREEV management, (a) the forecasts were reasonably prepared
on bases reflecting the best available estimates and good faith
judgments of the management of TREEV and CE at the time of preparation
as to the future financial performance and operational plans of both
companies and (b) the forecasts provided a reasonable basis upon which
Banc of America Securities could form its opinion and it noted that the
forecasts did not include any strategic or operational benefits
anticipated from the merger;
- that there were no material changes in the assets, financial condition,
results of operations, business or prospects of either of TREEV or CE
since the respective dates of their last financial statements made
available to Banc of America Securities;
- that the merger would be consummated in a manner that complies in all
material respects with the applicable provisions of the Securities Act,
the Exchange Act, and all other applicable federal and state statutes,
rules and regulations;
- that the merger would be accounted for as a purchase transaction under
U.S. generally accepted accounting principles and would be treated as a
reorganization and/or exchange pursuant to the Internal Revenue Code of
1986, as amended;
- that the merger would be consummated in accordance with the terms
described in the May 5, 2000 draft amended and restated merger
agreement, without any further amendments to the agreement, and without
waiver by TREEV of any of the conditions to its obligations that are
contained in the amended and restated merger agreement;
- that the historical net operating losses attributable to TREEV could be
applied on the basis of the analysis prepared by management of TREEV to
estimated future pre-tax U.S. income of the combined company;
- that the assessment by the managements of TREEV and CE of their
respective technology and products, and the integration of TREEV's
technology with that of CE, and the timing of introduction of future
products incorporating that technology was reasonable; and
- that TREEV would be able to retain key managers.
TREEV and CE do not publicly disclose internal forecasts of the type
provided to Banc of America Securities by the managements of TREEV and CE in
connection with Banc of America Securities' review of the merger. The forecasts
were not prepared with a view toward public disclosure. In addition, the
forecasts were based upon numerous variables and assumptions that are inherently
uncertain, including
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factors relating to general economic and competitive conditions. Accordingly,
actual results could vary significantly from the results set forth in the
forecasts. Banc of America Securities has assumed no liability for the
forecasts.
TREEV has at various times in the past experienced significant financing
requirements in order to continue operations, and TREEV management informed Banc
of America Securities that it expects this trend to continue in the future. Banc
of America Securities' opinion does not in any manner address whether such
financing requirements will arise in the future, whether TREEV will be able to
meet such financing requirements if the merger is not completed, or whether the
combined entity would be able to meet such financing requirements if the merger
is completed.
In addition, for purposes of its opinion, Banc of America Securities:
- relied on advice of counsel and independent accountants to TREEV as to
all legal and financial reporting matters with respect to TREEV, the
merger and the May 5, 2000 draft amended and restated merger agreement;
and
- did not assume any responsibility for making an independent valuation,
appraisal or physical inspection of any of the assets or liabilities,
contingent or otherwise, of TREEV or CE nor did Banc of America
Securities receive any appraisals.
Banc of America Securities' opinion was based on economic, monetary, market
and other conditions in effect on, and the information made available to it as
of, the date of the opinion. Accordingly, although subsequent developments may
affect its opinion, Banc of America Securities did not assume any obligation to
update, revise or reaffirm its opinion.
Banc of America Securities had no input concerning, and provided no comment
or opinion regarding, the ultimate allocation of consideration received in the
merger among TREEV security holders.
The following represents a brief summary of the material financial analyses
performed by Banc of America Securities in connection with providing its opinion
to the TREEV board of directors. Some of the summaries of financial analyses
performed by Banc of America Securities include information presented in tabular
format. In order to fully understand the financial analyses performed by Banc of
America Securities, you should read the tables together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses performed by Banc of
America Securities.
Valuation Analyses Regarding TREEV
Comparable Company Analysis. Based on public and other available
information, Banc of America Securities calculated (a) the multiples of the
aggregate value of TREEV to TREEV's estimated calendar year 2000 (1) revenue and
(2) earnings before interest and taxes ("EBIT") and (b) the multiple of the
equity value of the consideration to be received by TREEV security holders to
estimated calendar year 2001 net income, and compared those results to the
results of similar calculations made with respect to companies that Banc of
America Securities deemed to be comparable to TREEV.
Banc of America Securities defined aggregate value for companies comparable
to TREEV to mean:
- the company's equity value, defined as the product of the number of its
common shares outstanding multiplied by its stock price; plus
- the company's outstanding debt; less
- the company's cash and cash equivalents.
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Banc of America Securities defined the aggregate value of TREEV to mean:
- TREEV's equity value, defined as the equity value of the consideration,
which was defined as the product of the 1,330,000 CE ordinary shares
(before CE's one-to-five stock split) to be received by TREEV security
holders multiplied by the price of CE ordinary shares in U.S. dollars,
which was converted at an exchange rate of 0.9099 Euro to one U.S.
dollar, a rate that was the composite closing price as presented by
Bloomberg Financial Markets, as of May 2, 2000; plus
- TREEV's outstanding debt; less
- TREEV's cash and cash equivalents.
Banc of America Securities calculated these multiples for the following
document management or imaging automation providers:
<TABLE>
<S> <C>
- Bisys Group, Inc.; - INSCI Corporation;
- Document Sciences Corporation; - Inso Corporation;
- DOCUMENTUM, Inc.; - Mobius Management Systems, Inc.; and
- FileNet Corporation; - Optima Imaging Systems, Inc.
</TABLE>
Each company was selected because (a) it had a public trading market for
its equity securities, (b) it was either a document management or imaging
automation provider, and (c) Banc of America Securities believed the company had
operating characteristics similar to those of TREEV.
The comparable company analysis compared TREEV to the comparable companies
on the basis that the companies selected were the most relevant given the
factors considered above. Consequently, Banc of America Securities did not
include every company that could be deemed to be a participant in the same
industry.
The following table sets forth the multiples indicated by this analysis for
these companies:
<TABLE>
<CAPTION>
RANGE OF MULTIPLES
AGGREGATE VALUE TO: ------------------
<S> <C>
Estimated calendar year 2000 revenue........................ 1.2x to 2.5x
Estimated calendar year 2000 EBIT........................... 10x to 20x
<CAPTION>
EQUITY VALUE TO:
<S> <C>
Estimated calendar year 2001 net income..................... 20x to 40x
</TABLE>
Banc of America Securities noted that the aggregate value of TREEV implied
multiples of (a) 4.8x estimated calendar year 2000 revenue and (b) 110x
estimated calendar year 2000 EBIT; and that the equity value of the
consideration implied a multiple of 77x estimated calendar year 2001 net income,
each as of May 2, 2000. TREEV's estimated calendar year 2001 net income was tax
effected at an assumed 40% tax rate and no portion of TREEV's historical net
operating losses was applied to reduce projected pre-tax income. Banc of America
Securities noted that these multiples exceeded the respective multiple ranges
indicated in the analysis of the comparable companies.
No company used in the comparable company analysis is identical to TREEV.
Accordingly, an analysis of the foregoing results is not mathematical. Rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics of TREEV and other factors that could
affect the public trading value of the companies to which TREEV is being
compared.
Precedent Transactions Analysis. Based on public and other available
information, Banc of America Securities calculated the multiple of aggregate
value of the consideration to the last twelve months revenue implied in 21
company acquisitions announced between April 1998 and January 2000. Because of
the limited number of acquisitions involving document management or imaging
automation companies, Banc of America Securities also analyzed public company
acquisitions of software tool and applications providers that it considered
reasonably comparable to the merger. Aggregate value of the consideration for
purposes of the precedent transactions analysis includes the value of employee
stock options. Aggregate value of the
43
<PAGE> 51
consideration for a target company in a precedent transaction was taken to equal
equity value of the consideration if information on the target company's net
debt was not publicly available.
Banc of America Securities calculated multiples for the following precedent
company acquisitions:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
DATE ANNOUNCED ACQUIROR TARGET
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
01/12/00 Sage Group Plc Best Software Inc.
-----------------------------------------------------------------------------------------------------------------------
10/21/99 NetManage, Inc. Wall Data, Inc.
-----------------------------------------------------------------------------------------------------------------------
10/20/99 Level 8 Systems, Inc. Template Software, Inc.
-----------------------------------------------------------------------------------------------------------------------
09/07/99 Amdocs Ltd. International Telecom Data Systems Inc.
-----------------------------------------------------------------------------------------------------------------------
07/29/99 Oak Technology, Inc. Xionics Document Technologies, Inc.
-----------------------------------------------------------------------------------------------------------------------
07/16/99 Sterling Software, Inc. Information Advantage, Inc.
-----------------------------------------------------------------------------------------------------------------------
07/15/99 Compuware Corp. Viasoft, Inc.
-----------------------------------------------------------------------------------------------------------------------
06/29/99 SER Systems AG MacroSoft, Inc.
-----------------------------------------------------------------------------------------------------------------------
06/21/99 ADC Telecommunications, Inc. Saville Systems Plc
-----------------------------------------------------------------------------------------------------------------------
05/17/99 J.D. Edwards & Co. Numetrix Ltd.
-----------------------------------------------------------------------------------------------------------------------
05/17/99 Security First Technologies Corp. Edify Corp.
-----------------------------------------------------------------------------------------------------------------------
04/05/99 Lucent Technologies, Inc. Mosaix, Inc.
-----------------------------------------------------------------------------------------------------------------------
03/24/99 Sterling Software, Inc. Interlink Computer Sciences, Inc.
-----------------------------------------------------------------------------------------------------------------------
03/05/99 Hummingbird Communications Ltd. PC DOCS Group International, Inc.
-----------------------------------------------------------------------------------------------------------------------
02/03/99 Sage Group Plc Peachtree Software, Inc.
-----------------------------------------------------------------------------------------------------------------------
10/15/98 Symantec Corp. Quarterdeck Corp.
-----------------------------------------------------------------------------------------------------------------------
10/13/98 Platinum Software Corp. DataWorks Corp.
-----------------------------------------------------------------------------------------------------------------------
08/21/98 Oracle Corp. Versatility, Inc.
-----------------------------------------------------------------------------------------------------------------------
07/28/98 Network Associates, Inc. CyberMedia, Inc.
-----------------------------------------------------------------------------------------------------------------------
06/29/98 Information Advantage, Inc. IQ Software Corp.
-----------------------------------------------------------------------------------------------------------------------
04/17/98 Sterling Commerce, Inc. Xcellenet, Inc.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Each transaction was selected because:
- Banc of America Securities believed the target company had similar
operating characteristics to those of TREEV;
- the transaction involved a change of control in ownership of the target
company; and
- the transaction was relatively recent and of a size reasonably
comparable to the contemplated merger.
The precedent transactions analysis compared the merger to the 21
acquisitions on the basis that the transactions selected were the most relevant
given the factors considered above. Consequently, Banc of America Securities did
not include every transaction that could be deemed to have occurred in the
software industry.
The following table sets forth the range of multiples indicated by this
analysis of these 21 acquisitions:
<TABLE>
<CAPTION>
AGGREGATE VALUE TO: RANGE OF MULTIPLES
------------------- ------------------
<S> <C>
Last twelve months' revenue................................. 1.0x to 3.0x
</TABLE>
44
<PAGE> 52
Banc of America Securities noted that the aggregate value of TREEV implied
a multiple of 5.9x last twelve months' revenue as of May 2, 2000. Banc of
America Securities also noted that this multiple exceeded the multiple range
indicated in the analysis of these 21 acquisitions.
No company or transaction used in the precedent transactions analyses is
identical to TREEV or the merger. Accordingly, an analysis of the foregoing
results is not mathematical. Rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value or
purchase price of the companies to which TREEV and the merger is being compared.
Discounted Cash Flow Analysis. Banc of America Securities used (a)
financial cash flow forecasts for TREEV for calendar years 2000 through 2004 as
estimated by the management of TREEV and (b) those TREEV management estimates
revised to include the expected benefits, as estimated by TREEV's management, of
TREEV's historical net operating losses, to perform a discounted cash flow
analysis. In conducting these analyses, Banc of America Securities estimated the
terminal value of TREEV at the end of 2004 by applying multiples to TREEV's
projected 2004 revenue, which multiples ranged from 1.0x to 2.0x. Banc of
America Securities then calculated the present values of the estimated cash
flows and the terminal value using discount rates ranging from 14% to 21%. Banc
of America Securities selected the range of terminal value multiples based on
the multiples of comparable public companies and precedent transactions, TREEV's
current and historical multiples, and its judgment reflecting its prior
experience. Banc of America Securities selected the range of discount rates by
estimating the weighted average cost of capital for TREEV.
This analysis indicated a range of aggregate value for TREEV as follows:
IMPLIED AGGREGATE VALUE (USING THE BENEFITS OF ESTIMATED HISTORICAL NET
OPERATING LOSSES)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
WITH TERMINAL VALUE OF WITH TERMINAL VALUE OF WITH TERMINAL VALUE OF
1.0X ESTIMATED CALENDAR 1.5X ESTIMATED CALENDAR 2.0X ESTIMATED CALENDAR
DISCOUNT RATE YEAR 2004 REVENUE YEAR 2004 REVENUE YEAR 2004 REVENUE
------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
15%............................ $58,725 $82,157 $105,590
18%............................ 51,907 72,509 93,110
21%............................ 46,035 64,206 82,377
</TABLE>
IMPLIED AGGREGATE VALUE (EXCLUDING THE BENEFITS OF ESTIMATED HISTORICAL NET
OPERATING LOSSES)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
WITH TERMINAL VALUE OF WITH TERMINAL VALUE OF WITH TERMINAL VALUE OF
1.0X ESTIMATED CALENDAR 1.5X ESTIMATED CALENDAR 2.0X ESTIMATED CALENDAR
DISCOUNT RATE YEAR 2004 REVENUE YEAR 2004 REVENUE YEAR 2004 REVENUE
------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
14%............................ $52,448 $76,926 $101,404
17%............................ 46,057 67,554 89,051
20%............................ 40,574 59,515 78,456
</TABLE>
Contribution Analysis. TREEV security holders will receive consideration
equal to 1,330,000 CE ordinary shares (before CE's one-to-five stock split) in
the form of CE ADSs which will equal approximately 25.6% of the total CE
ordinary shares outstanding after the merger is completed. To compare this
ownership percentage to the relative contribution made to the combined
companies, Banc of America Securities used financial estimates supplied by the
management of each company to calculate the actual and estimated contribution of
each company to (a) revenue, (b) EBIT and (c) net income for calendar year 1999
and estimated calendar years 2000 and 2001 for the combined company. For
calendar years 2000 and 2001, Banc of America Securities calculated the relative
contribution of TREEV with and without consideration of the estimated benefits
of TREEV's historical net operating losses, using estimated benefits as
calculated by TREEV's management.
45
<PAGE> 53
This analysis indicated that TREEV would contribute:
<TABLE>
<CAPTION>
CALENDAR YEAR
------------------------------
CONTRIBUTION TO: 1999 2000 EST. 2001 EST.
---------------- ---- --------- ---------
<S> <C> <C> <C>
Revenue..................................................... 36.9% 32.8% 34.7%
EBIT........................................................ (1) 13.3% 21.3%
Net income with the estimated benefits of historical net
operating losses.......................................... (2) 19.2% 32.6%
Net income without the estimated benefits of historical net
operating losses.......................................... (1) (1) 22.5%
</TABLE>
---------------
(1) Not meaningful
(2) Not applicable
Valuation Analysis Regarding CE
Comparable Company Analysis. Based on public and other available
information, Banc of America Securities calculated (a) the multiples of the
aggregate value of CE on May 2, 2000 to CE's estimated calendar year 2000 (1)
revenue and (2) EBIT and (b) the multiple of the equity value of CE on May 2,
2000 to its estimated calendar year 2001 net income and compared those results
to the results of similar calculations made with respect to five companies that
Banc of America Securities deemed to be comparable to CE.
Banc of America Securities defined aggregate value to mean:
- the company's equity value, defined as the product of the number of its
common shares outstanding multiplied by its stock price; plus
- the company's outstanding debt; less
- the company's cash and cash equivalents.
Banc of America Securities calculated multiples for the following document
management, imaging automation providers or Neuer Markt-listed technology
companies:
- DOCUMENTUM, Inc.;
- EASY SOFTWARE AG;
- FileNet Corporation;
- iXOS Software AG; and
- SER Systeme AG.
Each company was selected because (a) it had a public trading market for
its equity securities, (b) it was either a document management or imaging
automation company or was a technology company listed on the Neuer Markt and (c)
Banc of America Securities believed the company had operating characteristics
similar to those of CE.
The comparable company analysis compared CE to the comparable companies on
the basis that the companies selected were the most relevant given the factors
considered above. Consequently, Banc of America Securities did not include every
company that is listed on the Neuer Markt or could be deemed to be a participant
in the relevant industry.
The following table sets forth the multiples indicated by this analysis for
these companies:
<TABLE>
<CAPTION>
AGGREGATE VALUE TO: RANGE OF MULTIPLES
------------------- ------------------
<S> <C>
Estimated calendar year 2000 revenue.................... 2.5x to 4.0x
Estimated calendar year 2000 EBIT....................... 20x to 40x
<CAPTION>
EQUITY VALUE TO:
----------------
<S> <C>
Estimated calendar year 2001 net income................. 25x to 60x
</TABLE>
Banc of America Securities noted that the aggregate value of CE implied a
multiple of (a) 6.8x estimated calendar year 2000 revenue and (b) 49x estimated
calendar year 2000 EBIT; and that the
46
<PAGE> 54
equity value implied a multiple of 65x estimated calendar year 2001 net income,
each as of May 2, 2000. Banc of America Securities also noted that these
multiples were above the respective multiple ranges indicated in the analysis of
the comparable companies.
No company used in the comparable company analysis is identical to CE.
Accordingly, an analysis of the foregoing results is not mathematical. Rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics of CE and other factors that could
affect the public trading value of the companies to which CE is being compared.
Discounted Cash Flow Analysis. Banc of America Securities used financial
cash flow forecasts for CE for calendar years 2000 through 2004 as estimated by
Banc of America Securities and confirmed by CE management to perform a
discounted cash flow analysis. In conducting this analysis, Banc of America
Securities estimated the terminal value of CE at the end of 2004 by applying
multiples to CE's projected 2004 revenue, which multiples ranged from 2.0x to
4.0x. Banc of America Securities then calculated the present values of the
estimated cash flows and the terminal value using rates ranging from 11% to 17%.
Banc of America Securities selected the range of terminal value multiples based
on the multiples of comparable public companies and precedent transactions, CE's
current and historical multiples, and its judgment reflecting prior experience.
Banc of America Securities selected the range of discount rates by estimating
the weighted average cost of capital for CE. In converting CE financial cash
flow forecasts from German Marks to U.S. dollars, Banc of America Securities
used an exchange rate of 2.1494 German Marks to one U.S. dollar, which was the
composite closing price as presented by Bloomberg Financial Markets on May 2,
2000.
This analysis indicated a range of aggregate value for CE as follows:
IMPLIED AGGREGATE VALUE
(dollar amounts in thousands)
<TABLE>
<CAPTION>
WITH TERMINAL VALUE OF WITH TERMINAL VALUE OF WITH TERMINAL VALUE OF
2.0X ESTIMATED CALENDAR 3.0X ESTIMATED CALENDAR 4.0X ESTIMATED CALENDAR
DISCOUNT RATE YEAR 2004 REVENUE YEAR 2004 REVENUE YEAR 2004 REVENUE
------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
11%............................ $273,316 $391,975 $510,634
14%............................ 240,608 344,454 448,301
17%............................ 212,598 303,797 394,996
</TABLE>
Contribution Analysis. Under the terms of the May 5, 2000 draft amended
and restated merger agreement, CE shareholders will hold CE ordinary shares
which will in aggregate equal approximately 74.4% of the total CE ordinary
shares outstanding after the merger is completed. To compare this ownership
percentage to the relative contribution made to the combined companies, Banc of
America Securities used financial estimates supplied by the management of each
company, calculated the actual and estimated contribution of each company to (a)
revenue, (b) EBIT and (c) net income for calendar year 1999 and estimated
calendar years 2000 and 2001 for the combined company. For the calendar years
2000 and 2001, Banc of America Securities calculated the relative contribution
of CE with and without consideration of the estimated benefits of TREEV's
historical net operating losses, using estimated benefits as calculated by
TREEV's management.
47
<PAGE> 55
This analysis indicated that CE would contribute:
<TABLE>
<CAPTION>
CALENDAR YEAR
------------------------------
CONTRIBUTION TO: 1999 2000 EST. 2001 EST.
---------------- ---- --------- ---------
<S> <C> <C> <C>
Revenue..................................................... 63.1% 67.2% 65.3%
EBIT........................................................ (1) 86.7% 78.7%
Net income with the estimated benefits of TREEV's historical
net operating losses...................................... (2) 80.8% 67.4%
Net income without the estimated benefits of TREEV's
historical net operating losses........................... (1) (1) 77.5%
</TABLE>
---------------
(1) Not meaningful
(2) Not applicable
Other Analysis
Accretion/Dilution Analysis. Using financial projections supplied by the
management of TREEV and the management of CE, Banc of America Securities
reviewed the pro forma effects of the merger, including a comparison of
estimated net income per share on a stand-alone basis for CE to the estimated
net income per share of the combined company for the estimated calendar years
2000 and 2001.
Banc of America Securities noted that, (a) based on the estimates provided
by the management of each company and (b) assuming completion of the merger
pursuant to the terms of the May 5, 2000 draft amended and restated merger
agreement, the merger would be 93% and 139% dilutive in calendar years 2000 and
2001, respectively, to CE's net income per share without using the estimated
benefits of TREEV's historical net operating losses against the pre-tax income
generated by the combined company in the U.S. and 65% and 120% dilutive in
calendar years 2000 and 2001, respectively, if the estimated benefits of TREEV's
historical net operating losses were applied to the pre-tax income of the
combined company generated in the U.S. While the dilutive nature of the proposed
transaction is significant, TREEV's management informed Banc of America
Securities that it believes that its financial alternatives to this transaction
are limited. TREEV announced during its second quarter earnings call on August
3, 1999 that it had retained Banc of America Securities to assess strategic
alternatives. Since this public announcement, Banc of America Securities has not
received any expression of interest in, nor has it been contacted by, any party
about TREEV during the course of its engagement.
As noted above, the foregoing is merely a summary of the analyses and
examinations that Banc of America Securities considered to be material in its
opinion. It is not a comprehensive description of all analyses and examinations
actually conducted by Banc of America Securities. The preparation of a fairness
opinion is not susceptible to partial analysis or summary description. Banc of
America Securities believes that its analyses and the summary above must be
considered as a whole. Banc of America Securities further believes that
selecting only portions of its analyses or factors, without considering all
analyses and factors, would create an incomplete view of the process underlying
the analyses set forth in its presentation to the TREEV board of directors. Banc
of America Securities did not assign any specific weight to any of the analyses
described above. The fact that any specific analysis has been referred to in the
summary above is not meant to indicate that the analysis was given greater
weight than other analyses. Accordingly, the ranges of valuations resulting from
any particular analysis described above must not be taken to be Banc of America
Securities' view of the actual value of either TREEV or CE.
In performing its analyses, Banc of America Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of TREEV and
CE. The analyses performed by Banc of America Securities are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by these analyses. These analyses
were prepared solely as part of Banc of America Securities' analysis of the
financial fairness of the consideration to be received by TREEV security holders
by CE in the merger and were provided to the TREEV board of directors in
connection
48
<PAGE> 56
with the delivery of Banc of America Securities' opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at any time in
the future.
As described above, Banc of America Securities' opinion and presentation to
the TREEV board of directors were among the many factors taken into
consideration by the TREEV board of directors in making its determination to
approve, and to recommend that TREEV security holders approve the merger and the
amended and restated merger agreement.
TREEV agreed to pay Banc of America Securities a retainer fee of $50,000 at
the time the engagement letter was executed and a fee of $200,000 at the time of
the delivery by Banc of America Securities of each opinion after the November
21, 1999 opinion. In addition, TREEV agreed to pay Banc of America Securities a
transaction fee of 0.75% of the consideration received by TREEV security
holders, subject to a minimum transaction fee of $800,000, contingent on the
completion of the merger. The transaction fee will be reduced by the retainer
fee paid when the engagement letter was executed. The TREEV board of directors
was aware of this fee structure and took it into account in considering Banc of
America Securities' fairness opinion and in approving the merger. The engagement
letter also calls for TREEV to reimburse Banc of America Securities for its
reasonable out-of-pocket expenses. Pursuant to a separate letter agreement,
TREEV has agreed to indemnify Banc of America Securities, its affiliates, and
their respective directors, officers, agents, shareholders, consultants,
employees and controlling persons against certain liabilities, including
liabilities under the federal securities laws.
In the ordinary course of its business, Banc of America Securities may
actively trade the debt and equity securities of TREEV and CE for its own
account and for the account of customers. Accordingly, Banc of America
Securities may at any time hold a long or short position in those securities.
Banc of America Securities and its affiliates have, in the past, provided
various investment banking and other financial services for TREEV. A Banc of
America Securities affiliate serves as agent bank under TREEV's senior credit
facility and has received fees for the rendering of such services.
CE'S REASONS FOR THE MERGER
The CE management board and the CE supervisory board have unanimously
approved the merger agreement and the merger and believe that the merger serves
the best interests of CE and its shareholders. The CE management board and the
CE supervisory board carefully considered a number of factors, including those
listed below. Neither the CE management board nor the CE supervisory board
considered it practical, nor did they try, to rank or weigh the importance of
each factor, and individual members of the CE management board and the CE
supervisory board may have given different weight to different factors. The
following list of factors is not exhaustive, but is believed to include all
material factors considered by the CE management board and the CE supervisory
board.
- Enhanced Product Portfolio. The CE management board and the CE
supervisory board considered the breadth of TREEV's product portfolio
and recognized that the addition of TREEV's products to CE's product
portfolio would significantly enhance CE's product offering,
particularly in the fast-growing telecommunications and utility sectors
and in the financial services and governmental sectors, in which CE
believes both it and TREEV are already well-positioned. The CE
management board and the CE supervisory board recognized that the merger
could further enhance CE's position as a supplier of e-business
solutions by enabling CE to integrate TREEV's innovative TREEV(TM)
document Web portal technology and advanced patented workflow and web
technology into CE's existing product portfolio.
- Increased Efficiency and Effective Use of Resources in Product
Development. The CE management board and the CE supervisory board
considered that through an acquisition of TREEV, CE would add an
experienced product development team to its existing employee base,
which could contribute to a more efficient and effective use of its
employees' know-how, could enhance CE's product development process and
could result in a more efficient productive development process and a
more globally oriented product design.
49
<PAGE> 57
- Geographically Complementary Operations. The CE management board and
the CE supervisory board considered that the acquisition of TREEV would
enable CE to enter the U.S. market for enterprise-wide document
management and archiving systems with a well-established customer base,
distribution channel and customer support organization. The CE
management board and the CE supervisory board considered the
complementary nature of CE's and TREEV's product technologies and
customer bases, and the expertise of their respective employees, and
recognized that, following the merger, CE would have the improved
ability to offer competitive integrated enterprise document and content
management business solutions to the financial, insurance,
telecommunications, manufacturing and government sectors on a worldwide
basis.
- Continuing Growth Opportunities. The CE management board and the CE
supervisory board considered that CE would be better positioned
following its acquisition of TREEV to pursue consolidation opportunities
worldwide, in part as a result of its ability to draw upon the
resources, experience and development efforts of TREEV.
- TREEV Business Information, Operating Results and Market
Information. The CE management board and the CE supervisory board
considered information relating to TREEV's business, assets, management,
competitive position, operating performance and financial results, as
well as current and historical economic and market conditions and market
prices and trading information for TREEV common shares and Series A
preferred shares and CE ordinary shares.
- Terms, Conditions, Termination Provisions and Termination Fee. The CE
management board and the CE supervisory board reviewed the terms of the
merger agreement, including CE's and TREEV's representations, warranties
and covenants, the conditions to the consummation of the proposed merger
and the circumstances under which TREEV and CE would have the right to
terminate the merger agreement. The CE management board and the CE
supervisory board considered the facts that the voting agreement entered
into by Horace T. Ardinger, Douglas Adkins and certain directors and
officers of TREEV ensured that a large portion of the TREEV common
shares would be voted in favor of the merger agreement, but that TREEV
would have the right to terminate the merger agreement under specified
circumstances if there was a proposal superior to the merger. The CE
management board and the CE supervisory board also considered the
expected accounting treatment under U.S. GAAP of the merger and the
circumstances in which a termination fee would be payable by TREEV in
the event that the merger agreement was terminated.
- Support of CE's Controlling Shareholders. The CE supervisory board
considered the fact that CE's controlling shareholders, Hans-Jurgen
Brintrup and Thomas Wenzke (who at that time comprised the CE management
board), supported the proposed merger.
- Financial Terms. The CE management board and the CE supervisory board
considered the number of CE ADSs to be issued to TREEV's common
stockholders, Series A preferred stockholders, employee stock
optionholders and warrantholders in connection with the merger, the
percentage of CE ordinary shares that would be owned by them after the
completion of the merger and the fact that, based on the trading prices
for CE ordinary shares, TREEV Series A preferred shares and TREEV common
shares immediately prior to the announcement of the original execution
of the merger agreement in November 1999, the holders of TREEV common
shares and Series A preferred shares would receive a premium over the
then current market prices of TREEV common shares and Series A preferred
shares.
EXCHANGE OFFER FOR TREEV EMPLOYEE STOCK OPTIONS AND TREEV WARRANTS
Subject to the satisfaction of the conditions to the merger, CE is offering
to each holder of TREEV employee stock options that are outstanding immediately
prior to the effective time of the merger (whether or not such employee stock
options are then vested and exercisable), and to each holder of warrants to
acquire TREEV common shares that are outstanding immediately prior to the
effective time of the merger (whether or not such warrants are then
exercisable), to acquire each such employee stock
50
<PAGE> 58
option and warrant in exchange for that fraction of a CE ordinary share (to be
delivered to holders that are not affiliates of TREEV or CE in the form of a
fraction of a CE ADS) equal to the "fair value" of such employee stock option or
warrant. The fair value of each employee stock option and warrant has been
calculated as generally accepted using the "Black-Scholes" methodology, and as
agreed to in good faith by CE and TREEV, calculated as of the record date for
the TREEV stockholders' meeting. TREEV employee stock optionholders and
warrantholders will receive cash instead of any fraction of a CE ADS in the
exchange offer. The exchange agent will withhold from the consideration
otherwise payable to employee stock optionholders and warrantholders such number
of CE ADSs or ordinary shares as is necessary to satisfy any applicable tax
withholding requirements. Holders of employee stock options or warrants who are
affiliates of TREEV or CE will receive CE ordinary shares and not CE ADSs in the
exchange.
CE agreed in the merger agreement to use all reasonable efforts to cause
the exchange offer for TREEV employee stock options and warrants to be
consummated not later than immediately prior to the effective time of the
merger. CE will commence the exchange offer by notifying TREEV employee stock
optionholders and warrantholders of the "fair value" of their employee stock
options and warrants and by mailing to such holders this proxy
statement/prospectus and an acceptance form to accept the exchange offer. For
further information on the exchange offer, see "The Exchange Offer," beginning
on page 160.
MERGER CONSIDERATION
At the effective time of the merger, each outstanding TREEV common share
and Series A preferred share, other than shares held directly or indirectly by
CE or shares held in treasury by TREEV, will be converted into the right to
receive CE ADSs or CE ordinary shares as follows:
- Each TREEV Series A preferred share will be converted into the right to
receive that number of CE ADSs or CE ordinary shares equal to the
greater of:
- $10.00
---------------------------------
CE average closing price
and,
- 0.84 + [1.20 x (1.92 x TREEV average closing price)]
------------------------------------------------------------------
CE average closing price
- Each TREEV common share will be converted into the right to receive that
number of CE ADSs or CE ordinary shares equal to:
- 6,650,000 - (aggregate number of CE ADS issuable to TREEV employee
stock optionholders and warrantholders pursuant to the exchange
offer and to TREEV Series A preferred stockholders pursuant to the
merger)
---------------------------------------------------------------------
aggregate number of outstanding TREEV common shares
- In no event will the aggregate number of CE ADSs and CE ordinary shares
issuable in connection with the merger and the exchange offer exceed
6,650,000.
- For the purposes of these calculations:
- TREEV average closing price means the average closing price per
TREEV common share as reported on the Nasdaq National Market during
the 15-trading-day period ending on the third trading day prior to
the TREEV stockholders' meeting; and
- CE average closing price means the average closing price per CE
ordinary share as reported on the Neuer Markt segment of the
Frankfurt Stock Exchange during the 15-trading-day period ending on
the third trading day prior to the TREEV stockholders' meeting,
converted into U.S. dollars at the average noon buying rate in New
York City for cable transfers in Euros as certified for customs
purposes by the Federal Reserve Bank of New York during such period.
51
<PAGE> 59
- Instead of receiving a fractional CE ADS or CE ordinary share, TREEV
stockholders will receive cash, without interest, as described below.
- Persons who are affiliates of TREEV or CE will not be eligible to hold
CE ADSs and will instead receive CE ordinary shares in the merger.
The following table shows the number of CE ADSs or CE ordinary shares that
a TREEV common stockholder would be entitled to receive in exchange for each
TREEV common share which he or she owns based upon a range of CE average closing
prices and TREEV average closing prices.
For the purposes of this table, we have assumed that:
- the aggregate fair value of the TREEV employee stock options and warrants
is $22,780,988, and 922,753 CE ADSs or CE ordinary shares will be
issuable to TREEV employee stock optionholders and warrantholders in the
exchange offer,
- there are 1,605,025 TREEV Series A preferred shares outstanding,
- there are 16,270,106 TREEV common shares outstanding, and
- the CE average closing price is determined at a currency exchange rate of
$1.00 = E0.86.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
TREEV AVERAGE CLOSING PRICE
---------------------------------------------------------------------------------------------
CE AVERAGE
CLOSING PRICE $3.25 $3.75 $4.25 $4.75 $5.25
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16 0.27 0.27 0.27 0.26 0.25
---------------------------------------------------------------------------------------------
$18 0.29 0.29 0.28 0.28 0.27
---------------------------------------------------------------------------------------------
$20 0.30 0.30 0.30 0.29 0.28
---------------------------------------------------------------------------------------------
$22 0.31 0.31 0.31 0.30 0.29
---------------------------------------------------------------------------------------------
$24 0.32 0.32 0.31 0.31 0.30
---------------------------------------------------------------------------------------------
$26 0.32 0.32 0.32 0.32 0.31
---------------------------------------------------------------------------------------------
$28 0.33 0.33 0.33 0.32 0.32
---------------------------------------------------------------------------------------------
$30 0.33 0.33 0.33 0.33 0.32
---------------------------------------------------------------------------------------------
<CAPTION>
------------------- ------------------------------------------
TREEV AVERAGE CLOSING PRICE
------------------- ------------------------------------------
CE AVERAGE
CLOSING PRICE $5.75 $6.25 $6.75
------------------- ------------------------------------------
<S> <C> <C> <C>
$16 0.25 0.24 0.23
----------------------------------------------------------------------------
$18 0.26 0.26 0.25
------------------------------------------------------------------------------------------
$20 0.28 0.27 0.27
---------------------------------------------------------------------------------------------
$22 0.29 0.28 0.28
---------------------------------------------------------------------------------------------
$24 0.30 0.29 0.29
---------------------------------------------------------------------------------------------
$26 0.31 0.30 0.30
---------------------------------------------------------------------------------------------
$28 0.31 0.31 0.31
---------------------------------------------------------------------------------------------
$30 0.32 0.32 0.31
---------------------------------------------------------------------------------------------
</TABLE>
CONVERSION OF TREEV SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL
SHARES
The conversion of TREEV common shares and Series A preferred shares into
the right to receive CE ADSs or CE ordinary shares and the right to receive a
cash payment instead of fractional CE ADSs or CE ordinary shares will occur
automatically at the effective time of the merger. Persons who are affiliates of
TREEV or CE will not be eligible to hold CE ADSs and will instead receive CE
ordinary shares in the merger.
As promptly as practicable after the effective time of the merger, The Bank
of New York, as exchange agent, will send a form of transmittal letter to each
former TREEV common stockholder and Series A preferred stockholder. The
transmittal letter will contain instructions on how to obtain CE ADSs or CE
ordinary shares in exchange for the stock certificates representing TREEV common
shares and Series A preferred shares. TREEV common stockholders and preferred
stockholders should not send in their stock certificates until they receive the
transmittal letter and accompanying materials from The Bank of New York.
In the event of a transfer of ownership of TREEV common shares or Series A
preferred shares which is not registered in the records of TREEV's transfer
agent, an American Depositary Receipt representing the proper number of CE ADSs
or CE ordinary shares or cash in lieu of a fractional CE ADS or CE ordinary
share may be issued to a person other than the person in whose name the TREEV
share
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<PAGE> 60
certificate surrendered is registered if the certificate is properly endorsed or
otherwise is in proper form for transfer and the person requesting the exchange
pays any required transfer or other taxes required by reason of the issuance of
CE ADSs or the payment of cash to a person other than the registered holder of
the TREEV share certificate or establishes to the satisfaction of The Bank of
New York and CE that such taxes have been paid or are not applicable.
All CE ADSs or CE ordinary shares issued upon conversion of TREEV common
shares and Series A preferred shares, together with any payment in lieu of
fractional CE ADSs or CE ordinary shares, will be deemed to have been issued and
paid in full satisfaction of all rights pertaining to the TREEV common shares or
Series A preferred shares, subject to CE's obligation to pay any dividends or
make any other distributions with a record date after the effective time of the
merger that may have been declared or made by CE on CE ordinary shares after the
effective time of the merger and which remain unpaid prior to the issuance of CE
ADSs or CE ordinary shares in exchange for TREEV common shares or Series A
preferred shares. No such dividends or other distributions will be paid to the
holder of any unsurrendered TREEV shares. Instead, all such dividends or other
distributions will be paid to The Bank of New York, as exchange agent for the
merger, on behalf of holders of unsurrendered TREEV shares until such shares are
surrendered as provided in the merger agreement.
For administrative convenience, no fractional CE ADSs or CE ordinary shares
will be issued to any TREEV common stockholder or Series A preferred stockholder
upon surrender of certificates previously evidencing TREEV common shares or
Series A preferred shares. Rather, for each fractional CE ADS or CE ordinary
share that would otherwise be issued, the former TREEV common stockholders or
Series A preferred stockholders will receive cash. As promptly as practicable
following the effective time of the merger, The Bank of New York will determine
the excess of (1) the aggregate number of CE ordinary shares delivered by CE to
The Bank of New York over (2) the aggregate number of whole CE ADSs or CE
ordinary shares to be distributed to TREEV common stockholders and Series A
preferred stockholders in connection with the merger. The Bank of New York will,
on behalf of the former TREEV common stockholders and Series A preferred
stockholders, sell the excess CE ordinary shares at then-prevailing prices on
the Frankfurt Stock Exchange. The Bank of New York will determine the amount of
cash to which each former TREEV common stockholder or Series A preferred
stockholder is entitled, if any, by multiplying the amount of the aggregate net
proceeds resulting from the sale of the excess CE ordinary shares by a fraction,
(1) the numerator of which is the fractional share interest to which such former
TREEV common stockholder or Series A preferred stockholder is entitled and (2)
the denominator of which is the aggregate of fractional share interests to which
all former TREEV common stockholders and Series A preferred stockholders are
entitled in the merger.
MATERIAL INCOME TAX CONSIDERATIONS
The following discussion consists of:
- a summary of the material United States federal income tax consequences
of the merger to a "U.S. person" (as defined below) that holds TREEV
common shares or Series A preferred shares,
- a summary of the material United States federal income tax consequences
of the exchange offer to a U.S. person that holds TREEV employee stock
options or warrants to purchase TREEV common shares, and
- a summary of the material United States federal income tax and German
income tax consequences to a "U.S. holder" (as defined below) of CE ADSs
or CE ordinary shares of owning and disposing of CE ADSs or CE ordinary
shares.
This discussion is based on the tax laws of the United States and Germany
as in effect on the date of this proxy statement/prospectus, including the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
Treasury Regulations promulgated thereunder, administrative rulings, court
decisions, and the Convention between the United States of America and the
Federal Republic of Germany for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion With Respect to Taxes on Income
53
<PAGE> 61
and Capital and to Certain Other Taxes (the "income tax treaty"), all of which
are subject to change, possibly with retroactive effect.
For purposes of this discussion, a "U.S. person" means (i) an individual
who is a citizen or resident of the United States, (ii) a corporation created or
organized under the laws of the United States, any State, the District of
Columbia or a political subdivision thereof, (iii) an estate the income of which
is subject to U.S. federal income taxation regardless of its source, (iv) a
partnership created or organized under the laws of the United States, any State,
the District of Columbia or a political subdivision thereof and treated, for
U.S. federal income tax purposes, as a domestic partnership, or (v) a trust
subject to primary supervision of a United States court and the control of one
or more U.S. persons.
For purposes of this discussion, the term "U.S. person" does not include
foreign partnerships, trusts or estates with partners, grantors or beneficiaries
who are U.S. persons. Nonetheless, such partners, grantors or beneficiaries may
be subject to U.S. federal income tax as a result of the merger or of owning or
disposing of CE ADSs or CE ordinary shares and are urged to consult with their
own tax advisors regarding U.S. federal income and other tax consequences of the
transactions described herein.
Additionally, this discussion does not address all of the U.S. federal
income tax considerations that may be relevant to all U.S. persons that hold
TREEV shares, employee stock options or warrants to acquire TREEV shares, CE
ADSs or CE ordinary shares in light of their personal circumstances, including:
- financial institutions;
- dealers in securities;
- insurance companies;
- tax-exempt entities;
- holders of TREEV shares, CE ADSs or CE ordinary shares, as the case may
be, who do not hold such shares as capital assets;
- holders who acquired TREEV shares as compensation;
- holders whose TREEV shares are qualified small business stock for
purposes of Section 1202 of the Internal Revenue Code;
- holders who hold TREEV shares as part of a conversion, or a hedge,
straddle or other risk reduction transaction;
- domestic partnerships, trusts or estates with partners, grantors or
beneficiaries who are non-U.S. persons;
- holders whose functional currency is not the U.S. dollar; and
- holders that own (or are treated as owning) 10% or more of the voting
power of the CE ordinary shares.
This discussion does not purport to be a comprehensive description of all
the tax considerations that may be relevant to the merger or the exchange offer
or to the ownership of CE ADSs or CE ordinary shares and, in particular, it does
not address state, local or other United States taxes other than federal income
tax and does not address non-U.S. taxes other than certain material German
income tax consequences of owning or disposing of CE ADSs or CE ordinary shares.
The parties have not and will not request a ruling from the Internal Revenue
Service or any other taxing authority in connection with the transactions
described herein, nor have they requested or received an opinion of tax advisors
except as specifically described herein.
54
<PAGE> 62
EACH TREEV SHAREHOLDER, EMPLOYEE STOCK OPTIONHOLDER AND WARRANTHOLDER IS
URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO HIM, HER OR IT OF THE MERGER AND THE EXCHANGE OFFER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS, AND OF CHANGES
IN APPLICABLE TAX LAWS.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The obligations of CE and TREEV to complete the merger are conditioned upon
the receipt by TREEV of an opinion of tax advisors from Cooley Godward, and the
receipt by CE of an opinion of tax advisors from PricewaterhouseCoopers LLP, in
each case subject to the qualifications discussed below, to the effect that, on
the basis of facts, representations and assumptions set forth or referred to in
such opinions, for U.S. federal income tax purposes, the merger will be treated
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code.
These opinions will be expressly based upon the accuracy of certain
representations made by TREEV and CE and will assume that each obligation in the
merger agreement, deposit agreement, exchange agent agreement, merger/share
exchange agency agreement and any related agreement will be performed in
accordance with its respective terms, as well as upon certain other assumptions,
including that following the merger U.S. persons will not own, in the aggregate,
50% or more of the total outstanding capital stock of CE. These opinions are not
binding on the U.S. Internal Revenue Service or a court and will not preclude
the U.S. Internal Revenue Service or a court from adopting a contrary position.
Neither CE nor TREEV will seek a ruling from the U.S. Internal Revenue Service
as to the treatment of the merger as a reorganization.
Subject to the assumptions and limitations discussed above, it is the
opinion of Cooley Godward and PricewaterhouseCoopers LLP, that the merger will
be treated as a reorganization under Section 368(a) of the Internal Revenue Code
and that the following is a summary of the material U.S. federal income tax
consequences of the merger to a U.S. person holding TREEV shares:
Exchange of TREEV Shares. U.S. persons holding TREEV shares will not
recognize any gain or loss realized on the exchange of such shares for CE ADSs
other than gain, if any, recognized with respect to cash received in exchange
for fractional interests in CE ADSs and other than as described below under
"Treatment of 5% Shareholders." The aggregate adjusted tax basis of the CE ADSs
which U.S. persons receive in the exchange, including those deemed received for
fractional CE ADSs, will be equal to the aggregate adjusted tax basis of the
TREEV shares which are surrendered in exchange therefor, and the U.S. persons'
holding period of these CE ADSs will include the period during which they held
TREEV shares.
Cash Received Instead of a Fractional CE ADS. Cash which U.S. persons
holding TREEV shares receive instead of fractional interests in CE ADSs will be
treated as received in exchange for the fractional interest, and gain or loss
will be recognized, measured by the difference between the amount of cash
received and the portion of the basis of the TREEV shares allocable to the
fractional interest. Such gain or loss will be a capital gain or loss and will
be a long-term capital gain or loss if the holding period for such TREEV shares
was greater than one year as of the date of the merger. In the case of a U.S.
person who is an individual, any long-term capital gain will be subject to U.S.
federal income tax at a maximum rate of 20%.
Treatment of "5% Shareholders." A U.S. person holding TREEV shares who is
a "5% shareholder" of CE (as defined for purposes of Section 367 of the Internal
Revenue Code and the Treasury Regulations thereunder) after the merger will
qualify for the treatment described in the two preceding paragraphs only if such
U.S. person files a "gain recognition agreement" with the Internal Revenue
Service. A gain recognition agreement would require a 5% shareholder to
recognize the gain, if any, realized on its exchange of TREEV shares for CE ADSs
in the merger, if CE disposes of TREEV stock received in the merger during the
five-year period following the merger or, possibly, upon the occurrence of
certain other events. Such gain will be recognized by the 5% shareholder in the
tax year that includes the year of the merger. For purposes of determining
whether a holder is a "5% shareholder" each partner in a partnership that owns
CE stock, and not the partnership itself, is treated as owning a proportionate
share of the stock
55
<PAGE> 63
owned by the partnership. Similarly, if a grantor trust owns stock in CE, the
grantor, rather than the trust itself, may be treated as owning such stock.
Any such "5% shareholder" of CE after the merger that fails to file a gain
recognition agreement with the Internal Revenue Service will not qualify for
non-recognition treatment and, at the time of the merger, will recognize any
gain but not any loss. Any such gain would be subject to U.S. federal income tax
at a maximum rate of 20% if that person is an individual who has a holding
period in his or her TREEV shares of more than one year as of the date of the
merger. Any U.S. person who will be a "5% shareholder" of CE after the merger is
urged to consult with his, her or its own tax advisor concerning the decision to
file such an agreement with the U.S. Internal Revenue Service and the procedures
to be followed in connection with that filing.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
Consequences to U.S. Persons who hold TREEV Warrants
The U.S. federal income tax consequences to a U.S. person who holds
unexercised TREEV warrants will depend on whether (i) the U.S. person exchanges
his, her or its warrant for CE ADSs pursuant to the exchange offer; or (ii) the
U.S. person retains such warrant (neither exercising it prior to the merger nor
exchanging it pursuant to the exchange offer).
Exchange of Warrants Pursuant to the Exchange Offer. Assuming that the
exchange offer is treated for U.S. federal income tax purposes as part of the
plan of reorganization, U.S. persons that exchange TREEV warrants for CE ADSs
pursuant to the exchange offer should not recognize gain or loss on the exchange
for U.S. federal income tax purposes. The aggregate adjusted tax basis of the CE
ADSs received in the exchange, including any fractional interest deemed
received, will be equal to that U.S. person's aggregate adjusted tax basis in
the warrants surrendered, and the holding period for the CE ADSs so acquired
will include the holding period of the TREEV warrants tendered in the exchange.
Cash Received Instead of a Fractional CE ADS. U.S. persons holding TREEV
warrants who receive cash in the exchange instead of a fractional interest in a
CE ADS will recognize gain or loss measured by the difference between the amount
of cash received and the portion of the basis of the TREEV warrants allocable to
the fractional interest. Such gain or loss will be capital gain or loss and will
be a long-term capital gain or loss if such warrants were held for more than one
year as of the date of the exchange.
Retention of Warrants. U.S. persons holding TREEV warrants that are not
exercised prior to the merger nor exchanged pursuant to the exchange offer and
that, subject to their terms, will remain outstanding following the merger as
warrants to purchase common shares of the surviving corporation, will receive
common shares of the surviving corporation upon exercise of such warrants but
will not be entitled to exchange such common shares for CE ADSs. Consequently,
this discussion does not address the tax consequences to a U.S. person of any
exchange which may occur.
Consequences to U.S. Persons who hold TREEV Employee Stock Options
The U.S. federal income tax treatment of a U.S. person that holds TREEV
incentive stock options ("ISOs") and nonstatutory stock options ("NSOs"; ISOs
and NSOs are sometimes referred to collectively as "employee stock options" in
this discussion) will depend on whether (i) the U.S. person exercises his or her
employee stock options prior to the merger; (ii) the U.S. person exchanges his
or her employee stock option for CE ADSs pursuant to the exchange offer; or
(iii) the U.S. person retains such employee stock option (neither exercising it
prior to the merger nor exchanging it pursuant to the exchange offer).
Exercise of Options. A U.S. person who exercises ISOs to purchase TREEV
common shares will not recognize any gain upon such exercise for U.S. federal
income tax purposes. However, a U.S. person may be subject to the federal
alternative minimum tax as a result of such exercise. TREEV common shares
purchased on exercise of an ISO and exchanged in the merger for CE ADSs will be
subject to taxation in the same manner as the other TREEV shares outstanding
immediately prior to the merger as
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<PAGE> 64
described above; provided, however, that CE ADSs received in the merger in
exchange for TREEV common shares acquired upon exercise of ISOs will be subject
to the Internal Revenue Code's disqualifying disposition rules if such CE ADSs
are disposed of within one year of the exercise of the ISO and two years of the
grant of the ISO.
U.S. persons who exercise NSOs to purchase TREEV common shares will
recognize ordinary income at the time of exercise on the difference between the
fair market value of the TREEV common shares received upon exercise and the
exercise price of the NSO. Such income will be subject to federal income and
employment tax withholding by TREEV. TREEV common shares purchased on exercise
of an NSO and exchanged in the merger for CE ADSs will be subject to taxation in
the same manner as the other TREEV shares outstanding immediately prior to the
merger as described above.
Exchange of Employee Stock Options pursuant to the Exchange Offer. U.S.
persons holding TREEV employee stock options who accept the offer by CE to
exchange their employee stock options (whether ISOs or NSOs) for CE ADSs
generally will recognize ordinary income (taxable at a maximum U.S. federal
income tax rate of 39.6%) in the amount of the fair market value of the CE ADSs
received for their employee stock options. The income should be taxable in the
year the exchange occurs and will be subject to federal income and employment
tax withholding by TREEV. A U.S. person's tax basis in CE ADSs acquired upon
exchange of an employee stock option pursuant to the exchange offer will equal
the amount of income recognized on such exchange. The holding period for CE ADSs
so acquired will begin on the day after the merger.
Cash Received Instead of a Fractional CE ADS. U.S. persons holding TREEV
employee stock options who receive cash in the exchange instead of a fractional
interest in a CE ADS will recognize ordinary income (taxable at a maximum U.S.
federal income tax rate of 39.6%) in the amount of cash received. Such income
will be subject to U.S. federal income and employment tax withholding by TREEV.
Retention of Director Stock Options. TREEV employee stock options held by
U.S. persons that are not exercised prior to the merger nor exchanged pursuant
to the exchange offer will terminate following the merger. However, U.S. persons
holding TREEV stock options under the 1997 Directors Stock Option Plan that are
not exercised prior to the merger nor exchanged pursuant to the exchange offer
and that, subject to their terms, will remain outstanding for one year following
the merger as stock options to purchase common shares of the surviving
corporation, will receive common shares of the surviving corporation upon
exercise of such employee stock options but will not be entitled to exchange
such common shares for CE ADSs. Consequently, this discussion does not address
the tax consequences to a U.S. person of any such exchange which may occur.
MATERIAL GERMAN AND U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNING OR DISPOSING
OF CE ADSs
The following is a summary of the material United States federal income tax
and German income tax consequences to a "U.S. holder" (as defined below) of
owning and disposing of CE ADSs or CE ordinary shares. In general, for U.S.
federal income tax purposes, holders of CE ADSs will be treated as the owners of
the CE ordinary shares represented by such CE ADSs.
For purposes of this discussion, a "U.S. holder" of CE ADSs or CE ordinary
shares, as the case may be, is a beneficial owner of CE ADSs or CE ordinary
shares who or which
- is a U.S. person (as defined above),
- is a resident only of the United States for purposes of the income tax
treaty,
- holds the CE ADSs or CE ordinary shares as capital assets,
- does not hold the CE ADSs or CE ordinary shares as part of the business
property of a permanent establishment located in Germany or as part of a
fixed base of an individual located in Germany and used for the
performance of independent personal services,
57
<PAGE> 65
- owns less than 10% of the voting stock of CE, and
- is not subject to the limitation on benefits restrictions in the income
tax treaty.
OWNERS OF CE ADSS OR CE ORDINARY SHARES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL AND GERMAN AND
OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF CE ADSS OR CE ORDINARY SHARES.
IN PARTICULAR, OWNERS OF CE ADSS OR CE ORDINARY SHARES ARE URGED TO CONSULT
THEIR TAX ADVISORS TO CONFIRM THEIR STATUS AS U.S. HOLDERS AND THE CONSEQUENCES
TO THEM IF THEY DO NOT SO QUALIFY.
Taxation of Dividends. CE does not currently anticipate paying any
dividends on the CE ordinary shares or CE ADSs. See "Description of CE Ordinary
Shares -- Dividends and Other Distributions." However, in the event CE pays, or
is treated as paying, a dividend on the CE ordinary shares or CE ADSs, the
following discussion summarizes the general tax consequences to U.S. holders of
such a payment.
German corporations currently are required to withhold tax of 25% on
dividends paid to resident and non-resident stockholders. Additionally, a
solidarity surcharge of 5.5% of the withholding tax is currently levied on
dividends paid by a German corporation. The surcharge amounts to 1.375% (5.5% of
25%) of the gross dividend and results in a total withholding on dividends of
26.375% (25% plus 1.375%). As a result of recent legislation enacted in Germany,
effective for dividends that are attributable to earnings of CE for the tax year
2001 and thereafter, the 25% withholding rate will be reduced to 20%. Therefore,
once the new legislation is in effect, the surcharge amount will equal 1.1%
(5.5% of 20%) of the gross dividend and will result in a total withholding on
dividends of 21.1% (20% plus 1.1%).
The German withholding tax, including the solidarity surcharge, is
partially refundable under the income tax treaty to effectively reduce the
withholding tax to 15% of the gross amount of the dividend, provided the U.S.
holder properly files a refund claim. In addition, the German imputation system
currently provides German resident individual stockholders with a tax credit for
corporate taxes with respect to dividends paid by German corporations and the
income tax treaty provides that U.S. holders are entitled to an additional
refund generally equal to 5% of the gross amount of the dividend. As a result of
the recent legislation enacted in Germany, the German imputation system will be
abolished and the additional income tax treaty refund of 5% will not be granted
for dividends that are attributable to earnings of CE for the tax year 2001 and
thereafter. In the event CE pays a dividend on the CE ordinary shares or CE ADSs
it will provide U.S. holders with information regarding the procedures for
obtaining a refund of withheld tax.
For U.S. federal income tax purposes, a U.S. holder generally will be
required to include in income any distribution of cash or other non-stock
property paid as a dividend on a CE ADS or CE ordinary share to the extent paid
out of CE's current or accumulated earnings and profits (as determined for U.S.
federal income tax purposes). Amounts treated as dividends will not be eligible
for the dividends-received deduction generally allowed to eligible United States
corporations. A U.S. holder's dividend income for U.S. federal income tax
purposes will not be reduced by the German taxes withheld from such dividends.
In addition, for federal income tax purposes, the benefit resulting from the
additional 5% treaty refund is treated as a dividend received by the U.S.
holder. Therefore, a U.S. holder may be required to include in gross income an
amount that exceeds the actual amount of cash received in connection with
distributions on the CE ADSs or CE ordinary shares.
A U.S. holder of CE ADSs or CE ordinary shares may, subject to certain
limitations, elect to claim either a U.S. federal income tax deduction or tax
credit for German taxes withheld (or deemed withheld) from dividends. The rules
relating to foreign tax credits are complex, and U.S. holders should consult
with their own tax advisors regarding the availability of a foreign tax credit
and the application of the foreign tax credit limitations to their particular
situations.
Dividends paid in German Marks or Euros to a U.S. holder of CE ADSs or CE
ordinary shares generally will be included in income in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the date the dividends
(including the deemed refund of German corporate tax) are received or
58
<PAGE> 66
treated as received by such holder (or, in the case of the CE ADSs, by the
depositary). If dividends paid in German Marks or Euros are converted into U.S.
dollars on the date received, U.S. holders generally should not be required to
recognize foreign currency gain or loss in respect of the dividend income. In
general, upon a subsequent conversion or disposition of German Marks or Euros, a
U.S. holder will recognize any gain or loss on the currency, which is taxable as
U.S. source ordinary income or loss.
Taxation of Capital Gains -- German Taxation. Under the income tax treaty,
a U.S. holder will not be liable for German tax on capital gains realized or
accrued on the sale or other disposition of CE ADSs or CE ordinary shares.
Taxation of Capital Gains -- United States Taxation. Upon a sale or other
disposition of CE ADSs or CE ordinary shares, a U.S. holder will recognize gain
or loss for United States federal income tax purposes in an amount equal to the
difference between the amount realized and the U.S. holder's tax basis in the CE
ADSs or CE ordinary shares. Such gain or loss generally will be capital gain or
loss from U.S. sources, and will be long-term capital gain or loss if the U.S.
holder's holding period for the CE ADSs or CE ordinary shares exceeds one year.
In the case of a U.S. holder who is an individual, long-term capital gain
currently is subject to U.S. federal income tax at a maximum rate of 20%.
Deposits and withdrawals of CE ordinary shares in exchange for CE ADSs generally
will not result in the recognition of gain or loss for United States federal
income tax purposes.
Passive Foreign Investment Company Considerations. CE believes that it
will not be treated as a passive foreign investment company (a "PFIC") for U.S.
federal income tax purposes for the current taxable year or for future taxable
years. However, an actual determination of PFIC status is fundamentally factual
in nature and cannot be made until the close of the applicable taxable year. A
non-U.S. corporation will be a PFIC for any taxable year in which either 75% or
more of its gross income is passive income, or the average percentage of its
assets which produce passive income or which are held for the production of
passive income is at least 50%. If CE were to become a PFIC, a U.S. holder of CE
ADSs or CE ordinary shares could be subject to adverse tax consequences with
respect to certain distributions on, and gain realized from a disposition of, CE
ADSs or CE ordinary shares. U.S. holders should consult their own tax advisors
regarding the potential application of the PFIC rules to their ownership of CE
ADSs or CE ordinary shares.
United States Information Reporting and Backup Withholding. Dividends on
CE ordinary shares or CE ADSs, and payments of the proceeds of a sale of CE
ordinary shares or CE ADSs, paid within the United States or through certain
U.S. financial intermediaries are subject to U.S. Internal Revenue Service
information reporting and may be subject to backup withholding at a 31% rate
unless the holder (i) is a corporation or other exempt recipient or (ii)
provides a taxpayer identification number and certifies that no loss of
exemption from backup withholding has occurred. The backup withholding tax is
not an additional tax and may be credited against a holder's U.S. federal income
tax provided the holder timely furnishes the required information to the U.S.
Internal Revenue Service. Holders that are not U.S. persons generally are not
subject to information reporting or backup withholding. However, such a holder
may be required to provide a certification to establish its non-U.S. status in
connection with payments received within the United States or through certain
U.S.-related financial intermediaries. Finalized Treasury Regulations have
generally expanded the circumstances under which information reporting and
backup withholding may apply for payments made after December 31, 2000. Holders
of CE ADSs or CE ordinary shares should consult their own tax advisors regarding
the application of the information reporting and backup withholding rules,
including the finalized Treasury Regulations.
ACCOUNTING TREATMENT
The merger will be treated as a purchase for accounting and financial
reporting purposes in accordance with U.S. GAAP. For purposes of preparing CE's
consolidated financial statements, CE will establish a new accounting basis for
TREEV's assets and liabilities based upon their fair values, the merger
consideration and the costs of the merger. CE believes that any excess of cost
over the fair value of the net assets of TREEV will be recorded as goodwill and
other intangible assets. A final determination
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of the intangible asset lives and required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the unaudited pro forma combined financial information
appearing elsewhere in this proxy statement/prospectus are preliminary and have
been made solely for purposes of developing that pro forma information. CE will
determine the fair value of TREEV's assets and liabilities and will make
appropriate purchase accounting adjustments, including adjustments to the
amortization period of the intangible assets, upon completion of that
determination.
REGULATORY FILINGS AND APPROVALS NECESSARY TO COMPLETE THE MERGER
German Stock Corporation Act. In order to reconcile the requirements of
Delaware law and the German Stock Corporation Act, CE will acquire TREEV in two
integrated steps. As soon as possible after the effective time of the merger,
Aspen Merger Corporation (which, in its capacity as the contribution agent, will
at that time hold legal title to all of the outstanding shares of capital stock
of the surviving corporation of the merger) will contribute those shares to CE
as a contribution-in-kind. Pursuant to the German Stock Corporation Act and
prior to the time of the merger, the CE management board, with the consent of
the CE supervisory board, will pass a resolution to approve CE's capital
increase in respect of the contribution-in-kind, conditional only upon the
merger being effective. In addition, as required by the German Stock Corporation
Act, Brandau & Koster, a German accounting firm, has been appointed by CE to
determine the adequacy of the contribution-in-kind as consideration for the CE
ordinary shares issued in the capital increase. Following the determination of
the adequacy of the contribution-in-kind, Aspen Merger Corporation will execute
a subscription certificate (establishing a contractual relationship between CE
and Aspen Merger Corporation, as the contribution agent) identifying the TREEV
shares that comprised the contribution-in-kind, the party effecting the
contribution-in-kind and the number of CE ordinary shares to be issued in
consideration for the contribution-in-kind. Finally, the increase of the stated
share capital of CE will be registered with the commercial register
(Handelsregister) for CE, and CE will issue to Aspen Merger Corporation, and
cause to be delivered to The Bank of New York for the account of Aspen Merger
Corporation, as the contribution agent, and for the benefit of the former
stockholders of TREEV and the former optionholders and warrantholders of TREEV
who validly accept the exchange offer, the CE ordinary shares.
EFFECTIVE TIMES OF THE MERGER AND THE SHARE CONTRIBUTION
The merger will be effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware or such later time as is
agreed upon by CE and TREEV and specified in the certificate of merger.
As soon as possible after the effective time of the merger, CE and Aspen
Merger Corporation, acting as an agent of CE, will effect the share contribution
by registering the capital increase against the contribution-in-kind with the
commercial register for CE.
FEDERAL SECURITIES LAWS CONSEQUENCES
The CE ordinary shares and CE ADSs (including the CE ordinary shares
represented thereby) to be issued in connection with the merger will be
registered under the Securities Act and, except for CE ordinary shares issued to
any TREEV stockholder who is deemed to be an "affiliate" of TREEV or CE for
purposes of the Securities Act, will not be subject to any restrictions on
transfer arising under the Securities Act. Persons who may be deemed to be
affiliates of TREEV or CE include individuals or entities that control, are
controlled by, or are under common control of TREEV or CE and may include some
of TREEV's executive officers and directors (or members of the management board
and supervisory board and executive officers in the case of CE) as well as
principal stockholders of TREEV or CE. Affiliates will not be eligible to hold
CE ADSs and instead will receive CE ordinary shares. Affiliates of
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TREEV may not resell the CE ordinary shares they receive in connection with the
merger except pursuant to:
- an effective registration statement under the Securities Act covering
the resale of those CE ordinary shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act
(or Rule 144 under the Securities Act in the case of such persons who
become affiliates of CE); or
- any other applicable exemption under the Securities Act.
It is expected that each affiliate of TREEV will enter into an agreement
with CE and TREEV providing that the affiliate will not sell, transfer or
otherwise dispose of CE ordinary shares received in the merger except in
compliance with the resale provisions of Rules 144 or 145 under the Securities
Act or as otherwise permitted under the Securities Act.
This proxy statement/prospectus does not cover the resale of CE ordinary
shares or CE ADSs to be received by any person in the merger.
STOCK EXCHANGE QUOTATION
It is a condition to the merger that the CE ADSs to be issued pursuant to
the merger agreement be approved for listing on the Nasdaq National Market,
subject to official notice of issuance. CE will file a listing application with
the Nasdaq National Market. The CE ADSs will be listed on the Nasdaq National
Market under the symbol "CCEQ."
DELISTING AND DEREGISTRATION OF TREEV COMMON SHARES AND TREEV SERIES A PREFERRED
SHARES
If the merger is completed, TREEV common shares and Series A preferred
shares will be delisted from the Nasdaq National Market and will be deregistered
under the Exchange Act.
NO APPRAISAL RIGHTS
Holders of TREEV common shares and Series A preferred shares are not
entitled to appraisal rights under the DGCL in connection with the merger.
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THE TRANSACTION DOCUMENTS
THE MERGER AGREEMENT
This section of the proxy statement/prospectus describes material
provisions of the merger agreement. Because the description of the merger
agreement contained in this proxy statement/prospectus is a summary, it does not
contain all the information that may be important to you. You should carefully
read the entire copy of the merger agreement attached as Annex A to this proxy
statement/prospectus before you decide how to vote. The merger agreement
attached as Annex A to this proxy statement/prospectus qualifies the description
of the merger agreement contained in this document in its entirety and is
incorporated by reference into this proxy statement/prospectus.
The merger agreement contemplates an integrated two-step transaction
consisting of:
- a merger between TREEV and a wholly owned subsidiary of Aspen Merger
Corporation (a Delaware corporation formed by two members of CE's
management board which is acting as an agent of CE), and
- a share contribution between CE and Aspen Merger Corporation, pursuant
to which TREEV will become a wholly owned subsidiary of CE.
Completion of the Merger and the Share Contribution
The Merger. CE has appointed Aspen Merger Corporation to act as its agent
for the first-step merger and the second-step share contribution. In this
capacity, Aspen Merger Corporation has incorporated a wholly owned subsidiary in
Delaware. This subsidiary will be a party to the merger and will not transact
any business other than participating in the merger. Solely to accommodate the
transactions described in the merger agreement, Aspen Merger Corporation, as the
agent of CE, will hold all the issued and outstanding common shares of this
subsidiary.
At the effective time of the merger, the subsidiary of Aspen Merger
Corporation will merge with and into TREEV, with TREEV continuing as the
surviving corporation. Each common share of this subsidiary issued and
outstanding immediately prior to the effective time of the merger will be
converted into and exchanged for one common share of the surviving corporation.
As a result of the merger, Aspen Merger Corporation, as the agent of CE, will
hold title to all of the issued and outstanding common shares of the surviving
corporation. Each TREEV share will be converted into the right to receive CE
ADSs or CE ordinary shares calculated pursuant to an exchange ratio. See "The
Merger -- Merger Consideration." The merger will occur only if the conditions to
the merger, which are described below, are satisfied or, if permissible, waived.
Effective Time and Closing of the Merger. The closing of the merger will
take place no later than the third business day after the satisfaction or, if
permissible, waiver of the conditions set forth in the merger agreement (or such
other date as CE and TREEV agree in writing). The merger will be consummated by
filing a certificate of merger with the Secretary of State of the State of
Delaware. The effective time of the merger will be the date and the time of the
filing of the certificate of merger with the Secretary of State of the State of
Delaware unless otherwise specified in the certificate of merger.
The Share Contribution. As soon as possible after the effective time of
the merger, Aspen Merger Corporation, as the agent of CE, will transfer to CE as
a contribution-in-kind all of the issued and outstanding common shares of the
surviving corporation and, in exchange for that contribution-in-kind, CE will
increase its stated share capital and will issue CE ordinary shares to Aspen
Merger Corporation and cause those ordinary shares to be delivered to The Bank
of New York for the account of Aspen Merger Corporation, as the contribution
agent, and for the benefit of the former TREEV stockholders of TREEV and the
former optionholders and warrantholders of TREEV who validly accept the option
and warrant exchange offer. The share exchange will be effected in accordance
with the German Stock Corporation Act and will be consummated by registering the
increase of the stated share capital of CE with the commercial register
(Handelsregister) for CE. At the effective time of the merger, the obligation of
CE,
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TREEV and Aspen Merger Corporation to effect the share contribution will be
unconditional. After the merger and issuance of new CE ordinary shares in the
share contribution, you will be able to surrender your TREEV shares to The Bank
of New York, which is acting as the exchange agent in the merger, and receive in
exchange CE ADSs or CE ordinary shares. Upon surrender of TREEV shares for
exchange, the exchange agent will, if applicable, deposit the corresponding
number of CE ordinary shares under the deposit agreement for the issuance of CE
ADSs. Upon deposit of the CE ordinary shares, The Bank of New York, in its
capacity as depositary for CE ADSs, will deliver the CE ADSs to you or to a
person you designate.
Representations and Warranties of CE and TREEV
TREEV made customary representations and warranties in the merger agreement
regarding the following:
- its corporate organization and qualification to do business;
- validity and effectiveness of its restated certificate of incorporation
and its by-laws;
- its capitalization;
- its authority to enter into the merger agreement;
- absence of conflicts between the merger agreement and the merger, on the
one hand, and other contractual and legal obligations of TREEV, on the
other hand;
- need for consents, approvals, filings or other authorizations to enter
into the merger agreement and consummate the merger;
- possession and effectiveness of all permits and licenses necessary to
carry on business as currently conducted;
- compliance with permits, contracts and applicable laws;
- compliance with all applicable SEC filing requirements and accuracy and
completeness of SEC filings;
- financial statements contained in SEC filings;
- absence of liabilities or obligations;
- conduct of its business and changes to the business, operations,
properties, financial condition, assets or liabilities (including,
without limitation, contingent liabilities) or prospects of TREEV since
December 31, 1998;
- absence of litigation;
- employee benefit plans and labor matters;
- title to property and assets and leases;
- intellectual property and Year 2000 compliance;
- environmental matters;
- material contracts;
- insurance;
- receivables;
- use of brokers;
- tax matters;
- stockholder vote required to adopt the merger agreement;
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- inapplicability of state takeover statutes;
- opinion of financial advisor; and
- approval by the TREEV board of directors of the merger agreement.
CE made customary representations and warranties in the merger agreement
regarding the following:
- corporate organization and qualification to do business of CE and its
subsidiaries;
- validity and effectiveness of its articles of association and management
board rules of procedure;
- its capitalization;
- its authority to enter into the merger agreement;
- absence of conflicts between the merger agreement and the merger, on the
one hand, and other contractual and legal obligations of CE, on the
other hand;
- need for consents, approvals, filings or other authorizations to enter
into the merger agreement and consummate the merger;
- financial statements;
- absence of liabilities or obligations;
- conduct of its business and changes to the business, operations,
properties, financial condition, assets or liabilities (including,
without limitation, contingent liabilities) or prospects of CE since
December 31, 1998);
- absence of litigation;
- intellectual property;
- validity of CE ordinary shares to be issued pursuant to the merger
agreement;
- use of brokers; and
- tax matters.
None of the representations and warranties made in the merger agreement
will survive the closing of the merger.
No Solicitation Provision
TREEV has agreed that neither it nor any of its affiliates, officers,
directors, partners, controlling persons, representatives or agents will
solicit, initiate, consider, encourage or accept any proposals or offers from
anyone other than CE with respect to a "competing transaction" until the earlier
to occur of the termination of the merger agreement and the effective time of
the merger. A competing transaction is defined in the merger agreement as any
acquisition or purchase of all or any portion of TREEV's assets or capital
stock, any business combination with TREEV or any other extraordinary business
transaction involving or otherwise relating to TREEV. TREEV has also agreed that
neither it nor any such persons will participate in any discussions,
conversations, negotiations or other communications regarding, or furnish to any
person, other than CE, any information with respect to, or otherwise cooperate
in any way, assist or participate in, facilitate or encourage any effort or
attempt by any such other person to seek to do any of the foregoing.
Notwithstanding the foregoing, the TREEV board of directors is not
prohibited from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an
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unsolicited proposal to acquire TREEV or all or substantially all of the assets
of TREEV, if, and only to the extent that:
- the TREEV board of directors, after consultation with outside legal
counsel, determines in good faith that such action is required for it to
comply with its fiduciary duties to TREEV's stockholders under
applicable law; and
- prior to furnishing such information to, or entering into discussions or
negotiations with, such person, TREEV obtains from such person an
executed confidentiality agreement on terms no less favorable to TREEV
than those contained in the confidentiality agreement between CE and
TREEV dated as of July 16, 1999.
TREEV has agreed to notify CE promptly if any such proposal or offer, or
any inquiry or contact with any person with respect to any such proposal or
offer, is made and has agreed to indicate in any such notice to CE all the terms
and conditions of any such proposal, offer, inquiry, or contact.
Conduct of Business Pending the Merger
Each of CE and TREEV has agreed that, prior to the effective time of the
merger, without the prior written agreement of the other, it will:
- conduct its business in the ordinary course of business and in a manner
consistent with past practice;
- use all reasonable efforts to preserve substantially intact its business
organization and to keep available the services of its current officers,
employees and consultants; and
- use all reasonable efforts to preserve its current relationships with
customers, suppliers and other persons with which it has significant
business relations.
TREEV has also agreed that, prior to the effective time of the merger,
without the prior written agreement of CE, it will not:
- amend its restated certificate of incorporation or by-laws;
- issue, sell or otherwise dispose of capital stock (or securities
convertible into or exchangeable for capital stock) of TREEV, except
for:
- the issuance of stock options to employees in the ordinary course of
business and in a manner consistent with past practice; and
- the issuance of TREEV common shares pursuant to TREEV employee stock
options, pursuant to TREEV's employee stock purchase plan in
accordance with its current terms, as dividends paid to holders of
TREEV Series A preferred shares in accordance with its current terms,
upon the exercise of conversion rights of TREEV preferred shares
outstanding on the date of the merger agreement, or upon the exercise
of TREEV warrants outstanding on the date of the merger agreement;
- sell, encumber or otherwise dispose of any property or assets of TREEV
except in the ordinary course of business and in a manner consistent
with past practice;
- acquire any interest in any corporation, partnership, other business
organization or person or any division thereof or any assets, other than
acquisitions of assets (excluding the acquisition of a business or
substantially all of the stock or assets of a business) in the ordinary
course of business and in a manner consistent with past practice;
- incur any indebtedness for borrowed money, issue any debt securities or
in any way become responsible for the obligations of any person for
borrowed money, or make any loans or advances, other than indebtedness
incurred in the ordinary course of business, consistent with past
practice
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and to refinance existing outstanding indebtedness, or indebtedness
under TREEV's then-existing loan and security agreement up to its then
current limit;
- enter into any material contract or agreement other than in the ordinary
course of business consistent with past practice;
- enter into any contract with a value exceeding $500,000, other than
license agreements with end users entered into in the ordinary course of
business consistent with past practice;
- enter into any contract for the license of software by or to TREEV,
other than in the ordinary course of business consistent with past
practice;
- enter into any contract with any affiliate or any relative of any of its
directors, officers or employees, other than employment agreements;
- make or authorize any capital expenditure other than capital
expenditures made in the ordinary course of business consistent with
past practice and which are not in the aggregate in excess of $250,000
for the period between the date of the merger agreement and December 31,
1999 and $500,000 for the quarter ending March 31, 2000;
- declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of
TREEV's capital stock, except for dividends paid to holders of TREEV
Series A preferred shares in accordance with its current terms;
- reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
- increase the compensation or benefits of TREEV's directors, officers or
employees, or grant any rights to severance or termination pay to, or
enter into any employment or severance agreement with, any director,
officer or other employee of TREEV, or establish, adopt, enter into or
amend any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any current or former
director, officer or employee except in the ordinary course of business
and in a manner consistent with past practice;
- take any action with respect to accounting policies or procedures other
than reasonable and usual actions in the ordinary course of business and
consistent with past practice, as required by U.S. GAAP or as may be
required by the SEC;
- make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability;
- pay, discharge or satisfy any claim, liability or obligation other than
in the ordinary course of business and consistent with past practice;
- amend, modify or consent to the termination of any material contract, or
amend, waive, modify or consent to the termination of TREEV's rights
under any material contract, other than in the ordinary course of
business and consistent with past practice;
- commence or settle any material litigation, suit, claim, action,
proceeding or investigation; or
- announce an intention, authorize or enter into any formal or informal
agreement or otherwise make any commitment to do any of the foregoing.
Additional Covenants of CE and TREEV
CE and TREEV have agreed as follows:
- each company will allow the other company reasonable access to its
employees, facilities and corporate records and will furnish information
about its business to the other upon reasonable request;
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- each company will cooperate to file the documents with the SEC necessary
to complete the merger and the employee stock option and warrant
exchange;
- TREEV will call and hold a stockholders' meeting to vote upon the
adoption of the merger agreement and the merger and will use all
reasonable efforts to solicit proxies in favor of the adoption of the
merger agreement and the merger and will take all other action necessary
or advisable to secure the vote of its stockholders, unless the TREEV
board of directors determines in good faith, after consultation with
outside legal counsel, that the withdrawal, modification or change of
its recommendation is required by its fiduciary duties under applicable
law;
- each company will use all reasonable efforts to make all governmental
filings and to obtain all governmental consents and approvals necessary
to consummate the merger;
- each company will use reasonable efforts to take such action or do such
things necessary, proper or advisable to consummate the merger and the
share exchange;
- TREEV will cooperate with CE in identifying any encumbrances that may
adversely affect TREEV's right to sublicense any intellectual property
rights owned or licensed by TREEV in TREEV's software products as of the
effective time of the merger, and will use all reasonable efforts to
remove, limit or diminish such encumbrances;
- each company will promptly notify the other company of any event that
would likely cause any representation or warranty to be untrue or
inaccurate or any covenant or condition not to be complied with or
satisfied, or of any failure to comply with or satisfy any covenant or
condition;
- each company will promptly notify the other company of any notice from
any person alleging that such person's consent is required for the
consummation of the merger, any notice from any governmental entity, any
claims or proceedings that could delay the consummation of the merger,
any event that is or could become a default under a material contract of
TREEV or any material adverse effect or event that could delay the
consummation of the merger;
- TREEV will give prompt notice to CE of the exercise by any holder of
TREEV Series A preferred shares of any "change of control" right
pursuant to the terms of the TREEV Series A preferred shares;
- neither company will take any action that would undermine the
qualification of the merger as a tax-free reorganization under Section
368 of the Internal Revenue Code;
- each of CE and TREEV receives from its accountants a "comfort" letter
dated as of the date the registration statement becomes effective;
- each company will notify the other of all persons that may be deemed to
be one of its affiliates under Rule 145 of the Securities Act, and each
company will use its reasonable best efforts to obtain from each
affiliate a letter in which the affiliate agrees to comply with the
resale restrictions of Rules 144 and 145 under the Securities Act
following the merger;
- each company will use all reasonable efforts to obtain approval for
listing the CE ADSs on the Nasdaq National Market;
- the companies will consult with each other regarding any public
announcements they make concerning the merger; and
- CE will recommend to its supervisory board that all necessary corporate
actions required under the German Stock Corporation Act be taken.
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Stock Option and Stock Purchase Plans
Not later than immediately prior to the effective time of the merger, TREEV
will:
- terminate its stock option plans and any other plan, program or
arrangement providing for the issuance, grant or purchase of any other
interest in respect of the capital stock of TREEV; and
- cause all amounts held as cash in participant accounts under TREEV's
employee stock purchase plan to be returned to the applicable
participants and all previously purchased TREEV common shares held in
such accounts to be distributed to the applicable participants.
Continuation of Benefits
For one year following the effective time of the merger, CE has agreed with
TREEV to continue and maintain TREEV's employee benefit plans and programs that
are in effect immediately prior to the effective time of the merger, except for
TREEV's benefit plans providing for grants of stock options. From and after the
effective time of the merger, CE has agreed that it will honor and will cause
TREEV to honor all of TREEV's employee contracts, arrangements, policies, plans
and commitments that were disclosed or made available to CE prior to the
execution of the merger agreement. To the extent that service is relevant for
purposes of eligibility, participation or vesting under any employee benefit
plan, program or arrangement established or maintained by TREEV, CE has agreed
employees of TREEV will be credited with service accrued prior to the effective
time of the merger to the extent such service was recognized by TREEV under such
plans.
Indemnification of Directors and Officers
CE and TREEV have agreed that the indemnification obligations set forth in
TREEV's restated certificate of incorporation and by-laws will survive the
merger and will not be amended, repealed or otherwise modified for a period of
six years after the effective time of the merger in any manner that would
adversely affect the rights of individuals who, on or prior to the effective
time of the merger, were directors, officers, employees or agents of TREEV.
CE has agreed that after the effective time of the merger, CE will, to the
fullest extent permitted under applicable law, indemnify and hold harmless each
present and former director or officer of TREEV against all costs and expenses,
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to any action or omission in their capacity as an
officer or director, in each case occurring before the effective time of the
merger.
CE has agreed that for six years following the effective time of the
merger, CE will provide to TREEV's current directors and officers liability
insurance protection of the same kind and scope as that provided by TREEV's
directors' and officers' liability insurance policies. In no event, however,
will CE be required to expend more than 175% of the current amount expended by
TREEV to maintain or procure insurance coverage. If CE is unable to maintain or
obtain such insurance, it will use all reasonable efforts to obtain as much
comparable insurance as is available for the maximum amount required to be
expended under the terms of the merger agreement.
Closing Conditions
Conditions to the Obligations of Each Party. The obligations of CE and
TREEV to consummate the merger are subject to the satisfaction or waiver of the
following conditions:
- the SEC having declared the CE registration statement, of which this
proxy statement/prospectus forms a part, effective and there existing no
stop order or other action to suspend the effectiveness of the CE
registration statement;
- TREEV stockholders having adopted and approved the merger agreement;
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- no court or governmental entity having entered an order making the
merger illegal or otherwise prohibiting its consummation;
- any applicable waiting period under the HSR Act having expired or been
terminated;
- the companies having received from their accountants comfort letters;
and
- the CE ADSs issuable pursuant to the merger agreement having been
approved for listing on the Nasdaq National Market, subject to official
notice of issuance.
Conditions to the Obligations of CE. The obligations of CE to consummate
the merger are subject to the satisfaction or waiver of the following
conditions:
- TREEV's representations and warranties being true and correct in all
material respects and CE receiving from TREEV a certificate of certain
of its officers as to the foregoing;
- TREEV performing or complying in all material respects with all
agreements and covenants required by the merger agreement to be
performed or complied with by it at or prior to the effective time of
the merger, and CE receiving from TREEV a certificate of the chairman or
president and executive vice president of finance and administration of
TREEV as to the foregoing;
- there not having occurred or being reasonably likely to occur any events
that could reasonably be expected to have a material adverse effect on
the business, operations, properties, financial condition, assets or
liabilities (including, without limitation, contingent liabilities) or
prospects of TREEV;
- CE receiving an opinion from its tax advisor to the effect that the
merger will qualify as a reorganization under Section 368(a) of the
Internal Revenue Code;
- there not having been exercised a change of control right by any holder
of TREEV Series A preferred shares to the extent that any such right is
or becomes exercisable as a result of the merger;
- the registration rights agreements executed in favor of the holders of
warrants issued in connection with the placement of the TREEV Series K
and Series L convertible preferred shares and the related registration
statements of TREEV having been terminated; and
- TREEV having filed with the Secretary of State of the State of Delaware
certificates of elimination with respect to its retired and redeemed
series of TREEV preferred shares.
Conditions to the Obligations of TREEV. The obligations of TREEV to
consummate the merger are subject to the satisfaction or waiver of the following
conditions:
- CE's representations and warranties being true and correct in all
material respects and TREEV receiving from CE a certificate of certain
of its officers as to the foregoing;
- CE's performing or complying in all material respects with all
agreements and covenants required by the merger agreement to be
performed or complied with by it at or prior to the effective time of
the merger, and TREEV receiving from CE a certificate of two members of
the CE management board as to the foregoing;
- there not having occurred or being reasonably likely to occur any events
that could reasonably be expected to have a material adverse effect on
the business, operations, properties, financial condition, assets or
liabilities (including, without limitation, contingent liabilities) or
prospects of CE; and
- TREEV receiving an opinion from its tax counsel to the effect that the
merger will qualify as a reorganization under Section 368(a) of the
Internal Revenue Code.
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<PAGE> 77
Termination
The merger agreement may be terminated and the merger abandoned at any time
prior to the effective time of the merger:
(1) by mutual written consent of CE and TREEV;
(2) by CE or TREEV if the merger is not completed on or prior to March
31, 2001, so long as the delay has not been caused by the terminating
party;
(3) by CE or TREEV if any governmental order preventing the consummation
of the merger has been entered by a court and has become final and
non-appealable;
(4) by CE if the TREEV board of directors (a) withdraws, modifies or
changes its recommendation of the merger agreement and the merger or
resolves to do so, or refuses to reaffirm its recommendation upon
CE's request, (b) recommends a competing transaction or resolves to
do so or (c) fails to recommend against acceptance of a tender offer
or exchange offer for 25 percent or more of the outstanding shares of
any class or series of capital stock of TREEV;
(5) by CE or TREEV if the merger agreement does not receive the required
TREEV stockholder approval;
(6) by CE if any holder of TREEV Series A preferred shares exercises a
"change of control" right to the extent that any such right is or
becomes exercisable as a result of the merger or the transactions
contemplated by the merger agreement;
(7) by CE upon breach of any representation, warranty, covenant or
agreement by TREEV, or if any representation or warranty of TREEV
becomes untrue, in either case such that the closing conditions to
the obligations of CE described above would not be satisfied, unless
such breach is curable by TREEV through the exercise of all
reasonable efforts;
(8) by CE upon the breach of the TREEV voting and registration rights
agreement by any stockholder of TREEV who is a party thereto;
(9) by TREEV upon breach of any representation, warranty, covenant or
agreement by CE, or if any representation or warranty of CE becomes
untrue, in either case such that the closing conditions to the
obligations of TREEV described above would not be satisfied, unless
such breach is curable by CE through the exercise of all reasonable
efforts;
(10) by TREEV upon written notice to CE of the existence of a competing
transaction with terms which the TREEV board of directors determines
in its good faith judgment to be more favorable to TREEV stockholders
than the merger, provided however, that termination pursuant to this
provision will not be effective until CE has had three business days
within which to match the competing transaction and until TREEV pays
the termination fee described below; or
(11) by CE if a total of more than 6,650,000 CE ordinary shares would be
issued in connection with the merger and the exchange offer for TREEV
employee stock options and warrants.
Termination Fee and Expenses
Termination Fee. If the merger agreement is terminated (a) by TREEV in
accordance with the provision described in clause (10) above or (b) by CE in
accordance with the provision described in clause (4) above, and in each case CE
has not materially breached the merger agreement, TREEV is required to pay CE a
termination fee of $2,685,000.
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<PAGE> 78
TREEV is also required to pay CE a $2,685,000 termination fee if all of the
following occur:
- CE terminates the merger agreement in accordance with the provision
described in clause (5) above;
- a competing transaction has been made public at or prior to the time of
the TREEV stockholders' failure to adopt the merger agreement;
- within 15 months after termination, TREEV consummates, or enters into a
definitive agreement with respect to, a competing transaction; and
- CE has not materially breached the merger agreement.
Expenses. The merger agreement provides that all expenses incurred in
connection with the merger agreement and the merger will be paid by the party
incurring these expenses, whether or not the merger is consummated, except that:
- if TREEV is obligated to pay a termination fee in any circumstance as
described above, then TREEV will also reimburse CE's expenses up to $1.2
million;
- if CE terminates the merger agreement in accordance with the provision
described in clause (7) above, then TREEV will reimburse CE's expenses
up to $1.2 million; and
- if TREEV terminates the merger agreement in accordance with the
provision described in clause (9) above, then CE will reimburse TREEV's
expenses up to $1.2 million.
Amendment and Waiver
CE and TREEV may amend the merger agreement at any time prior to the
effective time of the merger by action of the TREEV board of directors and the
CE management board. After the adoption of the merger agreement by TREEV's
common stockholders, only such amendments may be made that have been approved by
TREEV's common stockholders or that are permitted under Delaware law to be made
without stockholder approval.
At any time before the effective time of the merger, CE and TREEV may
extend the time for the performance of any obligation or act of the other party
or waive any inaccuracy in the representations and warranties or compliance with
any agreement or condition contained in the merger agreement.
Governing Law
The capital contribution-in-kind that constitutes part of the share
contribution will be governed by and effected in accordance with German law. In
all other respects, the merger agreement is governed by, and will be construed
in accordance with, the laws of the State of Delaware.
THE EXCHANGE AGENT AGREEMENT
On November 22, 2000, CE entered into an exchange agent agreement with The
Bank of New York, appointing The Bank of New York to act as exchange agent in
connection with the merger and the exchange offer for TREEV employee stock
options and warrants.
Pursuant to the exchange agent agreement, until the expiration of the
exchange offer, the exchange agent will accept the surrender of the TREEV
employee stock options and warrants, and after the effective time of the merger,
will accept surrenders of TREEV common shares and Series A preferred shares and,
in each case, subject to receipt of the CE ordinary shares, will administer the
delivery of the appropriate consideration. Upon surrender of TREEV shares,
employee stock options or warrants for exchange, the exchange agent will, if
applicable, deposit the corresponding whole number of CE ordinary shares (and
cash in lieu of any fractional ordinary share) with, and will forward the
delivery instructions provided by the surrendering TREEV shareholder, employee
stock optionholder or warrantholder to, the depositary. Upon deposit of the CE
ordinary shares, the depositary will deliver CE ADSs (and any cash received by
it
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<PAGE> 79
in lieu of a fractional ordinary share) in accordance with the delivery
instructions provided by the exchange agent. Such delivery will be made to the
account at The Depository Trust Company designated by the surrendering TREEV
shareholder, employee stock optionholder, or warrantholder or, if the
surrendering shareholder, employee stock optionholder or warrantholder so
requests, by mailing an ADR registered in the name or names requested evidencing
such CE ADSs (together with a check for cash in lieu of any fractional ordinary
share). Notwithstanding the foregoing, persons who are affiliates of TREEV or CE
will not be eligible to hold CE ADSs and will instead receive CE ordinary shares
in the merger and the exchange offer. CE will give the exchange agent a list of
the persons it believes are affiliates of CE and TREEV. CE's determination of
affiliate status will be final for purposes of the merger and the exchange
offer, and the exchange agent will have no liability to any person for acting in
reliance on the list it receives from CE. For more information about the
treatment of fractional CE ADSs, see "The Merger -- Conversion of TREEV Shares;
Procedures for Exchange of Certificates; Fractional Shares." CE and TREEV will
deliver or cause to be delivered to the exchange agent the necessary documents
to enable the exchange agent to perform its duties under the exchange agent
agreement, including a specimen of the transmittal letter, a specimen of a
letter from TREEV to the former TREEV stockholders and a specimen of the
relevant documentation for the employee stock option and warrant exchange offer.
The exchange agent will not exercise any voting rights with respect to any
CE ordinary shares; those voting rights will only be exercisable by the former
TREEV stockholders, optionholders and warrantholders or their duly authorized
designee or designees.
The exchange agent will have no liability or responsibility under, arising
out of or in connection with the exchange agent agreement and will be
indemnified by CE for any losses sustained or incurred in connection with the
exchange agent agreement, except in case of its failure to perform its
obligations in good faith and without negligence or willful misconduct. The
exchange agent will continue to act as exchange agent until one year after the
effective time of the merger, unless the exchange agent agreement is extended or
earlier terminated.
THE CONTRIBUTION AGENT AGREEMENT
On November 17, 2000, CE entered into a contribution agent agreement with
Aspen Merger Corporation, appointing Aspen Merger Corporation to act as
contribution agent in connection with the merger and the share contribution and
to perform such additional duties necessary to effect the contribution-in-kind
for the account of the former stockholders of TREEV and to effect the delivery
of CE ordinary shares or CE ADSs to the former optionholders and warrantholders
of TREEV who validly accept the option and warrant exchange offer, and to effect
the transactions contemplated in the merger agreement.
Pursuant to the contribution agent agreement, for the sole purpose of
effecting the transactions contemplated in the merger agreement, the
contribution agent will perform the following duties:
- prior to the effective time of the merger, the contribution agent will
become the sole registered holder of the common shares of a Delaware
subsidiary;
- prior to the effective time of the merger, the contribution agent will,
at the direction of CE, execute a stockholders' consent voting all the
common shares of the Delaware subsidiary in favor of the merger of the
Delaware subsidiary with and into TREEV;
- at the effective time of the merger, the contribution agent will, by
operation of law, become the sole registered owner of all of the issued
and outstanding common shares of the surviving corporation;
- prior to the effective time of the merger, and at the written direction
of CE, the contribution agent will enter into a contribution-in-kind
agreement, make the representations and warranties set forth therein and
execute the related subscription certificate required under German law
and, pursuant to the contribution-in-kind agreement, will after the
effective time of the merger, transfer all of the issued and outstanding
common shares of the surviving corporation to CE as a contribution-in-
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<PAGE> 80
kind against delivery of the merger consideration to, or at the
direction of, the contribution agent for the account of the former TREEV
stockholders and the former optionholders and warrantholders of TREEV
who validly accept the option and warrant exchange, all as contemplated
in the merger agreement.
The contribution agent will have no liability or responsibility under,
arising out of or in connection with the contribution agent agreement or the
merger agreement and to the extent permitted by German law, will be indemnified
by CE for any losses sustained or incurred in connection with the contribution
agent agreement, the merger agreement or the contribution-in-kind agreement,
except in case of its failure to perform its obligations in good faith and
without negligence or willful misconduct or except as otherwise set forth in the
contribution agent agreement.
THE TREEV VOTING AND REGISTRATION RIGHTS AGREEMENT
Simultaneously with the execution of the merger agreement, members of the
TREEV board of directors and TREEV's senior management and two additional
stockholders of TREEV identified below, who collectively held approximately 33%
of the TREEV common shares outstanding as of the record date, entered into a
voting and registration rights agreement with CE in which each has agreed:
- to appear for the purpose of obtaining a quorum at any annual or special
meeting of TREEV stockholders at which matters relating to the merger,
the merger agreement or any transactions contemplated by the merger
agreement are considered, and
- to vote all TREEV common shares or other equity securities owned by him,
or with respect to which he has voting power or control, in favor of the
merger, the merger agreement and the transactions contemplated by the
merger agreement.
The following persons entered into the voting and registration rights
agreement: James J. Leto, Robert P. Bernardi, John F. Burton, C. Alan Peyser,
Thomas A. Wilson, Mark A. Paiewonsky, Richard G. McMahon, Brian H. Hajost,
Horace T. Ardinger, Jr. and Douglas Adkins. Each such person also delivered to
CE an irrevocable proxy to vote all TREEV common shares beneficially owned by
him in favor of approval of the merger and the merger agreement.
CE has agreed that, whenever it proposes to register any CE ADSs or CE
ordinary shares under the Securities Act, it will give prompt written notice to
all such persons. Upon the written request of any of them, CE will use its
reasonable best efforts to register under the Securities Act the CE ADSs or CE
ordinary shares issued to such person in the merger.
THE SERIES A PREFERRED STOCK AGREEMENT
In the event of a "change in control" of TREEV, each holder of TREEV Series
A preferred shares has the right to require TREEV to purchase such Series A
preferred shares at $25.00 per share, subject to the procedures for exchange set
forth in the Certificate of Designations of the TREEV Series A preferred shares.
The Green-Cohn Group, LB Series Fund, Inc., High Yield Portfolio and funds
associated with Zazove Associates, LLC, which collectively held approximately
69.1% of TREEV's Series A preferred shares outstanding as of the record date for
the TREEV stockholders' meeting, have entered into an agreement with CE dated as
of August 22, 2000, in which each has agreed not to exercise, with respect to
any Series A preferred shares it owns or over which it has or shares control, a
"change in control right" as a result of a "change in control" (as set forth in
the certificate of designations of the Series A preferred shares), to the extent
that any such right is or becomes exercisable as a result of the merger.
CE has agreed that, whenever it proposes to register any CE ADSs or CE
ordinary shares under the Securities Act following the merger, it will give
prompt written notice to these stockholders. Upon the written request of any of
them, CE will use its reasonable best efforts to register under the Securities
Act the CE ADSs or CE ordinary shares issued to such stockholders in the merger.
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<PAGE> 81
In connection with the Series A preferred stock agreement, TREEV has agreed
that, for so long as each of the holders of TREEV Series A preferred shares who
is a party to the Series A preferred stock agreement is in compliance with the
provisions of such agreement, TREEV will not exercise its right to redeem the
Series A preferred shares (as set forth in the certificate of designations of
the Series A preferred shares).
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<PAGE> 82
INTERESTS OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT STOCKHOLDERS OF TREEV
IN THE MERGER
In considering whether to vote in favor of the merger agreement, and in
considering the recommendation of the TREEV board of directors to approve the
merger agreement, you should be aware that, as described below, several
directors, executive officers and significant stockholders of TREEV may have
interests in the merger that are different from, or in addition to, your
interests.
BOARD POSITIONS. It is expected that following the merger, the CE
supervisory board will vote upon a resolution to appoint Thomas A. Wilson, a
director and the president and chief executive officer of TREEV, to the CE
management board. In addition, it is expected that following the merger, the
shareholders of CE will be asked to vote upon a resolution to appoint James J.
Leto, chairman of TREEV's board of directors, to the CE supervisory board.
TREEV SEVERANCE AGREEMENTS. Thomas A. Wilson, president and chief
executive officer, Brian H. Hajost, executive vice president of finance and
administration, Mark A. Paiewonsky, vice president of finance, Thomas A. Giampa,
senior vice president of engineering, Richard G. McMahon, senior vice president
of professional services, Steven Wood, director of product marketing, and Julia
A. Bowen, vice president and general counsel, have entered into severance
agreements with TREEV. These severance agreements provide that in the event of a
change in control of TREEV, which generally means a merger, acquisition or sale
of all of TREEV's assets ("Change in Control"), and for a period of two years
following such Change in Control, any of these persons terminate employment
other than for cause, death or disability, or any of these persons terminate his
or her employment for good reason (as defined below), they will receive a lump
sum payment equal to 15 months of base salary and bonus. The bonus payments will
be calculated as if the employee had remained working with TREEV until the end
of the calendar year of his or her termination and as if all of his or her
performance goals had been achieved in that 15-month period. In addition, during
the 15-month period or until such time as the employee is insured under
comparable medical insurance, whichever occurs first, TREEV will pay all COBRA
premiums. The employee is also entitled to the same payments and benefits, as
described in this paragraph, before the Change in Control occurs, if such
termination was at the request of a third party that had taken steps reasonably
calculated to effect a Change in Control. Also, all stock options held by the
employee on the date of his or her termination of employment will immediately
vest and become exercisable and will continue to be exercisable for the full
term of such stock option. As defined in these severance agreements, "good
reason" exists upon the occurrence of the following: assignment of the employee
to any duties different from the status of his or her job with TREEV; a
reduction in the employee's annual base salary; a material breach by TREEV of
the severance agreement, a relocation of TREEV's principal executive offices
more than 20 miles from Hendon, Virginia, a relocation of the executive to any
location other than TREEV's principal executive offices or any material
reduction of the benefits enjoyed by the employee under any of TREEV's employee
benefit plans, programs or arrangements (unless the reduction is a proportional
across-the-board reduction that similarly affects all other officers or
executive officers of TREEV).
Jud Cairns, vice president of strategic integration, has entered into a
severance agreement with TREEV. Mr. Cairns' severance agreement is substantially
similar to the severance agreements described above, except his severance
payment will be a lump sum payment equal to nine months of base salary and
bonus. His bonus payments will be calculated as if he had remained working with
TREEV until the end of the calendar year of his termination and as if all his
performance goals had been achieved in such nine-month period. In addition,
TREEV will pay his COBRA premiums for a maximum of nine months.
Janice Raleigh, director of human resources, has entered into a severance
agreement with TREEV. Ms. Raleigh's severance agreement is substantially similar
to the severance agreements described above, except her severance payment will
be a lump sum payment equal to three months of base salary and bonus. Her bonus
payments will be calculated as if she had remained working with TREEV until the
end of the calendar year of her termination and as if all of her performance
goals had been achieved in such three-month period. In addition, TREEV will pay
her COBRA premiums for a maximum of three months.
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<PAGE> 83
TREEV STOCK OPTION PLAN TERMS. The 1997 Directors' Stock Option Plan,
available solely to non-employee members of TREEV's board of directors, provides
that in the event TREEV is merged into or with another entity, all stock options
granted under the plan (whether or not vested) will become immediately vested
and exercisable and will continue to be exercisable for a period of up to one
year following the Change in Control. Each of the 1992, 1992B, 1993, 1993B and
1994 Key Employee Incentive Stock Option Plans provide that upon a Change in
Control the optionee will have the right to exercise his or her stock option
(whether or not vested) in full before such event, provided, however, that any
options that remain outstanding after the merger has occurred will terminate or,
in the alternative, the parties who are effecting the Change in Control may
provide that the optionee does not have the right to exercise his or her options
in their entirety and instead such options will be rolled over into options to
acquire shares of common stock of the new company.
CONVERTIBLE BONDS. Directors, executive officers and other employees of
TREEV who become employees of CE may be granted convertible bonds to acquire CE
ordinary shares pursuant to the CE stock incentive plan. CE has not determined
the number of convertible bonds to be granted initially to any directors,
executive officers or other employees of TREEV who participate in the plan. See
"Management and Employees of CE -- Stock Incentive Plan."
REGISTRATION RIGHTS AGREEMENT. CE has entered into a voting and
registration rights agreement with the directors, officers and stockholders of
TREEV listed under "The Transaction Documents -- The TREEV Voting and
Registration Rights Agreement" pursuant to which CE granted registration rights
for the CE ADSs and CE ordinary shares to be received by these individuals in
the merger.
INDEMNIFICATION AGREEMENTS. For six years after the merger, CE will
maintain in effect all rights to indemnification in favor of the current and
former directors and officers of TREEV as provided in its certificate of
incorporation and its by-laws.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. For six years after the
merger, CE will provide to the current directors and officers of TREEV
directors' and officers' liability insurance of the same kind and scope as is
currently provided by TREEV. CE will not be required, however, to pay more than
175% of the annual premiums currently paid by TREEV.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet and
unaudited pro forma condensed combined statements of income prepared in
accordance with U.S. GAAP give effect to the acquisition of Insiders Information
Management by CE and the merger between CE and TREEV as if the transactions had
occurred at the dates specified below. The unaudited pro forma condensed
consolidated financial information is prepared from CE's, TREEV's and Insiders'
Consolidated Financial Statements included in this proxy statement/prospectus.
CE will account for these transactions as purchases.
This unaudited pro forma financial information has been presented in
response to U.S. Securities and Exchange Commission requirements, and does not
purport to represent the actual financial position of CE on the date of this
proxy statement/prospectus or at the beginning of the periods indicated or to
project the financial position of CE for any future period.
The pro forma information and accompanying notes should be read in
conjunction with the separate Consolidated Financial Statements of CE, TREEV and
Insiders Information Management and other financial information pertaining to
the companies, including the respective "Management's Discussion and Analysis of
Financial Condition and Result of Operations" and "Description of Business" for
CE and TREEV included in this proxy statement/prospectus.
The TREEV historical balance sheet information and related pro forma
adjustments to the unaudited pro forma combined balance sheet as of June 30,
2000, have been translated into German Marks at the June 30, 2000 rate of
exchange of $1.00 = DM 2.0404. The TREEV historical statements of income
information for the twelve months ended December 31, 1999, and related pro forma
adjustments to the unaudited pro forma combined statements of income, have been
translated into German Marks at the weighted-average rates of exchange for the
twelve months ended December 31, 1999 of $1.00 = DM 1.83769. The TREEV
historical statement of income information for the six months ended June 30,
2000, and related pro forma adjustments to the unaudited pro forma combined
statement of income, have been translated into German Marks at the
weighted-average rates of exchange for the six months ended June 30, 2000 of
$1.00 = DM 2.0395.
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<PAGE> 85
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed consolidated balance sheet
consolidates the respective historical condensed consolidated balance sheets of
CE, TREEV and Insiders Information Management as of June 30, 2000 and has been
prepared to reflect the combination of CE, TREEV and Insiders Information
Management after giving effect to the pro forma adjustments described below as
if the combinations had occurred on June 30, 2000.
<TABLE>
<CAPTION>
JUNE 30, 2000
(in thousands)
------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------ PRO FORMA PRO FORMA
CE TREEV INSIDERS TOTAL ADJUSTMENTS COMBINED
--------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........... DM 909 DM 3,503 DM 1,392 DM 5,804 DM 5,804
Accounts receivable, net............ 97,526 22,477 822 120,825 120,825
Inventories......................... 3,409 1,504 -- 4,913 4,913
Other current assets................ 21,506 3,071 145 24,722 24,722
--------- ---------- ---------- ----------- ----------
Total current assets.................. 123,350 30,555 2,359 156,264 156,264
Long-term receivables............... -- 767 -- 767 767
Property and equipment, net......... 13,841 2,912 550 17,303 17,303
Investment in associated
companies......................... 4,017 -- -- 4,017 4,017
Deferred tax asset.................. 1,472 -- -- 1,472 1,472
Goodwill and intangible assets,
net............................... 26,126 8,241 266 34,633 DM 49,539(2) 270,167
13,943(2)
8,765(2)
3,141(2)
127,851(2)
32,295(3)
--------- ---------- ---------- ----------- ----------
Non-current assets.................. 45,456 11,920 816 58,192 293,726
TOTAL ASSETS.......................... 168,806 42,475 3,175 214,456 449,990
--------- ---------- ---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................... 8,409 4,546 19 12,974 8,000(1) 20,974
Short-term debt..................... 34,687 18,498 367 53,552 53,552
Accrued and other current
liabilities....................... 21,064 14,481 109 35,654 35,654
Current portion of lease
obligations....................... -- -- -- -- --
--------- ---------- ---------- ----------- ----------
Total current liabilities............. 64,160 37,525 495 102,180 110,180
Long-term portion of lease
obligations....................... -- -- -- -- --
Pension obligation.................. 3,557 -- -- 3,557 3,557
Deferred income taxes............... -- -- -- -- 28,647(2) 28,647
Long-term debt...................... 24,092 663 29 24,784 24,784
--------- ---------- ---------- ----------- ----------
Total non-current liabilities......... 27,649 663 29 28,341 56,988
Minority interest..................... 223 -- -- 223 636(4) 859
Shareholders' Equity
Common shares....................... 7,544 4 391 7,939 2,860(4) 10,404
(395)(4)
Additional paid-in capital.......... 62,077 290,000 4,428 356,505 226,056(4) 288,133
(294,428)(4)
Retained earnings................... 7,153 (285,717) (2,168) (280,732) (23,727)(2) (16,574)
287,885(4)
--------- ---------- ---------- ----------- ----------
Total shareholders' equity............ 76,774 4,287 2,651 83,712 281,963
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. 168,806 42,475 3,175 214,456 449,990
--------- ---------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial information.
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<PAGE> 86
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma condensed consolidated statement of
income for the year ended December 31, 1999 is derived from the historical
condensed consolidated income statements of CE, TREEV and Insiders Information
Management for the year then ended, after giving effect to the pro forma
adjustments described below. These adjustments have been determined as if the
purchase of TREEV by CE took place on January 1, 1999 and as if the purchase of
Insiders by CE took place upon Insiders' inception, June 16, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
(in thousands, except per share and share amounts)
---------------------------------------------------------------
HISTORICAL
------------------------------------------------- PRO FORMA PRO FORMA
CE TREEV INSIDERS TOTAL ADJUSTMENTS COMBINED
------------ -------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.............. DM 98,110 DM57,352 DM 616 DM 156,078 DM 156,078
Cost of products sold
and services
provided........... 32,605 27,909 441 60,955 60,955
------------ -------- -------- ------------ ------------
GROSS PROFIT......... 65,505 29,443 175 95,123 95,123
Research and
development........ 15,201 7,553 1,009 23,763 23,763
Selling, general and
administrative..... 44,358 26,099 1,017 71,474 DM 78,113(5) 149,587
------------ -------- -------- ------------ ------------
OPERATING INCOME
(LOSS)............. 5,946 (4,209) (1,851) (114) (78,227)
Equity in net loss in
associated
company............ (262) -- -- (262) (262)
Interest income
(expense), net..... 545 (636) 35 (56) (56)
Income tax benefit
(expense).......... (3,934) -- -- (3,934) 9,398(6) 5,464
Minority interest.... 112 -- -- 112 436(4) 548
------------ -------- -------- ------------ ------------
NET INCOME (LOSS).... 2,407 (4,845) (1,816) (4,254) (72,533)
Preferred stock
dividends.......... -- (2,477) -- (2,477) 2,477(7) --
------------ -------- -------- ------------ ------------
Net income (loss)
applicable to
common shares...... 2,407 (7,322) (1,816) (6,731) (72,533)
Net income (loss) per
common share (8)... 0.12 (2.73)
Weighted average
shares
outstanding........ 19,285,725 19,265,725 7,311,150 26,596,875
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial information.
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<PAGE> 87
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma condensed consolidated statement of
income for the six months ended June 30, 2000 is derived from the historical
condensed consolidated income statements of CE, TREEV and Insiders Information
Management for the six months then ended, after giving effect to the pro forma
adjustments described below. These adjustments have been determined as if the
purchase of TREEV by CE took place on January 1, 1999 and as if the purchase of
Insiders by CE took place upon Insiders' inception, June 16, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
(in thousands, except per share and share amounts)
----------------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------- PRO FORMA PRO FORMA
CE TREEV INSIDERS TOTAL ADJUSTMENTS COMBINED
------------ --------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... DM 60,891 DM 22,332 DM2,251 DM 85,474 DM 85,474
Cost of products sold and
services provided............. 20,218 13,432 751 34,401 34,401
------------ --------- ------ ------------ ------------
GROSS PROFIT.................... 40,673 8,900 1,500 51,073 51,073
Research and development........ 10,706 4,350 975 16,031 16,031
Selling, general and
administrative................ 26,720 15,035 918 42,673 DM 39,056(5) 81,729
------------ --------- ------ ------------ ------------
OPERATING INCOME (LOSS)......... 3,247 (10,485) (393) (7,631) (46,687)
Equity in net loss in associated
company....................... (496) -- -- (496) (496)
Interest income (expense),
net........................... 479 (963) 42 (442) (442)
Income tax benefit (expense).... (1,343) -- -- (1,343) 4,699(6) 3,356
Minority interest............... (95) -- -- (95) 84(4) (11)
------------ --------- ------ ------------ ------------
NET INCOME (LOSS)............... 1,792 (11,448) (351) (10,007) (44,280)
Preferred stock dividends....... -- (1,374) -- (1,374) 1,374(7) --
------------ --------- ------ ------------ ------------
Net income (loss) applicable to
common shares................. 1,792 (12,822) (351) (11,381) (44,280)
Net income (loss) per common
share (8)..................... 0.09 (1.66)
Weighted average shares
outstanding................... 19,285,725 19,285,725 7,311,150 26,596,875
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial information.
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<PAGE> 88
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(1) The adjustment reflects estimated acquisition fees and expenses, which
include, without limitation, fees and expenses of investment bankers, legal
counsel, accountants and consultants incurred and to be incurred by CE in
connection with or related to the authorization, preparation, negotiation
and execution of the merger agreement with TREEV and the preparation,
printing, filing and mailing of this proxy statement/prospectus, soliciting
stockholder approvals and all other matters related to the closing of the
merger. These expenses of DM8.0 million have been capitalized as additional
acquisition costs.
(2) CE will issue a total of 6,650,000 of its ordinary shares for all the
issued and outstanding TREEV common shares, Series A preferred shares,
employee stock options and warrants. Such CE ordinary shares will be
delivered in the form of CE ADSs. The precise number of TREEV common
shares, Series A preferred shares, employee stock options and warrants to
be cancelled and exchanged in the merger and exchange offer cannot be
determined until the effective time of the merger.
For purposes of the unaudited pro forma condensed consolidated financial
information, the cost of acquisition has been determined as follows (in
millions of DM):
<TABLE>
<S> <C>
Issuance of 6.65 million CE ordinary shares at DM 29.26 per
share..................................................... 194.6
Acquisition fees and expenses............................... 8.0
-----
202.6
=====
</TABLE>
The assumed purchase consideration is based on the average market price of
E14.8 (adjusted for CE's five-for-one stock split in August 2000), or
approximately DM29.26 per CE ordinary share for a short period before and
after the terms of the acquisition were announced on November 22, 1999. CE
has used an average of the closing share prices on the day the acquisition
was announced and on the trading day immediately before and after the
acquisition was announced.
The cost of acquisition is allocated to the pro forma balance sheet as
follows (in DM millions):
<TABLE>
<S> <C>
Total cost of acquisition................................... 202.6
Less: net assets of TREEV................................... (4.3)
Add: deferred tax liability................................. 28.6
-----
Total intangibles........................................... 227.0
=====
</TABLE>
Allocation to identifiable intangibles:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
FAIR VALUE USEFUL LIFE
---------- -----------
<S> <C> <C>
Developed technology.................................... 49.5 3
Distribution system..................................... 13.9 5
Workforce............................................... 8.8 2
Patents................................................. 3.1 3
In process research and development..................... 23.7 --
---------
Goodwill................................................ 127.9 3
</TABLE>
The total estimated purchase price of the merger has been allocated on a
preliminary basis to assets and liabilities based on CE's management's
estimate of their fair values. The excess of the purchase price over the
fair value of the net assets acquired has been allocated to goodwill and
other intangible assets. Final allocations will be made upon completion of
independent valuations, appraisals, estimates of values and other studies,
which are currently being undertaken. However, such final purchase price
allocations are not expected to materially affect the unaudited pro forma
condensed consolidated balance sheet taken as a whole.
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<PAGE> 89
ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT
TREEV provides client/server and Internet solutions for document
management, document imaging, enterprise report management, and workflow process
re-engineering.
At the time of acquisition, the technology classified as in-process
research and development comprised four projects -- all upgrades to current
technology; OmniTREEV 2.3, AutoTREEV 2.3, AutoTREEV 3.0 and eTREEV. OmniTREEV
2.3 is an upgrade from version 2.0 and will include significant performance
improvements and enhancements to such services. AutoTREEV 2.3 is an upgrade to
version 2.0 and will include 32-bit administration tools, auto workbasket
improvements, desktop display improvements, and Arts capabilities for the
telecommunications market. AutoTREEV 3.0 is a complete re-write of the existing
AutoTREEV product to better target the product to the needs of collaborative
workflow and e-commerce through the use of e-processes on the world wide web.
eTREEV improvements will be made to the user interface, performance and print
and search utilities.
The stage of completion (based on development hours incurred as a
percentage of total expected hours), status of development and complexity of
work already completed for these projects at the valuation date was as follows:
OmniTREEV 2.3 was 58% complete. OmniTREEV 2.3 development work completed at
valuation date was only moderately complex since it was a significant
enhancement to an existing product. AutoTREEV 2.3 was 52% complete. AutoTREEV
2.3 development work completed at valuation date was only moderately complex
since it was a significant enhancement to an existing product. AutoTREEV 3.0 was
51% complete. AutoTREEV 3.0 development work completed at valuation date was
both unique and complex due to the fact that it was a completely new system
which explored new paradigms for automating workflow on the web. eTREEV was 61%
complete. eTREEV development work completed at valuation date was unique and
extremely complex because it relied on a TREEV invention (Split Adapter, patent
pending) to provide a client server functionality through the internet.
The remaining efforts at valuation date to complete and estimated costs of
the projects are as follows:
<TABLE>
<CAPTION>
COSTS INCURRED
FROM VALUATION
DATE TO
ESTIMATED COSTS DESCRIPTION OF EFFORTS JUNE 30, 2000
--------------- ------------------------------- --------------
<S> <C> <C> <C>
OmniTREEV 2.3 $ 396,067 Minor code completion, quality $164,657
assurance, beta testing, and
packaging
AutoTREEV 2.3 $ 150,342 Minor code completion, quality $ 72,484
assurance, beta testing, and
packaging
AutoTREEV 3.0 $1,383,943 Major effort to complete $196,284
coding, market testing, quality
assurance, beta testing, and
packaging
ETREEV $1,102,102 Major effort to complete $435,772
coding, quality assurance, beta
testing, and packaging
</TABLE>
All four of these projects are key to TREEV's success and represent the
majority of expected software revenues for the period ending 12 months after the
scheduled completion date. If they had not been developed, TREEV would not be a
viable software supplier within 12 months of their expected delivery.
TREEV has a long history of successful software development. None of these
products had such complex development remaining that timing of their release was
expected to be significantly other than projected. There was not a significant
risk of the projects not being completed for technical reasons.
OmniTREEV 2.3 and AutoTREEV 2.3 were completed on their scheduled
completion dates. Although these products are still too new to evaluate revenue
attainment, they both were the basis for the implementation of two significant
telecommunication company projects in the first half of 2000. AutoTREEV 3.0 and
eTREEV are scheduled to be released within 30 days of the expected release
dates.
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<PAGE> 90
There have been no material changes in the expected product functionality,
architecture or final availability for any of these products.
All projects are expected to be successfully developed. The expected
release dates of the projects are as follows:
<TABLE>
<S> <C>
OmniTREEV 2.3 March 2000
AutoTREEV 2.3 March 2000
AutoTREEV 3.0 February 2001
ETREEV March 2000
</TABLE>
In addition to the above, at the time of the acquisition, CE also acquired
TREEV's current technologies, including DocuTREEV, OmniTREEV 2.0, eTREEV,
dataTREEV, AutoTREEV, TREEV Explorer, TREEV/Profile and TREEV/Pks.
The values of the current technology and technology under development were
estimated by discounting to present value the cash flows to be derived from the
current and future products. The projected revenues, profit margins and
operating expenses used in the valuation are based upon the most likely future
revenues, as estimated by TREEV and CE management. These assumptions do not
assume any anticipated expense reductions or synergies as a result of the
acquisition.
Discounts rates of 20% and 25% were used for current technology and
technology under development. The discount rates are based on generally accepted
venture capital rates corresponding to TREEV's size longevity, and stage of
financial development.
(3) CE has issued a total of 661,150 of its ordinary shares for 76% of the
issued and outstanding Insiders ordinary shares.
For purposes of the unaudited pro forma condensed consolidated financial
information, the cost of the acquisition has been determined to be DM34.3
million. The purchase consideration is based on the average market price of
E26.5 (adjusted for CE's five-for-one stock split in August 2000), or
approximately DM51.89, per CE ordinary share for a short period before and
after the terms of the acquisition were announced on February 22, 2000. CE
has used an average of the closing share prices on the day the acquisition
was announced and on the trading day immediately before and after the
acquisition was announced.
The cost of the acquisition is allocated to the pro forma balance sheet as
follows (in millions of DM):
<TABLE>
<S> <C>
Total cost of acquisition................................... 34.3
Less: net assets of Insiders................................ (2.0)
----
Goodwill.................................................... 32.3
====
</TABLE>
The total purchase price of the acquisition has been allocated on a
preliminary basis to assets and liabilities based on CE's management's
estimate of their fair values. The excess of the purchase price over the
fair value of the net assets acquired has been allocated to goodwill having
an estimated useful life of 3 years. Final allocations will be made upon
completion of valuations which are currently being undertaken. However,
such final purchase price allocations are not expected to materially affect
the unaudited pro forma condensed consolidated balance sheet taken as a
whole.
(4) The adjustments reflect the issuance of CE ordinary shares in exchange for
(1) all of TREEV's common shares, Series A preferred shares, employee stock
options and warrants and (2) 76% of Insiders outstanding ordinary shares.
The adjustments also reflect the minority interest in net assets and income
(loss) for the portion of Insiders that CE does not own.
(5) The adjustments reflect preliminary amortization of goodwill of DM42.6
million and DM21.3 million for the year ended December 31, 1999 and the six
months ended June 30, 2000, respectively, arising
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<PAGE> 91
from the acquisition of TREEV as well as amortization of other identifiable
intangible assets of DM24.7 million and DM12.4 million, respectively. See
Note 3 above with respect to the preliminary nature of CE's purchase price
allocation. The adjustments also reflect preliminary amortization of
goodwill of DM10.8 million and DM5.4 million for the year ended December
31, 1999 and the six months ended June 30, 2000, respectively, arising from
the acquisition of Insiders.
(6) The adjustments reflect the income tax benefit related to the amortization
of identifiable intangible assets (excluding goodwill) at a tax rate of
38%.
(7) The adjustments represent the dividends paid on TREEV preferred stock in
1999 and the first half of 2000. After the exchange of TREEV preferred
shares into CE ordinary shares, the right to receive a preferred stock
dividend will cease.
(8) Pro forma combined basic earnings per CE ordinary share has been calculated
by dividing pro forma combined net loss by the weighted average CE ordinary
shares outstanding after completion of the merger with TREEV and the
acquisition of Insiders.
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<PAGE> 92
TREEV SELECTED FINANCIAL INFORMATION
The following tables set forth selected financial data for the five years
ended December 31, 1999 and the nine months ended September 30, 2000 and 1999.
The statement of operations data for each of the five years ended December 31,
1999 and the balance sheet data as of those dates have been derived from TREEV's
Consolidated Financial Statements. The Consolidated Financial Statements for
each of the four years ended December 31, 1999 have been audited by Ernst &
Young LLP. The Consolidated Financial Statements for the year ended December 31,
1995 have been audited by other independent auditors. The historical financial
data for the nine months ended September 30, 2000 and 1999 have been derived
from TREEV's unaudited Consolidated Financial Statements. The financial data
should be read in conjunction with TREEV's Consolidated Financial Statements,
related notes, and other financial information included in this proxy
statement/prospectus.
STATEMENT OF OPERATIONS DATA
(in thousands, except share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................. $16,721 $22,157 $ 31,209 $ 28,202 $ 35,806 $ 39,477 $ 69,151
Net loss................. (8,063) (3,026) (2,636) (7,344) (11,339) (17,341) (24,963)
Net loss applicable to
common shares.......... (9,074) (4,037) (3,984) (8,692) (14,310) (21,071) (34,896)
Net loss per common
share.................. $ (0.59) $ (0.32) $ (0.30) $ (1.12) $ (2.27) $ (4.08) $ (9.64)
======= ======= ======== ======== ======== ======== ========
</TABLE>
BALANCE SHEET DATA
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total assets............................. $19,928 $23,291 $19,522 $26,860 $36,778 $49,964
Working capital.......................... (6,177) 2,202 2,516 9,980 9,893 13,454
Long-term debt........................... 322 120 43 1,108 88 1,264
Redeemable preferred stock............... -- -- -- 6,548 9,857 15,478
Stockholders' equity (deficit)........... (461) 7,425 7,530 7,969 11,717 10,185
</TABLE>
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<PAGE> 93
TREEV MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. TREEV's actual results may differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Cautionary Statement Concerning
Forward-Looking Statements" and elsewhere in this proxy statement/prospectus.
The following discussion is based on the audited consolidated financial
statements of TREEV prepared in accordance with U.S. GAAP for the fiscal years
ended December 31, 1997, 1998 and 1999 and on the unaudited interim financial
statements for the nine months ended September 30, 1999 and 2000. The reporting
currency for all periods is the U.S. dollar. You should read this discussion in
conjunction with the financial statements (including notes) of TREEV that begin
at page F-43".
RESULTS OF OPERATIONS
TREEV accounts for product revenues from the sale of software licenses
pursuant to AICPA Statement of Position 97-2 "Software Revenue Recognition".
Accordingly, revenues are recognized when license agreements are fully executed,
the product has been shipped, the fees are fixed and determinable,
collectibility is probable and objective evidence exists (i.e. third party
agreements or similar evidence specific to TREEV) to allocate the total fee to
elements of the arrangement(s). If TREEV has ongoing obligations under the
arrangement(s), revenue is deferred based on objective evidence of the
undelivered element. If objective evidence does not exist for all undelivered
elements, all revenue is deferred until sufficient evidence exists or all
elements have been delivered. Payments received in advance of revenue
recognition are recognized as deferred revenue. TREEV's software license
agreements do not (1) entitle the buyer to any right of return or exchange, or
(2) grant the customer any right to product upgrades or enhancements.
TREEV determines its specific objective evidence of the fair value of its
products and services based on actual amounts charged to third party customers
for the specific elements when such elements are sold separately. These amounts
are based on separately established prices for the individual elements in
TREEV's internally published price lists. The internally published price list is
the basis for the computation of maintenance fees (i.e., a specific percentage
of list price which does not vary from customer to customer). In addition,
TREEV's general services administration (GSA) schedule represents consistent
relative pricing, on a discounted basis, to its internally published price lists
and sales to federal, state, and local government entities are at the GSA
schedule price by product or service. TREEV generally grants discounts for
volume purchases, returning customers, and market competition on a case by case
basis. These discounts are applied to software products delivered, on a pro rata
basis as compared to the internally published list prices. Discounts are
generally denoted, in the aggregate, in the written arrangement. TREEV does not
generally discount services, maintenance, or hardware elements of its
arrangements. In addition, all service elements in customer contracts (such as
training, conversion or installation services) are separately priced in the
written contract, not bundled with any products and based on separately
established billing rates. These billing rates are used by TREEV's professional
services group when providing such services independent of software or product
sales as well as being published on TREEV's GSA schedule. TREEV's vendor
specific objective evidence generally does not vary from customer to customer
within given classes of customers (i.e. end users vs. business alliance program
customers).
Software maintenance revenue is recognized ratably over the contract
period, which is generally one year. Services revenue from basic training,
installation or consulting services is recognized upon performance of the
services where the customer contract is of a time and material nature and there
are no significant remaining TREEV obligations.
In addition to product revenues generated from sales of software licenses
and hardware, TREEV provides a variety of services to its customers ranging from
basic installation and conversion services to complex custom programming
services. Basic services, such as data conversions, which are not technically
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<PAGE> 94
difficult but are labor intensive and for which reasonably dependable estimates
can be made, are accounted for under SOP 81-1 using the percentage-of-completion
method based on labor hours. Basic service contracts are generally routine in
the delivery and installation process of TREEV's software products and generally
do not have customer acceptance clauses. Complex service contracts, such as
custom programming, generally contain customer acceptance clauses or contractual
milestones, which must be achieved before the customer can be billed.
Accordingly, revenue is not recognized until customer acceptance or achievement
of the contractual milestones. The customer acceptance clauses generally require
TREEV solutions to meet specific, measurable, objective performance criteria and
are generally readily determinable based on contractual terms. TREEV has not
historically experienced any significant level of dispute with its customers
regarding its completion of customer acceptance or contractual milestones.
Maintenance and service agreements are marketed under separate annual agreements
that are not combined with other products sold by TREEV.
Nine months ended September 30, 2000 and 1999
Revenues. Total revenues were $16.7 million and $22.1 million for the nine
months ended September 30, 2000 and 1999, respectively. The $5.4 million
decrease in revenue was the result of a decrease in product revenue of $5.8
million, or 47%, offset by an increase in service revenue of $400,000, or 4%.
Management believes that the decrease in product revenue was the result of
certain events and factors that include the delayed implementation of sales and
marketing plans due to the pending merger and the delay in completing the
merger; the inability to attract and retain qualified sales representatives
pending the merger; the inability to close forecasted sales; and increased
competition in TREEV's banking sector. Although management believes that the
closing of the pending merger in the near term will result in increased sales,
there can be no assurances that these trends will not continue. The increase in
service revenue was attributable to increased staffing and continued management
emphasis on the professional services business.
Profit margins. Profit margins for product sales decreased 9% for the nine
months ended September 30, 2000, compared to the same period in 1999, as cost of
products sold increased from 43% to 52% of sales. The decrease in product sales
margins from 57% to 48% was due to a decrease in hardware margin contribution as
a result of competitive pressures in obtaining or securing sales. Profit margins
for service sales increased 2% for the nine months ended September 30, 2000,
compared to the same period in 1999, as the cost of services decreased from 64%
to 66% of sales. The decrease in service sales margins from 36% to 34% was
largely due the increase in costs related to third party consultants.
Sales and marketing. Sales and marketing expenses were $7.7 million, or
46% of revenue, for the nine months ended September 30, 2000, compared to $7.8
million, or 35% of revenue, for the same period in 1999. The decrease of
$100,000, or 1%, was the result of the reduced sales expenses attributable to
the decrease in product revenue for the period.
General and administrative. General and administrative expenses were $3.0
million, or 18% of revenue, for the nine months ended September 30, 2000,
compared to $2.4 million, or 11% of revenue, for the same period in 1999. The
increase of $600,000, or 24%, was due to increased operating expenses related to
costs associated with the pending merger, increased employee benefits, business
taxes, legal fees and rent and utilities on the new corporate office facility.
Product development. TREEV's expenditures on software research and
development activities for the nine months ended September 30, 2000, were $4.9
million, of which $1.7 million were capitalized and $3.2 million were expensed.
Research and development expenditures for the same period in 1999 were $4.4
million, of which $1.3 million were capitalized and $3.1 million were expensed.
The $500,000 increase in research and development expenditures was due to
TREEV's continued development of new products and enhancements to existing
products to maintain TREEV's competitive product and market position.
Net loss. TREEV's net loss for the nine months ended September 30, 2000,
was $8.1 million as compared to $3.0 million for the comparable period in 1999.
The net loss increase of $5.1 million was primarily due to the decrease in
revenue and related margins, along with the increases in general and
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<PAGE> 95
administrative expenses as described above and a $600,000 increase in interest
expense due to increased borrowings under the subordinated notes.
Net loss applicable to Common Shares. The net loss applicable to common
shares includes adjustments for dividend amounts related to TREEV's preferred
shares. The net loss applicable to common shares was $9.1 million, or $.59 per
share, for the nine months ended September 30, 2000, as compared to $4.0 million
or $.32 per share, for the comparable period in 1999. The increase in net loss
applicable to common shares is attributable to the increase in net loss
described above.
Years ended December 31, 1999, 1998 and 1997
Revenue. Total revenue was $31 million in 1999, $28 million in 1998 and
$36 million in 1997. The increase in total revenue in 1999 over 1998 of $3
million, or 11%, resulted primarily from an increase in service revenue of $1.9
million, or 17%, and an increase in product revenue of $1.2 million, or 7%. The
decrease in total revenue in 1998 over 1997 of $7.6 million, or 21%, resulted
primarily from a decrease in service revenue of $6.1 million, or 35%, and a
decrease in product revenue of $1.5 million, or 8%.
The increase in product revenue in 1999 over 1998 was attributable to
continued growth of TREEV's direct and indirect channels along with the
introduction of the eTREEV product technology. The decrease in product revenue
in 1998 over 1997 was attributable to an increase of $2.1 million, or 14%, in
comparative company revenues, offset by a decrease of $3.6 million due to the
disposition in 1997 of Dorotech, TREEV's subsidiary in France.
The increase in service revenue in 1999 over 1998 of $1.9 million was a
result of increased software maintenance contract revenue and continued growth
of professional services business. The decrease in service revenue in 1998 over
1997 of $6.1 million was a result of a $7.7 million decrease due to the
disposition of Dorotech, offset by a $1.6 million, or 16%, increase in
comparative company revenues.
During 1999, TREEV launched the Business Alliance Program (BAP) as a sales
and marketing effort to expand its indirect sales channel through resellers and
systems integrators. The purpose of the program was to roll out our newly
released TREEV Suite of products to existing resellers and to attract new
resellers to TREEV. As a result of the BAP, TREEV initiated relationships with
new resellers which allowed resellers to purchase licenses of TREEV's software
products at discounted rates based on commitments from the resellers to meet
certain volume requirements. The terms and conditions of the BAP agreements were
consistent with prior agreements entered into with longstanding resellers in
similar lines of business. TREEV anticipated these resellers, primarily value
added resellers, systems integrators, and original equipment manufacturers,
would increase the distribution and market share of TREEV's document management
solutions. TREEV management evaluated the new resellers' credit ratings,
business reputation, and ability to comply with the terms of the BAP agreements
prior to initiating the relationships. However, during the fourth quarter of
1999, TREEV experienced a significant number of new resellers not complying with
the financial obligations under the BAP agreements as amounts became due in
full. TREEV management initiated a review of these relationships to determine
the degree of correlation among the new resellers and lack of financial
performance in a timely manner. In addition, TREEV considered the lack of
financial performance of the new resellers based on the collectibility criteria
of SOP 97-2 and determined that the software revenues related to such
arrangements no longer met that criteria as amounts due from those resellers
were generally not paid in full when due. Based on the results of management's
review of new resellers, TREEV, after consultation with its independent
auditors, determined that certain revenues previously recognized should be
reversed and recognized when payments become due or, if collectibility is not
readily determinable, at such time as collectibility becomes probable. Until
sufficient history with specific new resellers is achieved to determine the
future likelihood that the new resellers' financial obligations will be met in
accordance with the original terms of such agreement, these policies will
continue to be followed by TREEV.
During 1999, TREEV experienced a reduction in sales to end users of its
software and services during the first and second fiscal quarters due to the end
users' hesitancy to purchase and install new software in advance of the Year
2000. TREEV experienced a reversal of these trends in the third and fourth
quarter as the installation process began to extend into the Year 2000.
Accordingly, a significant number of TREEV's annual revenues were generated from
sales in the final six months of the year and a higher
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<PAGE> 96
percentage of sales to end users remained outstanding at year-end. In addition,
TREEV initiated a significant marketing effort in 1999 to increase the number of
customers in its business alliance program as a catalyst and support vehicle to
increase sales of its software products through indirect sales partners such as
value added resellers, system integrators and original equipment manufacturers.
During the year ended December 31, 1999, accounts receivable increased 21%
principally due to the higher percentage of annual sales to end users in the
final six months of the year and increased sales to business alliance program
partners. As a result, accounts receivable turnover has decreased from 2.8 in
1998 to 2.5 in 1999.
Profit Margins. Profit margins for product sales continued to improve in
1999 over 1998 from 59% to 62% as the cost of products sold decreased from 41%
to 38% of sales. Profit margins for product sales increased in 1998 over 1997
from 54% to 59% as the cost of products sold decreased from 46% to 41% of sales.
The increase in product sales margins was primarily due to the increased sales
mix of TREEV's internally developed software.
Profit margins for service sales increased in 1999 over 1998 from 32% to
37% as the cost of services decreased from 68% to 63% of sales. The increase in
service sales margins was due to the continued growth of maintenance revenue and
professional services business which provided more contribution towards its
fixed costs. Profit margins for service sales increased in 1998 over 1997 from
22% to 32% as the cost of services decreased from 78% to 68% of sales.
Product Development. TREEV's expenditures on software research and
development activities in 1999 were $5.9 million, of which $1.8 million were
capitalized and $4.1 million were expensed. TREEV's expenditures on software
research and development activities in 1998 were $5.4 million, of which $1.6
million were capitalized and $3.8 million were expensed. The $500,000 increase
in research and development expenditures was primarily attributable to the
development of TREEV's new eTREEV product technology. TREEV's expenditures on
software research and development activities in 1997 were $5.9 million, of which
$1.5 million were capitalized and $4.4 million were expensed. The $500,000
decrease from 1998 in research and development expenditures was attributable to
TREEV's 1997 disposition of Dorotech, which reduced research and development
expenditures by $800,000, offset by a $300,000 increase in comparative TREEV's
research and development expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $14.2 million, or 46% of revenue, in 1999, $15.6
million, or 55% of revenue, in 1998 and $20.3 million, or 57% of revenue, in
1997. The decrease in 1999 compared to 1998 of $1.4 million, or 9%, was due to
TREEV's continued cost reduction efforts. The decrease in 1998 compared to 1997
of $4.7 million, or 23%, was the result of TREEV's 1997 disposition of Dorotech,
which accounted for a $3.6 million decrease in addition to a $1.1 million
decrease in general and administrative expenses from continuing operations due
to TREEV's increased cost reduction efforts.
Restructuring Costs. During the second quarter of 1998, TREEV committed to
a restructuring plan and incurred a charge of $1.5 million. See Note 10 to the
TREEV Consolidated Financial Statements included in this proxy
statement/prospectus.
During 1994, TREEV committed itself to a plan of restructuring which was
designed to improve operating results by concentrating its resources on the
marketing and continued development of its 1View suite of software products. In
connection with its restructuring plan, TREEV, during 1995, 1996 and 1997,
disposed of a number of operating units, which were not considered complimentary
to its business. During the fourth quarter of 1997, TREEV sold the stock of its
French subsidiary, Dorotech. This disposition did not constitute a major line of
business or class of customer since Dorotech's operations and customer base was
similar to the TREEV's continuing operations. Accordingly, the gain of $266,000
before income tax considerations was recognized as a component of income from
continuing operations in 1997.
Interest Income (Expense), Net. Net interest expense was $346,000 in 1999,
$56,000 in 1998 and $286,000 in 1997. The $290,000 increase in interest expense
was attributable primarily to draws on the line of credit with a commercial bank
and the issuance of subordinated promissory notes during 1999. See Note 7 to the
TREEV Consolidated Financial Statements included in this proxy
statement/prospectus.
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<PAGE> 97
The $230,000 decrease in interest expense from 1997 to 1998 was attributable
primarily to the line of credit with a stockholder drawn on during 1997 which
was converted into equity at the end of 1997 and the beginning of 1998.
Net Loss. TREEV's net loss was $2.6 million in 1999, $7.3 million in 1998
and $11.3 million in 1997. The $4.7 million decrease in net loss between 1999
and 1998 was primarily due to the $2.4 million increase in profit margins, the
$1.4 million decrease in selling, general and administrative expenses and the
$1.5 million decrease in restructuring costs, offset by the increases in product
development costs and interest expense. The $4.0 million decrease in net loss
between 1998 and 1997 was due to the $4.7 million decrease in selling, general
and administrative expenses and the $600,000 decrease in product development
expenses, offset by the $1.5 million restructuring costs.
Net Loss Applicable to Common Shares. Net loss applicable to common shares
includes adjustments for accrued and imputed dividends related to TREEV's
preferred stock. The net loss applicable to common shares was $4.0 million, or
$0.30 per share, in 1999; $8.7 million, or $1.12 per share, in 1998; and $14.3
million, or $2.27 per share, in 1997. The decrease in 1999 over 1998 was
primarily attributable to the decrease in net loss described above and an
increase in the weighted average shares outstanding. The decrease in 1998 over
1997 was primarily attributable to the decrease in net loss described above. The
imputed dividends of $1.5 million recognized during 1997 were non-cash and
related to the below market conversion feature of TREEV's Series K and L
Preferred Stock. See Note 8 to the TREEV Consolidated Financial Statements
included in this proxy statement/prospectus.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, TREEV had $750,000 in cash and cash equivalents,
as compared to $1.9 million in cash and cash equivalents at December 31, 1999.
Net working capital was $(6.2) million at September 30, 2000 and $2.2 million at
December 31, 1999. TREEV's net tangible assets were $(450,000) and $7.4 million
as of September 30, 2000 and December 31, 1999, respectively.
For the nine months ended September 30, 2000, the $1.1 million decrease in
cash and cash equivalents resulted from $2.1 million in cash used in operating
activities and $1.6 million in cash used in investing activities, offset by $2.6
million in cash provided by financing activities.
The $2.1 million used in operating activities arose primarily from the $8.1
million loss from operations, offset by the $2.5 million decrease in accounts
and notes receivable, the $700,000 increase in accrued expenses, the $500,000
increase in deferred revenue and the $1.7 million in depreciation and
amortization charges. The $1.6 million used in investing activities arose
primarily from capitalized software development costs of $1.7 million. The $2.6
million provided by financing activities arose primarily from the $2.5 million
proceeds from the issuance of the promissory notes and $500,000 proceeds from
the issuance of common stock, offset by the $300,000 in repayments of TREEV's
revolving line of credit.
As of November 17, 2000 TREEV had not yet repaid a $1 million loan from a
third party lender due June 1, 2000 pursuant to the terms of a subordinated
promissory note issued by TREEV in favor of the third party lender. The terms of
the promissory note call for repayment of the loan in cash.
For 1999, the $241,000 increase in cash and cash equivalents resulted from
a $6.9 million use of cash from operating activities, $2.0 million used in
investing activities and $9.2 million provided by financing activities. The $6.9
million use of cash in operating activities arose primarily from the $2.6
million loss from operations offset by $2.3 million in depreciation and
amortization charges, $2.7 million increase in accounts and notes receivable,
$2.7 million decrease in deferred revenues, $780,000 decrease in accrued
expenses and $579,000 increase in prepaid and other expenses. The $2.0 million
used by investing activities arose from the $1.8 million increase in capitalized
software development costs and $580,000 purchase of fixed assets, offset by
$340,000 proceeds from business divestitures. The $9.2 million in cash provided
by financing activities arose primarily from the issuance of the convertible
notes and the subordinated notes along with the draws under TREEV's revolving
line of credit.
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For 1998, the $2.2 million decrease in cash and cash equivalents resulted
from a $4.5 million use of cash from operating activities, $5.0 million provided
by investing activities and $2.7 million used in financing activities. The $4.5
million use of cash in operating activities arose primarily from the $7.3
million loss from operations offset by $2.3 million in depreciation and
amortization charges. The $5.0 million provided by investing activities arose
from the proceeds of business divestitures, offset by capitalized software
development costs and the purchase of fixed assets. The $2.7 million in cash
used in financing activities arose primarily from the $4.3 million proceeds from
the issuance of common stock and the $9.7 million proceeds from the issuance of
convertible preferred stock, offset by payments of $13.6 million to redeem
portions of TREEV's preferred stock, $1.7 million to redeem a portion of TREEV's
convertible debentures, preferred stock dividends of $700,000 and net payments
in capital leases of $700,000.
For 1997, the $3.8 million decrease in cash and cash equivalents resulted
from a $6.6 million use of cash from operating activities, $2.3 million used in
investing activities and the generation of $5.2 million from financing
activities. The $6.6 million use of cash in operating activities arose primarily
from the $11.3 million loss from operations offset by $4.5 million in
depreciation and amortization charges. The $2.3 million to fund investing
activities arose with respect to capitalized software development costs and the
purchase of fixed assets. The $5.2 million in cash provided by financing
activities arose primarily from the $4.7 million proceeds from the issuance of
convertible preferred stock and proceeds of $6.9 million from borrowings, offset
by payments of $3.5 million to repurchase a portion of TREEV's Series F
preferred stock, preferred stock dividends of $1.8 million and net payments in
debt and capital leases of $1.5 million.
As a result of stock offerings in 1998, TREEV received net proceeds of
approximately $14.0 million before offering costs of approximately $1.0 million.
Under the offerings, TREEV issued 1,334,625 shares of common stock and 1,560,576
shares of preferred stock. The net proceeds of the offerings were used to redeem
TREEV's preferred stock and for working capital purposes.
As a result of stock offerings in 1997, TREEV received net proceeds of
approximately $9.3 million before offering costs of approximately $1.4 million.
Under the offerings, TREEV issued 43,723 shares of common stock and 10,550
shares of preferred stock. The net proceeds of the offerings were used for
working capital purposes.
At September 30, 2000, the annual dividend requirement on TREEV's Series A
Preferred Stock was $0.84 per share annually, payable quarterly, in cash or
common stock at TREEV's discretion. Dividends on TREEV's Series M and M1
Preferred Stocks were payable in cash or common stock, at TREEV's election,
however, TREEV's Series M and M1 Preferred Stock was converted into TREEV common
shares in 2000.
During the first quarter of 1999, TREEV secured a $5 million revolving line
of credit from a commercial bank. TREEV can draw up to $5 million on the line of
credit for working capital needs based on 80% of its eligible receivables. The
line of credit bears interest at a rate equal to prime plus 2%. The line of
credit shall remain in effect until November 30, 2000. The line of credit is
collateralized by all of TREEV's accounts receivable, inventory, equipment,
general intangibles, and other personal property assets. At September 30, 2000,
TREEV had $4.5 million outstanding under the line of credit.
With the exception of the first three quarters of 2000, the adverse results
of operations that TREEV has experienced have been declining. Although TREEV
expects the trend of improved operating results to continue, TREEV cannot assure
you that it will not experience adverse results of operations in the future.
TREEV common shares and Series A preferred shares are listed on the Nasdaq
National Market, which requires companies to comply with certain listing and
maintenance requirements. In 1997, TREEV fell below the requirement to maintain
net tangible assets of at least $4 million. TREEV appealed to a Nasdaq Listing
Qualifications Panel, who allowed TREEV to continue to trade on Nasdaq but
required TREEV to have a minimum of $6 million in net tangible assets to ensure
long-term compliance with the requirement. TREEV achieved net tangible assets in
excess of $6 million at the end of 1997. As of September 30, 2000, however,
TREEV again fell below the $4 million net tangible asset requirement. If
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the merger is not effected, there can be no assurance that TREEV will be able to
comply with the net tangible asset requirement.
TREEV has continued to experience delays in collections from the new
resellers for which it reversed revenue in 1999. There can be no assurance that
TREEV will be able to collect these amounts, which total approximately $1
million. Anticipated cash flows from operations are largely dependent upon
TREEV's ability to achieve its sales and gross profit objectives for its TREEV
suite of products. If TREEV is unable to meet these objectives, it will consider
additional borrowings or offerings of debt or equity securities and/or further
reductions of operating expenses, such as travel, marketing, consulting and
salaries.
IMPACT OF YEAR 2000
In prior years, TREEV discussed the nature and progress of its plans to
become year 2000 ready. In late 1999, TREEV completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
TREEV experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the year 2000 date change. TREEV is not aware of any
material problems resulting from year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. TREEV will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent year
2000 matters that may arise are addressed promptly.
INFLATION
During the years ended December 31, 1999, 1998 and 1997, the effects of
inflation on TREEV's operations were not material.
SEASONALITY
There is no marked seasonality within TREEV's business, although TREEV
experiences sales peaks in the second half, especially in the fourth quarter, of
its fiscal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, TREEV had not entered into derivative financial
instruments.
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CE SELECTED FINANCIAL INFORMATION
The following tables contain selected historical financial data of CE for
each of the years in the three-year period ended December 31, 1999 and for the
six-month periods ended June 30, 1999 and 2000.
CE's financial statements have been prepared in accordance with U.S. GAAP.
The selected historical financial data of CE has been derived from, and should
be read in conjunction with, CE's consolidated financial statements as of and
for the years ended December 31, 1997, 1998 and 1999, including the notes
thereto and the condensed consolidated financial information for the six-month
periods ended June 30, 1999 and 2000, included in this proxy
statement/prospectus.
CONSOLIDATED STATEMENTS OF INCOME DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------------
2000 1999 1999 1998 1997
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............. DM60,891 DM38,373 DM98,110 DM45,427 DM19,441
Net income (loss).... 1,792 (1,337) 2,407 1,908 772
Net income (loss) per
common share....... DM 0.09 DM (0.07) DM 0.12 DM 0.13 DM 0.07
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------------
2000 1999 1998 1997
--------- --------- ------------ --------
<S> <C> <C> <C> <C>
Working capital................ DM 59,190 DM 56,811 DM 24,847 DM(1,715)
Intangible assets.............. 26,126 29,924 31,364 636
Total assets................... 168,806 156,615 106,142 31,985
Long-term obligations.......... 27,649 27,004 9,171 6,909
Shareholders' equity........... DM 76,774 DM 74,982 DM 72,575 DM 2,647
</TABLE>
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CE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. CE's actual results may differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
proxy statement/prospectus. The following discussion is based on the audited
consolidated financial statements of CE prepared in accordance with U.S. GAAP
for the fiscal years ended December 31, 1997, 1998 and 1999 and on the unaudited
interim financial statements for the six months ended June 30, 1999 and 2000.
The reporting currency for all periods is the German Mark. You should read this
discussion in conjunction with the financial statements (including notes) of CE
that begin at page F-1.
OVERVIEW
CE is a leading European producer of systems for integrated document
management and archiving. CE Computer Equipment GmbH was formed in Germany in
1984 and merged as of January 1, 1998 into CE Computer Equipment AG, a stock
corporation that was incorporated in 1998 for the purpose of enabling the
flotation and listing of the CE shares. In April 1998, CE made its initial
public offering on the Neuer Markt in Germany in order to finance the growth and
expansion of the company and to give CE's employees the opportunity to
participate in the success of the business through an offering to employees that
was part of the initial public offering.
CE has been active as a systems integrator in the German market for
document management and archiving systems since its inception in 1984. Since
1995, CE has developed into a supplier of software products for integrated
document and output management systems.
CE's systems automate the archiving, retrieval, delivery and reuse of
business documents within and among enterprises. CE's systems can manage high
volumes of documents and data and are capable of being deployed globally and
across an organization. CE provides enterprise-wide archiving and document
management systems based on industry-standard client/server and intranet
technology.
CE sells, distributes and supports its products through direct sales to
major corporations and through a third-party network of partners and
manufacturers, who incorporate CE's software into their products. CE has more
than 1,500 customers across a broad range of industries, including financial
services, manufacturing and retail, public sector, telecommunications,
transportation and utilities. The large majority of CE's sales are to customers
in the German-speaking part of Europe; in addition, CE's products are installed
with end customers in over 25 different countries. CE's customers include the
Siemens Group, the RWE Group and many German savings banks and insurance
companies. End customers in non-German speaking countries include Renault, Shell
and Telecom Italia.
CE's fiscal years 1998 and 1999 and the first six months of the fiscal year
2000 showed a strong increase in revenues from the document management and
imaging systems (DMS) area due to internal growth and strategic acquisitions.
During this period, CE's revenues from licenses grew significantly due to the
successful launch of new products, which broadened CE's product portfolio, and
the focus on higher margin products. In addition, CE is migrating its product
portfolio into markets with strong growth potential such as the markets for
web-based information management and for intelligent, knowledge-based document
and information management. The increase in revenues also resulted from the
expansion of CE's products to a broad range of industries, which significantly
enhanced its customer base. CE achieves a significant amount of its revenues
from sales to its customers in the banking sector. In addition, CE has
significantly expanded its sales to customers in the insurance sector through
dedicated marketing efforts and the development of products specifically
tailored to the insurance sector. Revenues from hardware decreased as a
percentage of total revenues as CE shifted its focus from lower margin products
such as hardware to higher margin products such as software licenses. In
addition, CE intends to expand the number of its consulting professionals and
the scope of services it offers.
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In addition, CE's fiscal years 1998 and 1999 and the first six months of
fiscal year 2000 showed an increase in revenues from the document management and
imaging systems area due to strategic acquisitions. The following table sets
forth the companies acquired, the dates of acquisition, the percentage of each
company owned by CE and the area of operation of the acquired company:
<TABLE>
<CAPTION>
PERCENTAGE
OWNED BY
COMPANY ACQUIRED DATE OF ACQUISITION CE AREA OF OPERATION
---------------- ------------------- ---------- ------------------------------------
<S> <C> <C> <C>
1998
SiDoc GmbH (acquired October 1, 1998 100% Develops, sells and implements
from Siemens Nixdorf document management systems
Informationssysteme
AG)(1)
Group Dr. Rainer Kossow Fourth quarter 100% Operates in the Lotus Notes
EDV- environment and provides CE access
Unternehmensberatung to the Lotus Notes groupware market
GmbH, Munster (Group
Munster)
Group Wege & Partner Fourth quarter 100% Operates in the Lotus Notes
EDV- environment and provides CE access
Unternehmensberatung to the Lotus Notes groupware market
GmbH, Karlsruhe
(Group Karlsruhe)
1999
HAVI Computer Service July 1, 1999 51%(2) Migration of archive solutions and
GmbH, Hamburg the organization of data management
systems
netconcept Gesellschaft July 1, 1999 100% Provides services, concepts and
fur Netzdienste mbH, support for innovative
Karlsruhe(3) communications systems, especially
the integration of network systems,
on-line and off-line net-services
and multimedia application services.
Netconcept is a Microsoft certified
solution partner specializing in
Microsoft Exchange
Consultec AG October 1, 1999 25%(4) Provider of e-commerce,
e-transaction services and a portal
solution for e-business in the
health care environment
2000
Insiders Information July 20, 2000 76% Develops technology and products for
Management GmbH, intelligent, knowledge-based
Kaiserslautern document and information management
Gesellschaft fur Image- August 2, 2000 100% Specialized in consulting and
Processing and project management in the area of
Archivierung mbH document- related technology (DRT)
(GIA) and document management and imaging
systems
</TABLE>
---------------
(1) Effective January 1, 2000, SiDoc was merged into CE AG.
(2) The remaining 49% is owned by HAVI's initial founders.
(3) In 1999, netconcept was merged with Group Wege & Partner
EDV-Unternehmensberatung GmbH, Karlsruhe.
(4) Of the remaining 75% of Consultec, 12.5% is owned by an additional investor
and 62.5% is owned by Consultec's initial founders.
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The acquisition of SiDoc made CE the main supplier of DMS software to
Siemens worldwide, making it one of the largest vendors of DMS solutions in
Europe. In addition, the acquisition of SiDoc enabled CE to expand its leading
position in the area of financial services and enhanced CE's international
presence in the public administration, retail, manufacturing and services
sectors.
In the six months ended June 30, 2000, CE had total revenues of DM 60.9
million compared to DM 38.4 million in the six months ended June 30, 1999, an
increase of approximately 59%. In fiscal year 1999, CE had total revenues of DM
98.1 million compared to DM 45.4 million in fiscal 1998, an increase of
approximately 116%. During these periods, CE operated in a single business
segment, primarily in Germany.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues
Total Revenues. Total revenues increased DM 22.5 million, or 59%, to DM
60.9 million for the six months ended June 30, 2000 from DM 38.4 million for the
six months ended June 30, 1999. The increase in total revenues was primarily due
to increased sales of CE's products to its customers in the banking and
insurance sector. Consolidated sales of companies acquired in 1999 and 2000 that
were consolidated for the six months ended June 30, 2000 but were not
consolidated for the six months ended June 30, 1999 did not contribute
significantly to total revenues.
Licenses. License revenues increased DM 15.4 million, or 68%, to DM 38.0
million for the six months ended June 30, 2000 from DM 22.6 million for the six
months ended June 30, 1999. The increase in license revenues was due to CE's
focus on the license business and CE's continuing growth in the area of
archiving and document management. CE showed an increase during the six months
ended June 30, 2000 in the number of software licenses sold to new customers,
primarily in the banking sector.
Services. Service revenues increased DM 10.1 million, or 114%, to DM 19.0
million for the six months ended June 30, 2000 from DM 8.9 million for the six
months ended June 30, 1999. The increase in service revenues was mainly due to
the increase in the number of licenses sold and the related increase of services
rendered in connection with the sale of these licenses. The increase in services
rendered was also made possible by the hiring of additional personnel in the
service sector. DM 2.6 million of the increase in service revenues was
attributable to acquired companies (HAVI and netconcept, which forms part of
Group Karlsruhe) which are primarily service companies.
Hardware. Hardware revenues decreased DM 3.0 million, or 44%, to DM 3.9
million for the six months ended June 30, 2000 from DM 6.9 million for the six
months ended June 30, 1999. The decrease in hardware revenues resulted from the
implementation of CE's strategy to shift its sales focus from lower margin
hardware products to higher margin software licenses. CE's hardware revenues for
the six months ended June 30, 2000 were the result of the sale of hardware
components in connection with projects in which CE was asked to provide the
installation of complete document management and imaging systems, including the
hardware.
Cost of Revenues
Total Cost of Revenues. Total cost of revenues increased DM 5.9 million,
or 41%, to DM 20.2 million for the six months ended June 30, 2000 from DM 14.3
million for the six months ended June 30, 1999. The increase in total cost of
revenues is mainly due to an increase in the cost of services, which resulted
from the increase in services revenues, and an increase in the cost of hardware
related to the hardware revenues.
Licenses. Cost of license revenues increased DM 0.4 million, or 29%, to DM
1.8 million for the six months ended June 30, 2000 from DM 1.4 million for the
six months ended June 30, 1999 due to the increase in license revenues. As a
percentage of total license revenues, cost of license revenues decreased
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to 4.7% for the six months ended June 30, 2000 from 6.2% for the six months
ended June 30, 1999. The percentage depends upon the product mix and the extent
to which third-party licenses are integrated into CE's products.
Services. Cost of service revenues increased DM 7.6 million, or 100%, to
DM 15.2 million for the six months ended June 30, 2000 from DM 7.6 million for
the six months ended June 30, 1999 due to the increase in services provided as
described above and the increase in personnel costs attributable to new
employees in the service sector. Cost of service revenues as a percentage of
total service revenues decreased from 85% for the six months ended June 30, 1999
to 80% for the six months ended June 30, 2000 because the companies acquired by
CE in 1999 and 2000 had lower cost of service revenues as a percentage of total
service revenues than CE.
Hardware. Cost of hardware revenues decreased DM 2.0 million, or 38%, to
DM 3.3 million for the six months ended June 30, 2000 from DM 5.3 million for
the six months ended June 30, 1999 due to the decrease in hardware licenses.
Cost of hardware revenues as a percentage of total hardware revenues increased
85% for the six months ended June 30, 2000 compared to 77% for the six months
ended June 30, 1999. The percentage depends upon the product mix and the margins
at which such products can be sold.
Gross Profit
Gross profit increased DM 16.6 million, or 69%, to DM 40.7 million for the
six months ended June 30, 2000 from DM 24.1 million for the six months ended
June 30, 1999 due to the increase in total revenues. Gross profit as a
percentage of revenues increased to 66.8% for the six months ended June 30, 2000
compared to 62.7% for the six months ended June 30, 1999 due to the higher
proportion of license revenues as a percentage of total revenues. Licenses are
generally sold with very high margins. The total increase in gross profit was
mainly due to increased sales of CE's products.
Sales and Marketing
Sales and marketing expenses increased DM 3.2 million, or 29%, to DM 14.1
million for the six months ended June 30, 2000 from DM 10.9 million for the six
months ended June 30, 1999 due to personnel costs attributable to the hiring of
additional personnel. Companies acquired by CE that were consolidated in the six
months ended June 30, 2000, but were not consolidated for the six months ended
June 30, 1999, accounted for DM 2.0 million, or 62.5% of the total increase. As
a percentage of total revenues, sales and marketing expenses decreased to 23.2%
for the six months ended June 30, 2000 from 28.4% for the six months ended June
30, 1999. A large part of CE's sales and marketing expenses are fixed costs. As
a result of this and the increase in CE's total revenues, sales and marketing
expenses as a percentage of total revenues decreased.
Research and Development
Research and development expenses increased DM 2.0 million, or 23%, to DM
10.7 million for the six months ended June 30, 2000 from DM 8.7 million for the
six months ended June 30, 1999 due to personnel costs attributable to the
increase in the number of its research and development personnel. Companies
acquired by CE that were consolidated in the six months ended June 30, 2000, but
were not consolidated for the six months ended June 30, 1999, accounted for DM
1.3 million, or 65% of the total increase.
General and Administrative
General and administrative expenses increased DM 5.1 million, or 85%, to DM
12.6 million for the six months ended June 30, 2000 from DM 7.5 million for the
six months ended June 30, 1999 due to an increase in personnel costs, resulting
from hiring additional personnel and regular salary increases, and an increase
in operating expenses relating to the increase in revenues and the general
development of CE's business. In addition, general and administrative expenses
for the six months ended June 30, 2000 included
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amortization of goodwill of DM 2.3 million attributable to the acquisitions of
HAVI, netconcept and Consultec, and special consulting fees of DM 1.0 million
that related to a study of CE's management of growth and its
internationalization.
Interest and Other Income, net
Interest and Other Income, net decreased DM 531,000 to DM (17,000) for the
six months ended June 30, 2000 from DM 514,000 for the six months ended June 30,
1999 due to an increase in interest expense, partly offset by an increase in
Other Income. The increase in interest expense is due to bank loans that are
being used to finance capital expenditures.
Net Income
As a result of the factors described above, CE recorded net income in the
amount of DM 1.8 million for the six months ended June 30, 2000 compared to a
net loss in the amount of DM 1.3 million for the six months ended June 30, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The results of operations for the years ended December 31, 1999 and 1998
can be summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
IN DM AS % OF IN DM AS % OF
THOUSANDS REVENUES THOUSANDS REVENUES
--------- -------- --------- --------
<S> <C> <C> <C> <C>
REVENUES........................................... 98,110 100.0% 45,427 100.0%
Licenses......................................... 63,609 64.8 29,517 65.0
Services......................................... 22,103 22.5 8,167 18.0
Hardware......................................... 12,398 12.6 7,743 17.0
COST OF REVENUES................................... 32,605 33.2 14,867 32.7
Licenses......................................... 3,686 1,426
Services......................................... 17,731 6,857
Hardware......................................... 11,188 6,584
GROSS PROFIT....................................... 65,505 66.8 30,560 67.3
Sales and Marketing................................ 23,632 24.1 9,880 21.7
Research and Development........................... 15,201 15.5 7,430 16.4
General and Administrative......................... 20,726 21.1 8,831 19.4
OPERATING INCOME (LOSS)............................ 5,946 6.1 4,419 9.7
Interest and Other Income, net..................... 283 0.3 91 0.2
Provision for Income Taxes......................... 3,934 4.0 2,602 5.7
Minority Interest.................................. (112) (0.1) -- --
NET INCOME......................................... 2,407 2.5% 1,908 4.2%
</TABLE>
Revenues
CE's revenues are derived from the sale of perpetual licenses to use its
document management software and related services, which include maintenance and
support, consulting and training services and the related sale of hardware.
Revenues from license arrangements are recognized upon shipment of the product
if a signed contract has been obtained, the total price is fixed and
determinable, collection of the resulting receivable is probable and any
uncertainties with regard to customer acceptance are insignificant. Revenues
from maintenance and support services are deferred and recognized ratably over
the term of the contract. Revenues from consulting and training services are
deferred and recognized when the services are performed and collectibility is
deemed probable. CE has recognized revenue in accordance with Statement
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of Position No. 97-2 "Software Revenue Recognition" of the American Institute
for Certified Public Accountants.
Total Revenues. Total revenues increased DM 52.7 million, or 116%, to DM
98.1 million for the year ended December 31, 1999 from DM 45.4 million for the
year ended December 31, 1998. The increase in total revenues was primarily due
to increased sales of CE's products to new and existing customers, in particular
to CE's customers in the banking and insurance sector. In 1999, 1998 and 1997,
CE entered into framework agreements with several German savings bank
associations who recommended the use of CE's products to their member savings
banks. Orders from these savings banks contributed significantly to the increase
in total revenues for the years ended December 31, 1999 and 1998. CE also
expanded its sales to the insurance sector through dedicated sales and marketing
efforts and the development of products specifically tailored for the insurance
sector. For the year ended December 31, 1999, a significant part of CE's sales
of its products to new and existing customers were conducted through sales to
third-party partners. In addition, the consolidated sales of companies acquired
in 1998 and 1999 contributed DM 29.3 million in the year ended December 31, 1999
which is an increase of DM 21.9 million compared to DM 7.4 million that were
contributed by the companies acquired in 1998 to the total revenues for the year
ended December 31, 1998. SiDoc, Group Munster and Group Karlsruhe were
consolidated for one quarter in 1998 and for the entire year in 1999. Netconcept
and HAVI were consolidated for two quarters in 1999. Total revenues, without
taking into account companies acquired in 1999 and 1998, would have increased DM
30.8 million, or 81.2%, to DM 68.8 million for the year ended December 31, 1999.
Licenses. License revenues increased DM 34.1 million, or 116%, to DM 63.6
million for the year ended December 31, 1999 from DM 29.5 million for the year
ended December 31, 1998. License revenues from companies that were acquired
during 1999 and 1998 represented DM 17.1 million, or 26.9%, of total license
revenues for the year ended December 31, 1999, compared to DM 4.4 million, or
14.9%, for the year ended December 31, 1998. License revenues, without taking
into account companies acquired in 1999 and 1998, increased DM 21.3 million, or
84.8%, to DM 46.5 million for the year ended December 31, 1999. The increase in
license revenues was mainly due to an increase in the number of software
licenses sold to new and existing customers, primarily in the banking and
insurance sector, and an increase in the number of software licenses sold to
CE's third-party partners.
Services. Service revenues increased DM 13.9 million, or 170%, to DM 22.1
million for the year ended December 31, 1999 from DM 8.2 million for the year
ended December 31, 1998. Service revenues include revenues from installation and
training and the provision of consulting services, primarily related to CE's
software products Arcis and CE Archiv and to services provided by the companies
acquired by CE in 1999 and 1998. Service revenues from acquired companies
include revenues from the migration of entire customer systems onto a new
archiving and document management system and from the provision of services in
the Lotus Notes area. Service revenues from companies acquired during 1999 and
1998 represented DM 10.6 million, or 48.0%, of total service revenues for the
year ended December 31, 1999 compared with DM 3.1 million, or 37.8%, for the
year ended December 31, 1998. Without taking into account service revenues from
acquired companies, service revenues increased DM 6.5 million, or 126.7%, to DM
11.5 million for the year ended December 31, 1999. The increase in service
revenues was mainly due to the increase in the number of licenses sold to new
and existing customers and the related increase of services rendered in
connection with the sale of these licenses. In addition, strong sales of
licenses during the year ended December 31, 1998 led to an increase in services
rendered relating to those licenses during the year ended December 31, 1999.
Hardware. Hardware revenues increased DM 4.7 million, or 61%, to DM 12.4
million for the year ended December 31, 1999 from DM 7.7 million for the year
ended December 31, 1998. Hardware revenues from companies acquired during 1999
and 1998 represented DM 1.6 million, or 12.9%, of total hardware revenues for
the year ended December 31, 1999. The companies acquired during 1998 contributed
only marginally to the hardware revenues for the year ended December 31, 1998.
Without taking into account hardware revenues from acquired companies, hardware
revenues increased DM 3.1 million, or 36.4%, to DM 10.8 million for the year
ended December 31, 1999. The disproportionately low
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increase in hardware revenues resulted from the implementation of CE's strategy
to shift its sales focus from lower margin hardware products to higher margin
software licenses. Hardware revenues continued to increase as a result of the
sale of hardware components in connection with projects in which CE was asked to
provide the installation of complete document management and imaging systems,
including the hardware.
Cost of Revenues
Total Cost of Revenues. Total cost of revenues increased DM 17.7 million,
or 119%, to DM 32.6 million for the year ended December 31, 1999 from DM 14.9
million for the year ended December 31, 1998. The increase in total cost of
revenues is mainly due to an increase in the cost of services and the cost of
hardware which resulted from the increase in services revenues and hardware
revenues. Cost of licenses consists only of purchased-third party products, and
therefore does not contribute to a large extent to total cost of revenues. The
cost of revenues relating to the companies acquired by CE during 1999 and 1998
accounted for DM 6.8 million, or 20.8% of total cost of revenues for the year
ended December 31, 1999 and 1.9 million, or 12.8% for the year ended December
31, 1998.
Licenses. Cost of license revenues increased DM 2.3 million, or 164%, to
DM 3.7 million for the year ended December 31, 1999 from DM 1.4 million for the
year ended December 31, 1998 due to the increase in license revenues. The cost
of licenses consisted of the purchase of third-party licenses for standard
functionalities that are integrated into CE's products. As a percentage of total
license revenues, cost of license revenues increased to 5.8% for the year ended
December 31, 1999 from 4.8% for the year ended December 31, 1998. This
percentage depends upon the product mix and the extent to which third-party
licenses are integrated into CE's products. The increase from 1998 to 1999 was
due to the fact that the products of the companies acquired by CE in 1998 and
1999 utilize a higher percentage of third-party licenses.
Services. Cost of service revenues consist primarily of personnel related
costs in providing consulting services, training to customers and telephone
support. Personnel expenses represent the costs of salaries and benefits payable
to personnel. In addition, cost of services increasingly includes the costs
relating to the purchase of services of third-party consultants. Cost of service
revenues increased DM 10.8 million, or 157%, to DM 17.7 million for the year
ended December 31, 1999 from DM 6.9 million for the year ended December 31, 1998
mainly due to the increase in services provided as described above. The total
number of employees reflected in the cost of service revenues increased to 98
for the year ended December 31, 1999 from 46 for the year ended December 31,
1998. Cost of service revenues as a percentage of total service revenues
decreased from 84% for the year ended December 31, 1998 to 80.2% for the year
ended December 31, 1999 because the companies acquired by CE in 1998 and 1999,
had lower cost of service revenues as a percentage of total service revenues
than CE.
Hardware. Cost of hardware revenues consist primarily of amounts paid for
acquired hardware used for the installation of complete document management and
imaging systems. Cost of hardware revenues increased DM 4.6 million, or 70%, to
DM 11.2 million for the year ended December 31, 1999 from DM 6.6 million for the
year ended December 31, 1998 mainly due to costs incurred in connection with a
number of projects in which CE had been asked to install complete document
management and imaging systems, including hardware. Cost of hardware revenues as
a percentage of total hardware revenues increased by 5% to 90.2% for the year
ended December 31, 1999 compared to 85% for the year ended December 31, 1998 as
a result of lower margins mainly due to competitive pressure.
Gross Profit
Gross profit increased DM 34.9 million, or 114%, to DM 65.5 million for the
year ended December 31, 1999 from DM 30.6 million for the year ended December
31, 1998 due to the increase in total revenues. Gross profit as a percentage of
revenues remained essentially unchanged, at 66.8% for the year ended December
31, 1999 compared to 67.3% for the year ended December 31, 1998. The total
increase in gross profit was mainly due to increased sales of CE's products.
Gross profit from companies
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acquired by CE during 1999 and 1998 represented DM 22.5 million of total gross
profit during the year ended December 31, 1999, and DM 5.6 million for the year
ended December 31, 1998.
Sales and Marketing
Sales and marketing expenses represent primarily salaries, bonuses,
commissions and other related costs for sales and marketing personnel, as well
as marketing expenses related to advertising in trade publications, general
advertising, promotional materials and industry trade fairs. Sales and marketing
expenses increased DM 13.7 million, or 138%, to DM 23.6 million for the year
ended December 31, 1999 from DM 9.9 million for the year ended December 31,
1998. Companies acquired by CE in 1999 and 1998 accounted for DM 8.7 million, or
63.5% of the total increase. As a percentage of total revenues, sales and
marketing expenses increased to 24.1% for the year ended December 31, 1999 from
21.7% for the year ended December 31, 1998. This was partly due to the fact that
the companies acquired by CE in 1998 and 1999 had a higher percentage of sales
and marketing expenses than CE. CE expanded its sales and marketing
organizational structure, including by hiring additional personnel, to provide
for further capacity in relation to the anticipated future growth and the
internationalization of CE. As CE's business expanded, it also incurred
increased advertising costs and increasingly purchased third-party marketing
services. In 1999, CE also increased its participation at international trade
fairs and incurred expenses relating to the start of its Spanish operations.
Research and Development
Research and development expenses consist primarily of personnel costs
attributable to the enhancement and further development of CE Archiv and Arcis
and the development of new software products. Research and development expenses
increased DM 7.8 million, or 105%, to DM 15.2 million for the year ended
December 31, 1999 from DM 7.4 million for the year ended December 31, 1998
mainly due to the development of new products and the continued development of
existing products. Companies acquired by CE in 1999 and 1998 accounted for DM
5.7 million, or 73% of the total increase. In addition, CE incurred research and
development costs relating to the integration into the CE product portfolio of
products of the companies acquired by CE. During the year ended December 31,
1999, CE increased the number of its research and development personnel. CE is
also increasingly using third-party developers to meet CE's significant research
and development demands. CE believes that a significant level of research and
development expenses will be required to maintain its competitive position.
General and Administrative
General and administrative expenses primarily consist of personnel costs
attributable to the financial accounting, human resources and administrative
functions and associated overhead costs, fees for professional services as well
as items such as goodwill amortization. General and administrative expenses
increased DM 11.9 million, or 135%, to DM 20.7 million for the year ended
December 31, 1999 from DM 8.8 million for the year ended December 31, 1998 due
to an increase in personnel costs, resulting from hiring additional personnel
and regular salary increases, and an increase in operating expenses relating to
the increase in revenues and the general development of CE's business. The
companies acquired by CE in 1999 and 1998 accounted for DM 3.6 million, or 30%,
of the total increase.
Interest and Other Income, net
Interest and Other Income, net increased DM 0.2 million to DM 0.3 million
for the year ended December 31, 1999 from DM 0.1 million for the year ended
December 31, 1998 mainly due to an increase in interest income, partly offset by
net losses in associated companies. CE expects that due to planned capital
expenditures that will be financed through bank loans, interest expense will
increase for the year ended December 31, 2000.
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Provision for Income Taxes
On a consolidated basis, CE's income taxes increased DM 1.3 million to
DM 3.9 million for the year ended December 31, 1999 from DM 2.6 million for the
year ended December 31, 1998. The effective tax rate increased to 63.2% for the
year ended December 31, 1999 from 57.7% for the year ended December 31, 1998. At
December 31, 1999, CE had DM 3.0 million in net operating losses carry-forward
for German corporation income taxes, which can be utilized to reduce future
taxable income.
Minority Interest
The minority interest in operating loss is related to the share of HAVI's
operating losses attributable to the 49% minority interest in HAVI owned by the
initial founders of HAVI.
Net Income
As a result of the factors described above, CE recorded net income in the
amount of DM 2.4 million for the year ended December 31, 1999 compared to net
income in the amount of DM 1.9 million for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The results of operations for the years ended December 31, 1998 and 1997
can be summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------- ---------------------
IN DM AS % OF IN DM AS % OF
THOUSANDS REVENUES THOUSANDS REVENUES
--------- -------- --------- --------
<S> <C> <C> <C> <C>
REVENUES........................................... 45,427 100.0% 19,441 100.0%
Licenses......................................... 29,517 65.0 7,415 38.1
Services......................................... 8,167 18.0 4,054 20.9
Hardware......................................... 7,743 17.0 7,972 41.0
COST OF REVENUES................................... 14,867 32.7 9,255 47.6
Licenses......................................... 1,426 505
Services......................................... 6,857 2,775
Hardware......................................... 6,584 5,975
GROSS PROFIT....................................... 30,560 67.3 10,186 52.4
Sales and Marketing................................ 9,880 21.7 2,434 12.5
Research and Development........................... 7,430 16.4 1,197 6.2
General and Administrative......................... 8,831 19.4 3,982 20.5
OPERATING INCOME (LOSS)............................ 4,419 9.7 2,573 13.2
Interest and Other Income, net..................... 91 0.2 (865) (4.4)
Provision for Income Taxes......................... 2,602 5.7 936 4.8
NET INCOME......................................... 1,908 4.2% 772 4.0%
</TABLE>
Revenues
Total Revenues. Total revenues increased DM 26.0 million, or 134%, to DM
45.4 million for the year ended December 31, 1998 from DM 19.4 million for the
year ended December 31, 1997. The increase in total revenues was partially due
to the acquisitions of SiDoc, Group Munster and Group Karlsruhe in the fourth
quarter of the year ended December 31, 1998, which added revenues of DM 7.5
million during the year ended December 31, 1998. Without taking into account
revenues from companies acquired in 1998, total revenues would have increased DM
18.5 million, or 95.4%, to DM 37.9 million for the year ended December 31, 1998.
Additionally, the increase in total revenues was due to increased sales to new
and existing customers. In 1998 and 1997, CE had entered into framework
agreements with three
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German savings bank associations who recommended the use of CE's products to
their member savings banks. Orders from these savings banks contributed
significantly to the increase in total revenues for the year ended December 31,
1998.
Licenses. License revenues increased DM 22.1 million, or 298.6%, to DM
29.5 million for the year ended December 31, 1998 from DM 7.4 million for the
year ended December 31, 1997. License revenues from companies acquired during
1998 represented DM 4.4 million, or 14.9%, of total license revenues for the
year ended December 31, 1998. License revenues without taking into account
companies acquired by CE in 1998, increased DM 17.7 million, or 239.2%, to DM
25.1 million for the year ended December 31, 1998. The increase in license
revenues was mainly due to an increase in the number of software licenses sold
to new and existing customers. In particular, orders from savings banks as a
result of the framework agreements with savings banks associations referred to
above contributed to the increase in license revenues.
Services. Service revenues increased DM 4.1 million, or 100%, to DM 8.2
million for the year ended December 31, 1998 from DM 4.1 million for the year
ended December 31, 1997. Service revenues from companies acquired in 1998
represented DM 3.1 million, or 37.8%, of total service revenues for the year
ended December 31, 1998. Service revenues without taking into account companies
acquired by CE in 1998, increased DM 1.0 million, or 24.4%, to DM 5.1 million
for the year ended December 31, 1998. The increase in service revenues resulted
mainly from the companies acquired by CE in 1998 and the increase in the number
of licenses sold to new and existing customers and the related increase of
services rendered in connection with the sale of these licenses.
Hardware. Hardware revenues decreased DM 0.2 million to DM 7.7 million for
the year ended December 31, 1998 from DM 7.9 million for the year ended December
31, 1997. Without taking into account companies acquired by CE in 1998, hardware
revenues would have decreased DM 0.3 to DM 7.6 million for the year ended
December 31, 1998. As a percentage of total revenues, hardware revenues
decreased to 17% for the year ended December 31, 1998 from 41% for the year
ended December 31, 1997. The decrease in hardware revenues resulted from a
decline in margins and increased price pressure on hardware products, a shift in
focus by CE from lower margin hardware products to higher margin software
products and a decline in revenues from the stand-alone sale of hardware as part
of CE's traditional network business. This decrease was only partially offset by
an increase of sales of hardware components in connection with the installation
of complete document management and imaging systems by CE.
Cost of Revenues
Total Cost of Revenues. Total cost of revenues increased DM 5.6 million,
or 60.2%, to DM 14.9 million for the year ended December 31, 1998 from DM 9.3
million for the year ended December 31, 1997. The increase in total cost of
revenues was mainly due to an increase in cost of services and cost of hardware.
The cost of revenues attributable to companies acquired by CE in 1998 consisted
of DM 1.9 million, or 12.8% of total cost of revenues in 1998.
Licenses. Cost of license revenues increased DM 0.9 million, or 180%, to
DM 1.4 million for the year ended December 31, 1998 from DM 0.5 million for the
year ended December 31, 1997 due to the increase in license revenues. As a
percentage of total license revenues, cost of license revenues decreased to 4.8%
for the year ended December 31, 1998 from 6.8% for the year ended December 31,
1997. This decrease is due to the fact that in 1998 CE increasingly substituted
its own licenses for third-party licenses.
Services. Cost of services revenues increased DM 4.1 million, or 146.4%,
to DM 6.9 million for the year ended December 31, 1998 from DM 2.8 million for
the year ended December 31, 1997. As a percentage of total service revenues,
cost of service revenues increased to 84.0% for the year ended December 31, 1998
from 68.5% for the year ended December 31, 1997. This increase is mainly due to
the increase in services provided and the hiring of additional employees. In
addition, cost of services revenues as a percentage of total service revenues
increased by such a large amount because of personnel costs
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attributable to new employees who had not yet become productive or whose
services could not be charged to CE's customers at a rate that would cover CE's
personnel costs relating to these employees.
Hardware. Cost of hardware revenues increased DM 0.6 million, or 10%, to
DM 6.6 million for the year ended December 31, 1998 from DM 6.0 million for the
year ended December 31, 1997. As a percentage of total hardware revenues, cost
of hardware revenues increased to 85% for the year ended December 31, 1998 from
74.9% for the year ended December 31, 1997. The increase reflected a decrease in
margins and was due to higher acquisition costs of hardware products for the
year ended December 31, 1998.
Gross Profit
Gross profit increased DM 20.4 million, or 200%, to DM 30.6 million for the
year ended December 31, 1998 from DM 10.2 million for the year ended December
31, 1997. Gross profit as a percentage of revenues improved to 67.3% for the
year ended December 31, 1998 compared to 52.4% for the year ended December 31,
1997. This improvement was due to increased revenues from sales of higher margin
products, especially the disproportionately high increase in sales of software
licenses.
Sales and Marketing
Sales and marketing expenses increased DM 7.5 million, or 312.5%, to DM 9.9
million for the year ended December 31, 1998 from DM 2.4 million for the year
ended December 31, 1997. Companies acquired by CE in 1998 accounted for DM 2.5
million, or 33.3% of the total increase. Without taking into effect the
acquisitions, sales and marketing expenses would have increased by DM 5.0
million, or 208.3%, partially due to higher personnel costs of approximately DM
0.8 million for the year ended December 31, 1998 attributable to the hiring of
additional personnel. In addition, CE incurred increased marketing expenses
relating to new product introductions and expansion into new market segments. CE
also increased its marketing efforts in preparation for its anticipated future
growth and planned internationalization and increased, in particular, marketing
efforts related to soliciting additional partners and participating at
international trade fairs. As a percentage of total revenues, sales and
marketing expenses increased to 21.7% for the year ended December 31, 1998 from
12.5% for the year ended December 31, 1997.
Research and Development
Research and development expenses increased DM 6.2 million to DM 7.4
million for the year ended December 31, 1998 from DM 1.2 million for the year
ended December 31, 1997. As a percentage of total revenues, research and
development expenses increased to 16.4% for the year ended December 31, 1998
compared to 6.2% for the year ended December 31, 1997. Research and development
expenses increased at a higher rate than CE's total revenues during the same
period because the companies acquired by CE during 1998 had a higher percentage
of research and development expenses compared to their total revenues than CE.
In addition, the increase was due to the development of new products and the
expansion of the CE Document Server to additional operating systems. Research
and development expenses increased in proportion to the increase in CE's license
revenues during the same period. In addition, companies acquired by CE in 1998
accounted for DM 2.6 million of research and development expenses in 1998.
General and Administrative
General and administrative expenses increased DM 4.8 million, or 121.8%, to
DM 8.8 million for the year ended December 31, 1998 from DM 4.0 million for the
year ended December 31, 1997. As a percentage of total revenues, general and
administrative expenses decreased to 19.4% for the year ended December 31, 1998
from 20.5% for the year ended December 31, 1997. The decrease as a percentage
was due to the increase in total revenues combined with the fact that CE has a
high percentage of fixed costs that remained constant. In addition, general and
administrative expenses for the year ended December 31,
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1998 included fees for professional services related to CE's initial public
offering and its various acquisitions in 1998 and certain items such as
amortization of goodwill and accruals and other provisions.
Interest and Other Income, net
Interest and Other Income, net increased DM 1.0 million to DM 0.1 million
for the year ended December 31, 1998 from an interest expense in the amount of
DM 0.9 million for the year ended December 31, 1997 mainly due to a decrease in
interest expenses. In 1998, CE repaid several bank loans and other loans with
the proceeds of its initial public offering and, as a result, interest payments
decreased to DM 1.3 million for the year ended December 31, 1998 from DM 2.5
million for the year ended December 31, 1997. In addition, CE increased its
share capital and issued additional shares to the public in November 1998. The
proceeds from this capital increase yielded interest income, until they were
used to finance part of the cost of CE's acquisitions in 1998.
Provision for Income Taxes
On a consolidated basis, CE's income taxes increased DM 1.7 million to DM
2.6 million for the year ended December 31, 1998 from DM 0.9 million for the
year ended December 31, 1997 due to the increased income before taxes. The
effective tax rate increased to 57.7% compared with a rate of 54.8% for the year
ended December 31, 1997.
Net Income
As a result of the factors described above, CE recorded net income in the
amount of DM 1.9 million for the year ended December 31, 1998 compared to net
income in the amount of DM 0.8 million for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
CE's financing needs are driven by acquisitions and capital expenditures
and working capital requirements. At June 30, 2000, CE's net working capital was
DM 59.2 million and at December 31, 1999, CE's net working capital was DM 57.0
million. From its inception to the time of its initial public offering in 1998,
CE financed its growth and met its capital expenditure requirements primarily
through bank financings, venture capital, short-term borrowings and cash flows
from operations. In 1998, CE conducted its initial public offering on the Neuer
Markt. In the initial public offering and a second public offering in 1998, CE
raised, after the deduction of issuance costs, a total amount of approximately
DM 66 million. CE used the proceeds of the two public offerings to repay some of
its bank loans and to finance acquisitions and its working capital requirements.
In November 1998, CE received a long-term loan of DM 5.0 million from
Dresdner Bank. In addition, in 1999, CE entered into several lines of credit
with Dresdner Bank allowing for borrowings of up to DM 31.6 million to finance
acquisitions and for working capital requirements. At December 31, 1999, CE had
borrowed DM 26.6 million under these lines of credit. In August 2000, Dresdner
Bank increased these lines of credit to DM 39.8 million. At August 31, 2000, CE
had borrowed DM 27.5 million under these lines of credit. In 1999, CE also
received four long-term loans from DG Bank in the aggregate amount of DM 21
million to finance the construction of a new headquarters in Bielefeld. In
addition to the long-term loans, in 1999, DG Bank provided lines of credit of up
to DM 20 million to finance acquisitions and for working capital requirements.
At December 31, 1999, CE had borrowed DM 9.7 million under these lines of
credit. In August 2000, DG Bank increased these lines of credit to DM 30.0
million. At August 31, 2000, CE had borrowed DM 20.0 million under these lines
of credit.
At June 30, 2000, CE had cash and cash equivalents of DM 0.9 million, a
decrease of DM 2.4 million from DM 3.3 million at June 30, 1999. This decrease
was due to an increase in net cash used in
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operating and investing activities that was only partly offset by an increase in
net cash provided by financing activities. Net cash used in operating activities
totaled DM 27.4 million and DM 12.9 million for the six months ended June 30,
2000 and 1999, respectively. This increase was primarily attributable to an
increase in accounts receivables of DM 24.9 million for the six months ended
June 30, 2000. Net cash used in investing activities totaled DM 7.7 million and
DM 1.4 million for the six months ended June 30, 2000 and 1999, respectively.
The increase in cash used in investing activities for the six months ended June
30, 2000 was due to DM 7.3 million being used for the acquisitions of property
and equipment, in particular CE's new office building. Net cash provided by
financing activities totaled DM 10.3 million and DM 2.4 million for the six
months ended June 30, 2000 and 1999, respectively. The higher amount of net cash
provided by financing activities for the six months ended June 30, 2000 compared
to the six months ended June 30, 1999 reflected increased borrowings under CE's
lines of credit with DG Bank and Dresdner Bank to finance CE's operating and
investing activities described above.
CE's capital expenditures totaled DM 7.7 million and DM 1.4 million for the
six months ended June 30, 2000 and 1999, respectively. The increase was due to
expenditures made in connection with the construction of CE's new headquarters
in Bielefeld.
At December 31, 1999, CE had cash and cash equivalents of DM 25.7 million,
an increase of DM 10.5 million from DM 15.3 million at December 31, 1998.
However, DM 10.6 million of the total DM 25.7 million reflects an advanced
payment to CE of loans from DG Bank that, according to the terms of the loans,
may only be used for the construction of CE's new headquarters in Bielefeld.
Net cash used in operating activities totaled DM 12.3 million, DM 6.3
million and DM 6.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Increased working capital needs during 1999 more than offset
earnings during the year. The significant increase in CE's trade accounts
receivables of DM 67.8 million at December 31, 1999 compared with DM 39.1
million at December 31, 1998 is mainly due to CE's increased sales to customers
in the banking and insurance sector. The level of trade accounts receivables is
usually particularly high at the end of CE's fiscal year due to the fact that a
large part of CE's sales are made in the fourth quarter of its fiscal year (up
to 35%) with payment received only after the end of the year.
Net cash used in investing activities totaled DM 16.9 million, DM 38.4
million and DM 1.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The higher amount of cash used in investing activities for the
year ended December 31, 1998 was due to DM 33.1 million being used for the
acquisitions of various companies by CE during that year. In connection with the
acquisition of netconcept in 1999, contingent purchase price installments up to
DM 5.1 million are still outstanding and may be due from time to time until 2003
(under certain circumstances until 2004). CE may, at its option, pay up to DM 3
million of the remaining purchase price through the issuance of new CE ordinary
shares. In addition, in connection with the acquisition of HAVI, contingent
purchase price installments up to DM 2.4 million are still outstanding and may
be due from time to time until 2003. Net cash provided by financing activities
totaled DM 39.6 million and DM 59.3 million for the years ended December 31,
1999 and 1998, respectively. For the year ended December 31, 1997, net cash used
by financing activities totaled DM 4.3 million. The higher amount of net cash
provided by financing activities for the year ended December 31, 1998 compared
to the year ended December 31, 1999 reflected CE's receipt of the proceeds by CE
from its two public offerings. In 1999, CE entered into the lines of credit and
long-term loans with DG Bank and Dresdner Bank discussed above.
CE's capital expenditures totaled DM 9.4 million, DM 5.4 million and DM 1.7
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
increase in capital expenditures for the year ended December 31, 1999 was due to
higher investment in new property, equipment and software. The investments in
1999 included the introduction of a new internal software system for
controlling, accounting, sales and purchase management, the acquisition of a DM
S software component from a third party and the purchase of equipment for newly
hired personnel. The remaining capital expenditures during the year
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were spread widely among CE's selling units. CE will require liquidity for
additional capital expenditures and working capital needs in 2000.
CE believes that cash flows generated from its operations, existing cash
and cash equivalents, existing and new bank financings and lines of credit will
be sufficient to meet CE's working capital needs, anticipated capital
expenditures and other operating expenses for the next twelve months. However,
CE cannot assure you that a downturn in the world economy in general, or the
economy of Germany in particular, or a decline in demand for CE's products and
services, would not change this outlook.
CE may from time to time consider acquisitions of complementary businesses,
products or technologies, which could require additional financing. In addition,
continued growth in CE's business may from time to time require additional
capital. CE cannot assure you that additional capital will be available to CE if
and when required, or that such additional capital will be available to CE on
acceptable terms.
INFLATION
During the years ended December 31, 1999, 1998 and 1997, the effects of
inflation on CE's operations were not material.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro. These countries adopted the Euro as their common legal currency
from that date. The Euro trades on currency exchanges and is available for
non-cash transactions. These countries issued sovereign debt exclusively in Euro
and re-denominated outstanding sovereign debt. Effective on January 1, 1999,
these countries no longer control their own monetary policies by directing
independent interest rates for the legacy currencies. Instead, the authority to
direct monetary policy, including money supply and official interest rates for
the Euro, is exercised by the new European Central Bank. The legacy currencies
are scheduled to remain legal tender in these countries as a denomination of the
Euro between January 1, 1999 and January 1, 2002 (the "transition period").
During the transition period, public and private parties may pay for goods and
services using either the Euro or the country's legacy currency on a "no
compulsion, no prohibition" basis. However, conversion rates will no longer be
computed directly from one legacy currency to another. Instead, a
"triangulation" process will be applied whereby an amount denominated in one
legacy currency first will be converted into an amount denominated in Euro, and
the resultant Euro-denominated amount is converted into the second legacy
currency. CE has made the necessary changes to its internal business systems to
support transactions denominated in the Euro, including establishing Euro price
lists for affected countries. Based on CE's evaluation to date, there has not
been a material adverse impact on its financial condition or results of
operations as a result of the Euro conversion.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which is effective for fiscal
year 2000, but earlier adoption is permitted. SFAS 133 will require CE to record
all derivatives on the balance sheet at fair value. For derivatives that are
hedges, changes in the fair value of derivatives will be offset by the changes
in the fair value of the hedged assets, liabilities or firm commitments. CE
believes the impact of adopting this standard will not be material to its
results of operations or equity.
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SEASONALITY
There is no marked seasonality within CE's business, although CE
experiences sales peaks in the second half, especially in the fourth quarter, of
its fiscal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Each of the companies consolidated in CE's financial statements are stated
in German Marks or other denominations of the Euro. CE's operations are
primarily in Germany and the functional and reporting currency of CE on a
consolidated basis is the German Mark. Gains and losses resulting from foreign
exchange transactions are included in CE's consolidated statements of operations
and were not significant during any of the periods presented. As of June 30,
2000, CE had not entered into derivative financial instruments to attempt to
manage foreign currency exposure.
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DESCRIPTION OF CE'S BUSINESS
OVERVIEW
CE is a leading European producer of systems for integrated document
management and archiving. CE has been active as a systems integrator in the
German market for document management and archiving systems since 1984. Since
1995, CE has developed into a supplier of software products for integrated
document and output management systems.
CE's systems automate the archiving, retrieval, delivery and reuse of
business documents within and among enterprises. CE's systems can manage high
volumes of documents and data and are capable of being deployed globally and
within an organization. CE provides enterprise-wide archiving and document
management systems based on industry-standard client/server and intranet
technology. CE's customers include the Siemens Group, the RWE Group and many
German savings banks and insurance companies such as VHV-Versicherung.
CE's business includes the following areas:
- development of software products and solution components for integrated
document output and management systems;
- customization and integration of CE's software products with customers'
existing programs;
- consulting for CE's software products and integrated technologies;
- training, technical support (including through CE's Competence Centers)
and software maintenance;
- sales through direct and indirect channels of CE's software products,
components and services; and
- sales of specialized hardware required to operate CE's systems and to
complement third-party software linking CE's systems to other
environments.
CE's products not only meet current market requirements, but CE believes
their architecture also takes into account the parameters of possible future
development. Reflecting the know-how CE has gained from more than 1,800
projects, CE develops and sells software components and products that are based
on highly advanced technology for sophisticated, customer-specific solutions.
CE sells, distributes and supports its products through direct sales to
major corporations and through a third-party network of partners and
manufacturers who incorporate CE's software into their products. CE has more
than 1,500 customers in over 25 different countries, who participate in a broad
range of industries, including financial services, manufacturing and retail,
public sector, telecommunications, transportation and utilities. The majority of
CE's sales are to customers located in German-speaking parts of Europe.
INDUSTRY BACKGROUND
Integrated document output and management systems are used to manage and
store documents electronically. They protect documents from unauthorized access,
manage various versions of a document and support the user in content-based
searches for specific documents. Document archiving systems specifically provide
for the long-term, read-only storage of large volumes of documents.
Document management systems were first introduced in the United States in
1984 and in Germany in 1982. As late as the early 1990s, investments by European
companies in technologies for integrated document management, archiving and
retrieval were fairly low. It was costly to purchase and maintain document
management systems. Major European companies, often operating in the financial
sector, were more interested in the emerging technologies than in integrated
document management, archiving and retrieval systems. In the mid-1990s, as
hardware costs decreased, the interest in document management and archiving
grew. The European market developed into and continues to be a demand-driven
market. CE believes that the market will evolve into a more supply-driven market
during the next three years.
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Organizations and enterprises often need to retain vast archives of
information for long periods of time and to access these archives to satisfy
customer or other inquiries. For example, financial institutions store a record
of each payment transaction; telecommunications companies store records of
individual phone calls; and medical institutions store records for every
patient. The large volumes of information that organizations and enterprises
maintain create significant storage, retrieval and presentation challenges.
Customer service departments capable of routinely answering inquiries during a
single telephone call by utilizing electronic retrieval systems operate more
efficiently and cost-effectively than those relying on manual access to
information and follow-up calls.
In addition, organizations and enterprises often create these volumes of
information in a wide variety of formats, including word processing documents,
e-mail, computer-assisted drawings, graphics and images, web pages, as well as
video and audio clips. This proliferation of formats has increased the
complexity of information storage and retrieval. Organizations and enterprises
may maintain a number of non-integrated systems, each of which provides access
only to portions of stored information. Retrieval of all information about a
particular customer or transaction which is stored in such different systems can
be both costly and time consuming.
Traditional approaches to the storage, retrieval and presentation of
information inadequately address the challenges inherent in developing a fully
integrated, comprehensive document management system. Paper and microfiche
archives ensure the integrity of the information, but make retrieval and
presentation costly and slow. Relational databases, while effective for the
initial capture and short-term storage of data for business applications, do not
economically store and present large amounts of information created in a wide
variety of formats.
Archiving and document management systems provide an integrated solution
capable of storing, retrieving and presenting all information relevant to a
customer or transaction, regardless of formats or storage sites. Moreover,
archiving and document management systems respond to the needs of organizations
and enterprises seeking a comprehensive solution that can accommodate rapidly
evolving technology and can support multiple computing platforms and storage
media.
Today's businesses often require "enterprise document management"
solutions, which means distributed, enterprise-wide document management using
any combination of central and local components, integrating not only document
management technologies (such as access control, document handling as well as
search functions), but also office and business applications (such as word
processing and databases). The goal of such solutions is to make all the
information in an enterprise available on a user's desktop, regardless of its
location, the type of client involved and the application used to create the
document. Furthermore, enterprise-wide document management solutions can be used
to integrate customers and suppliers via the Internet.
MARKET OVERVIEW
CE believes document management is a strong growth market within the
information technology (IT) sector. CE estimated the size of the European market
at around $4,374 million in revenues in 1999. Germany is the second biggest
market in Europe with around $638 million in revenues, surpassed only by the
market in the United Kingdom, at $1,700 million in revenues. CE estimated the
1999 North American document management technology market at $10,371 million in
revenues. CE expects the compound annual growth rate for the European market to
increase by 21.5% per year and for the U.S. market by 17.3% per year in the
five-year period from 1998 to 2002. The Asia-/Pacific-market is expected to grow
at 22.7% per year in this period of time.
As an increasing number of companies finish adapting their systems to the
Euro and to Year 2000 requirements, CE believes that document management will
offer additional potential for improving business performance, which will
continue to be important in a climate of increased global competition.
Therefore, CE anticipates the global market to grow in terms of revenues at
19.4% per year in the five-year period from 1998 to 2002. CE believes that,
after Internet-related technologies (such as electronic commerce), document
management will be one of the largest information technology growth markets in
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the next few years, and will be an integral component of all information
technology services. However, there can be no assurance that any of the market
projections contained in this market overview section will be achieved.
CE believes that the technological development of the document management
market in the United States is now only about six months ahead of Europe and
that the gap that previously existed between the acceptance and introduction of
new technologies in the United States and Europe has largely been closed. CE
believes that as a result, European document management suppliers should
increasingly gain access to the U.S. market.
There are approximately 200 suppliers in Germany of document management
solutions, of which CE is one of the largest. The market is becoming
increasingly concentrated due to the rising demand for complete solutions. Many
suppliers who had been active in this market when it first emerged have changed
their business focus. Some suppliers who used to offer their own products
changed into system integrators or are now offering products of other
manufacturers. CE believes that the consolidation process in the German market
for document management solutions will continue.
CE'S COMPETITIVE STRENGTHS
CE believes that the company and its products enjoy the following
competitive strengths:
Company Strengths
Track record of growth through expansion and strategic alliances. Since
1998, CE has opened four new offices (in Frankfurt, Dusseldorf, Stuttgart and
Singapore), acquired or founded seven new wholly owned subsidiaries with
operative businesses and acquired substantial interests in four other companies.
Effective as of August 2000, CE acquired GIA Gesellschaft fur Image
Processing und Archivierung mbH, which specializes in providing consulting and
project management solutions in the document-related technology and document
management and imaging systems environments for the insurance sector. Effective
as of July 2000, CE also acquired a controlling interest in Insiders Information
Management GmbH, which broadened CE's product portfolio to include the areas of
content management and intelligent, knowledge-based document management. In
addition, CE was among the founders of ASP-Konsortium e.V., an association that
intends to promote worldwide support and marketing of ASP (Application Service
Provider) technology. CE entered into important strategic partnerships during
2000 with Oce Printing Systems and SVC AG Schmidt Vogel Consulting.
In 1999, CE acquired netconcept(R) Gesellschaft fur innovative Netzdienste
mbH, a specialist in Microsoft Exchange and Internet services; and a minority
interest in Consultec AG, a company active in the field of web-based information
management. Also in 1999, CE acquired a controlling interest in HAVI Computer
Service GmbH, a European leader for data migration products.
CE's subsidiary CE datronic GmbH & Co. KG provides document management
services in the areas of health care and electronic patient records. CE's first
subsidiary outside Germany, CE IBERICA, was formed in Madrid, Spain, in March
1999.
During 1999, CE established several important strategic alliances,
including alliances with Microsoft, ORACLE, SAP and Xerox Professional Services.
In 1998, CE acquired Group Dr. Rainer Kossow and Group Wege & Partner, two
companies that CE believes are well positioned in the Lotus Notes/Domino market.
CE's acquisition of SiDoc GmbH, previously a wholly owned subsidiary of Siemens
Nixdorf Informationssysteme AG, together with a cooperation agreement signed
with Siemens, established CE as the main supplier of document management
software to the Siemens Group worldwide.
Broadly based sales and technical support network. CE's partner network
provides both sales and professional services. As of December 31, 1999, it
consisted of more than 100 partners and manufacturers, who incorporate CE's
software into their products, in Germany and elsewhere in Europe. CE intends to
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increase the number of partners by the end of 2000 to more than 150. In
addition, CE is developing a network of partners in those countries in which CE
has identified a market potential for its products. CE has already established
its first partner networks in Austria, the Czech Republic, France, Italy, Spain,
Switzerland and the United Kingdom.
Recognized innovative leader in Europe. As one of the leading producers of
integrated document management and archive systems in Europe, CE has more than
ten years of experience and has gained considerable know-how from implementing
more than 1,800 software projects for the management of business documents. CE
has developed a number of innovative products; for example, CE was among the
first to recognize the trend towards sector-specific solutions and to develop
solution components geared to specific market segments.
Highly qualified and skilled personnel. CE believes that the ability to
develop innovative, practical application solutions and new products is the key
success factor in implementing CE's goals. Consequently, CE believes that its
software development and consulting staff are especially important and that an
integral component of CE's success has been its ability to attract and retain
highly qualified and technically skilled personnel. CE's professional staff
possesses extensive experience and unique skills which cannot be easily
duplicated and which allow CE to design and deliver high-quality products and
services.
Product Strengths
Company-wide integration of archiving and document management. CE ARCHIV,
CE's strategic core product, is a combined document management and archiving
system. It provides software solutions that integrate the document management
and the archiving components into a complete company-wide "enterprise document
management" system.
Flexibility for product expansion with client development and
expansion. The CE Document Server provides the core for a customer's archiving
and document management system. The system is designed to grow along with the
customer and its requirements. The system is designed to be increased in
capacity as required, so that it may be continuously utilized and upgraded with
minimal additional investment. The CE Document Server operates in conjunction
with any combination of CE's many client component software elements so that
customers can combine and customize software components to meet their current
and future needs as required.
Extended product life through standardization. CE enables its customers to
extend the life cycles of installed archiving and document management software.
CE's software solutions are intended to be flexible and to integrate easily into
existing system environments. The ability of CE's software to operate in
conjunction with a customer's existing software from various manufacturers
results in prolonged life cycles for the existing software. CE's software meets
existing and emerging market standards. For example, the CE Document Server,
from which all clients are being operated, features a wide variety of standard
interfaces to different customer applications such as SAP R/3, ORACLE
Applications, BaaN, PAISY, Navision, JDEdwards and many more. Compliance with
market standards and adaptability also enables information technology systems
with long life cycles to perform new and modified tasks. The customers'
investment in archiving and document management infrastructure is consequently
additionally protected.
Worldwide support. Through a worldwide support network that CE has
established together with its business partners, CE provides its customers with
on-site professional support, consulting and maintenance services.
Sector-specific vertical systems. CE offers complete solutions for
specific business sectors, which are designed to be customized to meet the
requirements of individual customers. CE currently offers overall solutions for
the finance, insurance, public sector and health care market segments. CE
believes that its sector-specific products CETERNA (banking), CECURA
(insurance), CENATOR (public sector) and CERVYS (health care) are innovative in
concept and functionality.
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STRATEGY
CE's strategy is to further consolidate and expand its position as a
leading producer of advanced electronic archiving and document management
systems and to strengthen its position as a provider of content management and
intelligent, knowledge-based document management solutions. Major elements of
CE's strategy include:
- National and international expansion of CE's own business locations for
product development, sales, support and marketing;
- Expansion of strategic alliances;
- Regional, national and international strengthening of CE's third-party
sales and partner network;
- Expansion of sector-specific solution components into new market
segments through acquisitions and new product development;
- Enhancement of products through increased compatibility with new
technology; and
- Optimization of product cost-effectiveness through introduction of new
technologies.
ARCHIVING AND DOCUMENT MANAGEMENT PRODUCTS AND SERVICES
CE's product portfolio includes archiving and document management software.
CE's software products involve an architecture composed of the CE Document
Server and several client components such as ARCIS, ARCIS-Web, ARCIS-moVe, CE
ARCHIV, CE AKTE and CESAR. The CE Document Server makes available specific
functions and data to clients, whereas the client components are independent,
customer-oriented and branch-specific programs that use the server for data
storage, distribution and reproduction.
Whether they are used on a sector-specific basis or more generally, CE's
systems are designed to be integrated into existing systems environments. CE's
systems are in compliance with international standards of document management
and can therefore be combined with third-party products. All CE solutions
feature a high level of scalability (the ability to be increased or decreased in
capacity as needed) and multi-platform capability (the ability to operate in
several different electronic media simultaneously), and operate on platforms
such as AIX, HP-UX, Linux, OS-390, Sun Solaris and Windows NT. The same CE
systems can be implemented on basic level structures as well as complex,
enterprise-wide structures. CE has consistently built its systems to meet
industry standards, and intends to continue to do so in the future, in an effort
to safeguard its customers' investments in long-life information
infrastructures. CE's integrated document management concept takes into account
the varying demands of the market, both in terms of the many different types of
information and in terms of the incorporation of such information into the
archiving and document management processes in a transparent manner.
SERVER COMPONENT
CE Document Server. All of CE's client software components are based on
the integrated CE Document Server, which enables data and documents to be
archived and managed, while facilitating their ready availability for both
internal and external processing. The CE Document Server enables existing data
volumes to be integrated. Distributed data and applications are made available
to all authorized users throughout the enterprise. The archiving and document
management system is capable of growing with the customer and its requirements.
The system is designed to be increased in capacity, with the goal of ensuring a
long product life cycle and protecting the customer's investment. The CE
Document Server offers a comprehensive access security feature and a wide
variety of other security mechanisms that can be defined at the data record
level.
CE Application Integration. The CE Document Server has a wide variety of
standard interfaces to different customer applications, such as SAP R/3, ORACLE
Applications, BaaN, PAISY, Navision, JDEdwards and many more. The interfaces are
each certified for the latest releases. Data is forwarded to
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the CE Document Server via the standard interfaces. From there, the filing of
all documents created in the applications or reaching the system's in-tray are
administered.
CLIENT COMPONENTS
CE ARCHIV. CE ARCHIV, a combined archiving and document management system,
is one of CE's core products. It is a sector-neutral product that is designed to
store large volumes of documents on optical storage media and to make these
quickly available both internally and externally. It is also able to integrate
existing data and documents. Furthermore, CE ARCHIV includes high security
features, which are increasingly in demand as an element of archive systems as a
result of globalization, network expansions and the increased worldwide use of
the Internet. In order to minimize the risk that documents and data are
unintentionally deleted as well as from unauthorized access, the latest version
3.1 of CE ARCHIV, in addition to improved data handling, system access and a
user-friendly interface, provides for improved data security. CE ARCHIV also
provides users with integrated, simultaneous Web access to business documents
and data. CE ARCHIV is designed to store this information permanently and
provide access at any time.
CESAR. CESAR is a client component with integrated solutions for
electronic archiving and document management. It is designed to adapt easily to
a customer's individual requirements, runs on a variety of platforms and is
intended to be integrated into heterogeneous data processing infrastructures.
CESAR can be used in any industry. On the client side, the system has a
convenient, user-friendly application interface. In the back-end, the CE
Document Server manages all the information that is archived on optical storage
media or raid systems (consisting of several connected hard drives) for the
purpose of audit trails. The outstanding feature of this document management
product is the layout manager option for designing new user dialogs at will,
which are then assigned freely programmable functions. Customer-defined fields
can be set up to meet individual needs. This enables users, for example, to
export data from these fields to other applications. This feature gives CESAR
the flexibility it needs to adapt precisely to users' needs and wishes.
CE AKTE and CETERNA. The CE AKTE basic application is one of CE's
standardized document management products for the financial sector that has been
specially developed for credit institutions. CE AKTE features a high level of
functionality and modern architecture. It is particularly suitable for users who
wish to transfer their conventional archive organization to an IT system.
Documents are administered in CE AKTE either hierarchically or in horizontal
file areas. In hierarchically structured areas, data is stored in master files,
so that it can be retrieved from a certain file or from a register of this file.
In horizontal file areas, documents of the same type are administered using key
words. CETERNA, the newly developed CE solution for the banking sector, builds
upon and broadens the functionality of CE AKTE. CETERNA's basic application for
banks includes components for, among other things, the management of customer
and deposit files, the management of credit files and the performance of
legitimation checks. Other modules can be added in order to provide additional
functions, for example, the archiving of vouchers from payment transactions.
ARCIS Product Line. In October 1998, CE acquired SiDoc GmbH, which was
subsequently merged with CE. From its office in Munich, Germany, CE produces the
ARCIS product family (formerly produced by SiDoc), which complements CE's other
archiving and document management product portfolio. The standard version of the
ARCIS client component provides functions for entering, indexing and retrieving
documents. It can be configured according to customer needs and enables a user
to add colored notes and marking to individual document pages. It includes a
thumbnail option, which permits a user to view several pages reduced in size at
once. ARCIS-moVe is a client component which regulates the validity, changes and
inter-relationships between documents throughout their life cycle. It is
designed to enable the retrieval of the correct document versions, the
processing of documents in application systems and the distribution of documents
within the enterprise. Ultimately, the documents are archived on optical storage
media. ARCIS-Web is a client component that allows data and documents stored in
archives to be accessed via the Internet, intranet or extranet. It offers
solutions for decentralized use, for example in branch offices. ARCIS-Web is
designed to enable employees traveling extensively to have
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immediate access to archived data and to help employees who need to access
archived information only occasionally to use their browser to search the
archive without having to install software locally.
CECURA. CECURA, CE's solution for the insurance sector, is based on the
know-how of CE's Insurance Competence Center, which advises insurance companies
in the field of document management. CECURA integrates CE's Lotus Notes
knowledge, but does not require customers to use Lotus Notes.
CENATOR. CENATOR is an archiving and document management software designed
for use in the public sector. It has quickly become a standardized solution in
the German market in areas such as motor vehicle registration, building permits
and personnel administration. CENATOR relies on a modular architecture. It is
designed to support the recording of documents and management of business
processes, including functions such as arranging, registering and retrieving.
CERVYS. CERVYS is the core product of CE datronic, a subsidiary of CE
founded in March 1999. This company provides document management solutions for
the business sectors of health care and electronic patient record management. CE
believes that this market segment has considerable growth potential, and CE's
goal is to develop CE datronic into a leading supplier of digital processes,
image and signal-generating processes, as well as tele-medicine processes. CE
datronic focuses on the integration and handling of services and data sources
from administrative and medical departments in order to develop, store, retrieve
and present patient-related data. CE datronic's multi-platform capable CERVYS
system is designed to integrate all common subsystems used in the health care
sector and is independent of data protocols and locations.
OTHER PRODUCTS AND SERVICES
Apart from archiving and document management applications, CE offers a
number of other related products and services:
Groupware Market. In November 1998, CE acquired two companies that it
believes are well positioned in the area of Lotus Notes/Domino, Group Dr. Rainer
Kossow and Group Wege & Partner. Both companies develop software solutions in
groupware environments and offer related services. Group Dr. Rainer Kossow,
which was recently merged into CE, is the designer of "GROUP forever," an
interface to all standard archiving systems currently available on the market.
Group Wege & Partner, which recently changed its legal form and is now named
GROUP Technologies AG, produces security products (filter and anti-virus
programs) for Lotus Notes. GROUP Technologies AG recently announced its
intention to float its shares on the Neuer Markt segment of the Frankfurt Stock
Exchange.
In July 1999, CE finalized the expansion of its basic capability in the
area of groupware (Lotus Notes and MS Exchange) by acquiring netconcept, a
strategic Microsoft partner operating as one of the Microsoft's Exchange
Competence Centers throughout Germany. Netconcept provides services which
combine its know-how in document management and in Microsoft Exchange. Following
the acquisition, netconcept was merged into a wholly owned subsidiary of CE,
GROUP Technologies AG.
CE still owes certain purchase price installments to the former
shareholders of netconcept. These purchase price installments are due from time
to time until 2003 (under certain circumstances until 2004). The amount of the
outstanding purchase price installments may be adjusted depending on the
achievement of certain results of operations. The maximum amount of the
remaining purchase price totals DM 5.1 million. CE may, at its option, pay up to
DM 3 million of the remaining purchase price through the issuance of new CE
ordinary shares.
Data migration. CE's majority-owned subsidiary, HAVI Computer Service of
Hamburg, Germany, is a specialist in the European market for data migration.
HAVI's expertise, experience and technical know-how involve data migration for
digital document management systems. Based on intensive hardware and software
analysis, as well as review of the existing platform, HAVI's software is capable
of migrating all forms of current archive systems. With the integration of
HAVI's products, CE has further expanded its core competence in this
strategically important growth market. In connection with the acquisition of
HAVI, CE still owes purchase price installments up to DM 2.4 million to the
selling shareholder. These
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purchase price installments are due from time to time until 2003. The amount of
the outstanding purchase price installments may be adjusted depending on the
achievement of certain results of operations.
Content Management and Intelligent, Knowledge-Based Management. CE's
acquisition of a controlling stake in Insiders Information Management added
content management and intelligent, knowledge-based document management systems
to CE's product portfolio. These systems enable users to individually access and
retrieve classified and qualified information contained in documents of any
nature and language. These systems are designed to continually learn from work
processes previously performed and allow for the usage of information and
know-how.
CE IBERICA. CE's Spanish subsidiary, CE IBERICA, founded in March 1999,
has already entered into strategic alliances with several Spanish partners
engaged in diversified fields of business, such as integration, multimedia,
information and communication systems, process automation and outsourcing. CE
IBERICA concentrates on the automotive industry, the banking sector, the trade
sector, the telecommunications sector and the transportation sector. CE
IBERICA's goal is to penetrate the market in Spain and Portugal by strengthening
its sales and distribution network and to become a leading supplier of archiving
software and document management standard software in Spain and Portugal.
Systems business. The systems business includes the sale of PC network
systems with the relevant peripherals and their integration with host systems,
smart cable systems, bridges and routers. Services offered include design,
installation, support and maintenance. Because CE's current strategy puts
increasing emphasis on its software development activities, CE anticipates that
the systems business will contribute less to CE's overall sales figures in the
future than it has in the past.
Software product licensing. Customers who license CE's products typically
enter into a licensing agreement with CE that requires payment of a specified
licensing fee and, at the customer's choice, provides for ongoing maintenance
services. The licensing fee differs according to the types of products and the
number and types of add-on modules licensed. In some cases, the licensing fee
may also depend on the number of users, whereas in other cases, in which an
enterprise license agreement is entered into, the licensing fee is fixed and
does not depend upon the number of users within the organization of the
customer.
PROFESSIONAL SERVICES
Consulting. CE offers consulting services through its professional
services organization to assist customers in the initial feasibility analysis,
planning and design of business document solutions, as well as numerous related
services, such as project management and drawing up project procedure
documentation. In order to address the business document system requirements of
large enterprises and organizations, CE intends to expand the number of its
consulting professionals and the scope of services offered.
Training, support and maintenance. CE believes that a high level of
customer service and support is crucial to its success. Therefore, CE offers a
range of services designed to accelerate deployment and user acceptance of its
products throughout a customer's organization. CE offers project installation
and implementation, training and support services to assist customers in the
initial implementation and maintenance of its products. CE's support
organization features three levels of support. First, the call desk receives
incoming requests for technical support from customers and allocates the
requests for further handling within CE's support organization. Second, CE's
technical experts analyze the requests for technical support and provide
solutions. If necessary, the problem analysis is carried out in cooperation with
CE's local customer service, CE's product development unit and third-party
vendors. Support may be provided via phone, online or at the customers'
facilities. Third, CE's product development units in Bielefeld, Munich and
Berlin provide software corrections for software errors or defects.
Competence Center Data Services. The Competence Center Data Services links
the know-how of CE's various business areas. The Competence Center's customer
services include the migration of commonly used archives of any kind, the
recording of documents for modern archiving and document
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management systems and the outsourcing of archives. CE also uses the Competence
Center's services for its own projects.
SALES AND DISTRIBUTION
CE currently sells and distributes its products in two ways:
- Direct sales
CE sells directly to major customers, generally large corporations, who,
because of their size and specialized knowledge, typically deal directly
with manufacturers. Some of these key accounts have their own systems
houses, which only do business within their respective groups. CE sells
to separate units within such corporations or to the in-house systems
subsidiaries which then distribute the products to various units of such
corporations.
- Indirect sales
As of December 31, 1999, CE's partner network consisted of more than 100
partners and manufacturers, who incorporate CE's software into their
products, in Germany and Europe. CE intends to increase the number of
partners by the end of 2000 to 150. In addition, CE is extending its
network of partners to those countries where CE has identified a market
potential for its products. CE has already set up its first partner
networks in Austria, the Czech Republic, France, Italy, Spain,
Switzerland and the United Kingdom.
CE's partners offer their customers complete solutions consisting of CE
products, other applications, technology, know-how and local competence.
The establishment of a partners network has long been an important
component of CE's strategy. Not only do the members of this network
distribute CE's products, they also implement and maintain its systems
worldwide. The close cooperation between CE and its partners includes
special programs in the areas of marketing, distribution and support
services.
Manufacturers in CE's partner network design products and tools
integrating CE's products. They offer CE products in connection with
their own solutions. These network members typically work in highly
demanding business environments worldwide. Some have specific
requirements making it necessary to integrate the functionality of the
CE products or to supply additional values exceeding the usual
functionality of their systems. CE tests and supports such
manufacturers' products in the same manner as it does for its own
products and, in some cases, adds specific definitions or
configurations.
Strategic cooperations and alliances
CE has entered into several strategic cooperations and alliances. CE
believes that these cooperations and alliances will enable it to assist
customers to maximize benefits from its products and services more rapidly.
In March 1999, CE entered into a strategic cooperation with Microsoft
regarding the transfer of know-how. This agreement in particular promotes joint
efforts for the establishment of international standards.
CE's strategic cooperation with Xerox Professional Services in the area of
archiving, finalized in May 1999, makes Xerox's customer database available to
CE. Under the cooperation agreement, Xerox Professional Services will distribute
CE's products throughout Germany. In the course of new projects, Xerox
Professional Services will combine CE's products with Xerox scanners, printers
and Xerox software. Xerox Professional Services will carry out projects using
the CE Document Server. Furthermore, CE will participate in joint marketing
activities, with the first activities targeted at banks and insurance agencies.
In June 1999, ORACLE chose CE's archive and document management system CE
ARCHIV in connection with the ORACLE, "Fast Forward" initiative. Under this
initiative, designed to foster the distribution of ORACLE Applications in the
market segment for small and medium-sized enterprises, CE
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ARCHIV is being marketed through ORACLE's distribution partners. The cooperation
between CE and ORACLE results from the increasing demand from the small and
medium-sized business segment of software solutions for archiving and document
management systems. In January 1999, CE was the first European supplier of
software solutions in the field of archiving and document management to receive
a certification under the ORACLE Cooperative Application Initiative program for
its CE ARCHIV interface with ORACLE Applications. As a result, all users of
ORACLE Applications can interface between CE ARCHIV and ORACLE Applications.
In January 2000, CE amplified its SAP R/3-related archiving and document
management business through a cooperation agreement with SVC, a leading German
SAP systems house. CE's business has been linked to SAP since CE first received
certification by SAP for the interface software CE Archiv-Link for SAP R/3 in
June 1996. In December 1997, the interface was certified for the CE ARCHIV
release 3.1. The certification relates to the R/3 release 4.0 and SAP will
support its functionality up to release 4.6.
In February 2000, CE entered into a strategic partnership with Oce Printing
Systems, pursuant to which they intend to develop and market a solution for the
electronic and automated archiving of print data.
CUSTOMERS
CE has licensed its products to more than 1,500 customers across a broad
range of industries worldwide. The following sets forth a representative list of
CE's significant customers broken down into industry segments.
Financial Services: Germany: Bayerische Landesbank, Commerzbank, Debeka,
Deutsche Bank, DG Bank, Dresdner Bank, Hansemerkur, Postbank, Sparda Bank, VHV
Insurance; Netherlands: AMRO Bank; United States: Emergent Mortgage; Austria:
Porsche Bank; Switzerland: Union Bank of Switzerland.
Industry and Retail: Germany: Bayer, Bitburger Brewery, Bosch,
DaimlerChrysler, DEA, Osram, REWE; Belgium: Interbrew; France: Renault; Europe:
Shell.
Public Sector: Germany: City of Berlin; City of Munich, Department of
Justice, Parliament; Canada: Department of National Defense; United States:
Department of Transportation, Florida; Russia: Ministry of Exterior.
Telecom, Transportation and Utilities: Germany: Berlin Airport, Frankfurt
Airport, Kirch Group, Ruhrkohle, RWE, Deutsche Telekom; Italy: Telecom Italia.
KEY ACCOUNTS
Key accounts are major customers, generally groups of companies, who
typically deal directly with manufacturers as a result of their size and
specialized knowledge. CE's key accounts include:
German Savings Banks Association. CE has installed its CE ARCHIV and CE
Akte software at several data centers of the German savings banks association
and at numerous savings banks that are members of the association. Given that
the member institutions of the savings banks usually install the same software
as the association, the contracts with the savings banks association, with
380,000 staff employed at its member institutions, provides significant
potential for additional sales of CE's products.
Siemens. The acquisition of SiDoc GmbH in 1998, formerly a wholly owned
subsidiary of Siemens Nixdorf Informationssysteme AG, and a partnership
agreement with Siemens has made CE the main supplier of document management
software to the Siemens Group worldwide.
RWE. CE ARCHIV is a recommended product within the RWE Group, a German
utilities provider with over 80,000 employees.
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COMPETITION
The market for CE's products is highly competitive, subject to rapid change
and significantly affected by new product introductions and market activities
from other industry participants. CE's products are targeted at the emerging
market for client/server software solutions. CE's competitors are diverse and
offer a variety of products and services directed at various segments of the
archiving and document management market.
These competitors include:
- competitors offering client/server archiving and document management,
such as iXOS, SER and FileNet;
- internal development efforts by corporate information technology
departments;
- smaller independent companies, which have developed or are attempting to
develop document management systems that complement or compete with CE's
software solutions; and
- other business application software suppliers who may broaden their
product offerings by internally developing, or by acquiring or
partnering with independent developers of, document management software.
Several competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, significantly greater name
recognition and a larger installed base of customers than CE does. Some of CE's
competitors and potential competitors have the resources to easily offer
specific vendor solutions. As a result, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than CE can.
CE expects that competition will increase as a result of software industry
consolidations. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address the needs of CE's
existing and prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire a
significant market share. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on CE's business, financial condition or operating
results. There can be no assurance that CE will be able to compete successfully
against current and future competitors or that competitive pressures faced by CE
will not materially and adversely affect its business, financial condition or
results of operations. See "Risk Factors."
PRODUCT RESEARCH AND DEVELOPMENT
One of the crucial tasks of an IT company is to maintain further
developments for existing products and to introduce product innovations
regularly. Along with developing CE's new client component software and
providing support to partner network members in designing and implementing
innovative technologies, CE's product research and development department
focuses on product integration.
CE's main focus of research and development in 2000 is to design an
integrated solution which will combine CE's core product CE ARCHIV with the
ARCIS products and the products of its newly acquired subsidiary Insiders
Information Management.
In 1999, a principal focus of activities in CE's Product Research and
Development unit was the integration of ARCIS products. The acquisition of SiDoc
and its ARCIS products in October 1998 added several clients and server
functions to CE's products portfolio. The acquisitions of netconcept and HAVI in
July 1999 have focused the unit on developing specialized software that
integrates and implements the know-how of those subsidiaries.
New products introduced in 1999 included CETERNA, CECURA, CENATOR and
CERVYS, sector-specific solutions for the finance, insurance, public sector and
health care market segments, and the
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latest version of ARCIS (NT), which offers a broad range of new features such as
full-text search and enhanced Internet services. Two variations of the Web
client component are now available: Java Script and HTML. The latest version of
the CE ARCHIV Document Server for AIX, HP-UX, Linux, OS-390, Sun Solaris,
Windows NT was also developed in 1999. It is intended to offer improved data
handling, data security, improved system access and a user-friendly interface.
In 1998, one focus of development activities was on Internet and intranet
products, as well as on interfaces to knowledge management systems based on CE
ARCHIV.
In October 1998, CE presented its integrated electronic archiving and
document management system CESAR. In June 1998, CE was granted official approval
by ORACLE for the "Archive Connect for ORACLE Applications" interface between CE
ARCHIV and ORACLE Applications. In 1998, CE also developed and launched a new
tool for Computer Output on Laser Disk. This development rounded off CE's range
of applications for Computer Output on Laser Disk in the mid-range and high-end
segments.
Product Research and Development expenses in 1999 were DM 15.2 million,
representing 15.5% of revenues in 1999. In 1998, expenditures amounted to DM 7.4
million, representing 16.4% of revenues in that year. DM 1.2 million, or 6.2% of
revenues, was spent in the Product Research and Development area in fiscal year
1997.
Delays or difficulties associated with the development of new products or
enhancements of existing products could have a material adverse effect on CE's
business and prospects. See "Risk Factors."
EMPLOYEES
CE believes that its employees have made important contributions to its
development over the past years and that their commitment and willingness to
master new challenges will contribute to ensuring its continued growth.
As of May 31, 2000, CE employed 449 persons. CE intends to further increase
the number of employees in order to meet its goals. Future personnel policies
will focus in particular on adding personnel in the areas of research and
development, sales and distribution and consulting. The major personnel expenses
occurred in the areas of consulting and sales.
CE believes that the ability to develop innovative, practical application
solutions and new products is the key success factor in implementing its goals.
As a result, software development staff is especially important. Other employees
active in the areas of consulting and customer-specific solutions must also be
included in the software development category.
Certain groups of employees of CE and its subsidiaries receive part of
their salary in bonuses tied to achievement targets defined from year to year.
Sales employees, for example, receive a variable salary component individually
defined by target turnovers, which are fixed at the beginning of each year.
The competition for qualified personnel in CE's industry sector is intense.
Even though the labor market for IT specialists and other highly specialized
personnel is very competitive, CE expanded and strengthened its labor force in
1999. CE believes that its future success will depend materially on its
continued ability to attract, hire and retain qualified personnel. See "Risk
Factors."
PROPRIETARY RIGHTS
CE's success is heavily dependent upon proprietary technology. CE relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. CE seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. License agreements with customers typically provide for
confidentiality clauses.
CE owns the trademark "ARCIS," which it acquired from Siemens Nixdorf
Informationssysteme AG in June 1999. In an agreement dated March 3, 1998, Mr.
Thomas Wenzke and Mr. Jurgen Brintrup, each
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holding a 50% interest in the "CE ARCHIV/2" software package, assigned exclusive
exploitation rights to the package to CE.
CE does not have any material patents, licenses or proprietary rights
agreements, the loss of which could have a serious effect on CE's business
activities or profitability. Despite CE's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of its products or to
obtain and use information that CE regards as proprietary.
Policing unauthorized use of CE's products is difficult, and while CE is
unable to determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem. In addition, the
laws of some foreign countries do not protect CE's proprietary rights to as
great an extent as do the laws of the United States or the laws of the Federal
Republic of Germany. Accordingly, there can be no assurance that CE's means of
protecting its proprietary rights will be adequate or that its competitors will
not independently develop similar technology.
CE is not aware of any of its products infringing upon the proprietary
rights of any third party. There can be no assurance, however, that third
parties will not allege infringement by CE with respect to current or future
products. CE expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in its
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could result in
costly litigation that could absorb significant management time or cause product
shipment delays, which could have a material adverse effect upon CE's business,
financial condition or results of operations. Such claims could require CE to
enter into royalty or licensing agreements that may not be available on terms
acceptable to CE or at all, which could have a material adverse effect upon its
business, financial condition or results of operations. See "Risk Factors."
FACILITIES
CE's new executive offices are currently under construction on property in
Bielefeld, Germany which is owned by CE. The construction work is scheduled to
be completed in early 2001. Under the property purchase agreement, CE is
obligated to create permanent jobs for a total of at least 300 employees at this
facility (including CE's existing employees). The agreement granted CE an option
to buy a neighboring property for a price specified in the agreement, which
option was recently exercised. CE does not own any other property or facilities.
CE and its subsidiaries lease facilities in various locations throughout
Germany, including Berlin, Bielefeld, Frankfurt/Main, Hanover, Munich,
Dusseldorf-Ratingen and Stuttgart. The leases for the office complex presently
housing CE's executive headquarters, located at Herforder StraSSe 155a, 33609
Bielefeld, expire on March 31, 2002; CE has a one-time option to renew these
leases for five years.
LEGAL PROCEEDINGS
CE and its subsidiaries are not currently and, in the past two years, have
not been a party to any legal proceedings which could have, individually or in
the aggregate, a material adverse effect on CE's business, operating results or
financial condition.
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DESCRIPTION OF TREEV'S BUSINESS
OVERVIEW
TREEV is a leading developer and marketer of content management solutions.
TREEV provides client/server and Internet solutions for document management,
document imaging, enterprise report management, and workflow process
reengineering. The TREEV Suite of software products allows organizations to
electronically capture, manage, store, and distribute large volumes of
information to geographically dispersed enterprises. This information includes
computer reports, engineering drawings, scanned images, office documents,
photos, voice files and video clips. TREEV's software products have been
installed in over 2,000 banks, Fortune 1000 corporations, and government
agencies.
TREEV's corporate headquarters, product development and marketing
operations are located in Herndon, Virginia. Regional sales offices are located
across the United States. TREEV also has a testing and customer service facility
in Denver, Colorado.
THE BUSINESS CASE FOR INTEGRATED DOCUMENT MANAGEMENT SOFTWARE SOLUTIONS
Organizations are continually looking for ways to more easily process and
distribute large volumes of information throughout an enterprise. Traditional
paper-based manual filing, retrieval, and distribution methodologies are slow,
labor intensive, and require bulky file storage. This problem is compounded by
the fact that, while businesses are becoming more decentralized, they are, at
the same time, attempting to better share information across their operations.
The TREEV Suite of software products offers a solution to this problem and
accommodates the needs of companies looking for fast information access and the
ability to share documents across departments. Ultimately, the ability to
retrieve information from any corporate data repository, evaluate it and
distribute this knowledge to other locations leads to increased productivity.
TREEV's integrated document management software addresses this pressing business
need. TREEV's products are designed to handle the growing use of digital
information that organizations are creating and distributing through the
Internet.
LEVERAGING THE GROWTH OF THE INTERNET
The Internet has become a driving economic force in business today. At its
foundation, the Internet provides a standardized communications vehicle for
connecting a business with its customers. Until recently, businesses have used
the Internet as a medium for publishing information to their customers.
Initially, many implementations took the form of an "electronic brochure." Even
though there was an ever-increasing amount of important data being provided on
the Internet, the communication interface was primarily one way. Businesses are
in the second phase of commercial deployment over the Internet. Electronic
commerce applications requiring full interactive transaction processing are
being implemented.
We are now entering the third phase of Internet development. In this phase
businesses will fully connect with their clients, diminishing the differences
between internal information systems and external Web-based applications.
TREEV's products aim to provide small and large-scale Internet document
management applications to handle this business need.
THE TREEV SUITE
The TREEV Suite of integrated software products provides a scalable
framework of building blocks for developing customizable client/server and
Web-based applications for managing documents, files, and other unstructured
data types. Based on Microsoft's COM architecture, the TREEV Suite utilizes
industrial strength document management, document imaging, enterprise report
management, and workflow engines for rapid development of enterprise information
solutions. TREEV's standards-based design and unique "adapter" architecture is
designed to allow for connectivity to leading third-party document management
systems and integration with existing production applications.
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TREEV Suite Components
TREEV's core engines -- document management, document imaging, enterprise
report management, and workflow -- are the foundation of TREEV's component-based
framework. They are described below:
OmniTREEV. This patented software solution manages the content and storage
of multimedia data types such as text, images, audio files or video clips.
OmniTREEV handles the management, storage, and distribution of any type of
multimedia or document object in high-transaction, client/server and Internet
environments. Companies which utilize OmniTREEV can multimedia-enable existing
or new database applications while preserving their investments in legacy
information systems and hardware equipment.
DocuTREEV. This document management system allows the user to capture,
store and retrieve scanned images, word processing documents, spreadsheets and
other graphical files. Images can be stored and retrieved from magnetic disk
(RAID), CD-R, or optical disk. DocuTREEV effectively replaces the use of paper
and microfilm as a storage medium and takes advantage of Windows NT, UNIX, and
SQL technologies to deliver an enterprise-wide scalable solution.
eTREEV. eTREEV is an intuitive browser client that is designed to provide
instant online access to statements and reports archived in the DataTREEV
Enterprise Report Management system.
DataTREEV. This enterprise report management software provides a storage
and retrieval system, which offers high-volume, high-speed handling of
mission-critical report data for mainframe and client/server environments.
DataTREEV is designed to acquire and manage reports from almost all hardware
platforms and to provide simultaneous access to Internet, Windows, and 3270
terminal-based users.
AutoTREEV. This software application is designed to automate complex
business processes more commonly referred to as workflow applications. Its
patented rules-based workflow engine stores logic that moves documents through
an automated process based on the definition of work types, users and tasks, and
the recognition of dynamic processing conditions.
EDUCATION AND SUPPORT SERVICES
Education, customer service and support are key competitive elements in
today's business environment. TREEV is dedicated to providing the best product
and system expertise, project management and guidance for delivering integrated
document management solutions. TREEV provides a 24-hour, 7 days a week, customer
service program, based primarily in Denver, Colorado. TREEV's educational
services department also offers a range of training classes to help clients and
business partners. Classes are held in Herndon, Virginia, Denver, Colorado, and
at client sites around the country.
PRODUCT DEVELOPMENT
Product development is located at TREEV's headquarters in Herndon,
Virginia. During 1999, the product development group focused on completing
product release plans for the eTREEV product technology.
Strategically, the eTREEV technology has been developed to help value-added
resellers more easily develop customized document management applications to
satisfy complex business problems. Because TREEV 2000, of which eTREEV is a
component, is based on Microsoft's COM architecture, both integrators and
value-added resellers should be able to build more rapidly Microsoft-compatible
vertical applications according to individual customer specifications. TREEV's
design also allows for connectivity to leading third-party document management
systems and integration with existing line-of-business applications. TREEV hopes
to leverage this technology through its partners to penetrate new vertical
markets. TREEV 2000 has also been specifically adapted to respond to growing
e-commerce demands for Internet document presentment.
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TREEV views the product development organization as one of its key assets
and aims to continue to invest in building its infrastructure, refining the
group's software development methodology, and implementing the TREEV 2000
product strategy.
ASSEMBLY AND SOURCES OF SUPPLY
TREEV assembles its products at its facilities in Herndon, Virginia and
Denver, Colorado. TREEV relies exclusively on outside suppliers for the hardware
components of its products such as scanners, computers and optical disk drives
and jukeboxes. Most parts and components are currently available from multiple
sources at competitive prices. To date, TREEV has not experienced significant
delays in obtaining parts and components, and although there can be no
assurance, TREEV does not expect to experience such delays in the future.
PATENTS, TRADEMARKS AND COPYRIGHTS
TREEV has registered certain trademarks and copyrights in the United States
and various foreign countries. The TREEV family of product names used in this
proxy statement/prospectus are registered or unregistered trademarks owned by
TREEV.
TREEV also has two patents. A patent for the enterprise multimedia system
and method using scalable object-based architecture, which primarily relates to
TREEV's OmniTREEV product, was granted on February 17, 1998. A patent for the
rule engine interface for a visual workflow builder, which primarily relates to
TREEV's AutoTREEV product, was granted on June 30, 1998. TREEV has also applied
for other patents on certain of its key technologies. In general, however,
management believes that the competitive position of TREEV depends primarily on
the skill, knowledge and experience of TREEV's personnel and their ability to
develop, market and support software products, and that its business is not
materially dependent on copyright protection, trademarks or patents. TREEV
believes that all of its products are of a proprietary nature and its licensing
agreements generally prohibit program disclosure. It is possible, however, for
product users or competitors to copy portions of TREEV's products without its
consent.
Licenses for a number of software products have been granted to TREEV for
its own use or for remarketing to its customers. In the aggregate, these
licenses are material to the business of TREEV, but TREEV believes that the loss
of any one of these licenses would not materially affect TREEV's results of
operations or financial position.
WARRANTY AND SERVICE
Warranties for hardware sold by TREEV are generally provided by the
manufacturer. TREEV provides initial warranties and ongoing service contracts
usually covering one year for its software products. TREEV recognizes revenues
under service contracts ratably over the contract period.
COMPETITION
Virtually every software vendor in TREEV's market space has built its
business by delivering proprietary development tools and interfaces. Because of
this fact, these systems are often inappropriate for a wide range of
applications. One of the primary attributes of TREEV's technology is its ability
to address a wide range of information needs, from simple departmental
applications to more complex enterprise-wide systems. TREEV offers open systems
designed to give customers the ability to determine their own development
environment.
With the release of TREEV 2000 in March 2000, TREEV has created a
Microsoft-centric framework for developing and delivering imaging, enterprise
report management, workflow, and document management applications. TREEV
believes it will benefit from this strategic product positioning as more and
more organizations look for real-time document access and tighter production
systems integration. With image-
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enabled applications becoming more commonplace, the need to bring document
management systems into the information technology mainstream has become
paramount.
Historically, TREEV believes that its customers have chosen its products
over competitive offerings because of the product's ability to easily scale
across an enterprise and for its open, flexible architecture. Scalability,
immediate access to information, and the ability to manage geographically
dispersed data stores into a single application are all reasons customers cite
for choosing TREEV's software.
Regarding specific industry markets, TREEV is a large vendor in the banking
industry. TREEV provides banks with document-imaging and report management
systems that can improve customer service and significantly reduce paper
production and storage. TREEV's software facilitates daily operations such as
tracking signature cards, loan documentation, and checking account statements.
TREEV's competitors vary depending upon industry market focus and overall
client systems requirements. FileNET, Eastman Software and IBM are primary
competitors for large Integrated Document and Output Management (IDOM)
enterprise-level installations. Smaller IDOM competitors include Optika,
SER/Macrosoft, Hyland, and OTG Software. Competition from single product vendors
includes Documentum, INSCI and Staffware.
SALES AND MARKETING
TREEV sells its integrated document software products indirectly through
business partners or value-added resellers and directly within the banking
marketplace through its own sales force. Sales/sales support offices are located
in or near Atlanta, Charlotte, Dallas, Denver, Los Angeles, Minneapolis, New
York, Orlando, San Francisco, San Jose and Washington, D.C.
TREEV is positioning itself to sell its software products through indirect
sales partners such as value-added resellers, systems integrators and original
equipment manufacturers. Its recently developed Business Alliance Program is a
catalyst and support vehicle for these marketing partnerships. TREEV is also
forming alliances with vendors of complementary product technologies such as
companies which market and manufacture database, application development,
systems management, and communication and connectivity software.
TREEV's Financial Services Group is continuing to increase its banking
industry penetration as it sells the new TREEV 2000 -- specifically imaging,
Enterprise Report Management and workflow -- to new customers, as well as its
existing client base of over 2,000 banks.
TREEV also maintains major accounts in the telecommunications and public
sector markets. Lucent Technologies, for example, uses TREEV's OmniTREEV
Web-based document management software to capture, store, and manage CAD/CAM
files, engineering drawings, and text-based operations manuals for its internal
and field engineers. In the public sector, Healthcare Financing Administration
uses TREEV's technology to monitor and process Medicare payments. In this case,
TREEV's software improved form throughput and processing times by 25%. TREEV's
software is also used at the U.S. Treasury and the U.S. Department of Defense.
TREEV maintains active marketing programs for both its indirect and direct
sales channels. This includes representation at national trade events, seminars,
user group meetings, press and analyst tours, advertising in major industry and
news publications and participation in lead generation activities such as direct
mail campaigns. TREEV's Business Alliance Program has also been expanded to
include co-op marketing activities on a regional and national level.
BUSINESS DISPOSITIONS
During 1994, TREEV committed itself to a plan of restructuring, which was
designed to improve operating results by concentrating TREEV's resources on the
marketing, and continued development of its main suite of software products. In
connection with its restructuring plan, TREEV, during 1995, 1996 and
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1997, disposed of a number of operating units which were not considered
complementary to TREEV's business.
As a result of these divestitures, TREEV recorded a gain of $266,000 in
1997 and losses of $921,000 and $9.3 million in 1996 and 1995, respectively. The
aggregate consideration received by TREEV from the divestitures was $1.6 million
in cash and $11.2 million in notes receivable, of which $1.1 million was
reserved as uncollectible at December 31, 1997, and written off during 1998.
TREEV sold its French subsidiary, Dorotech, in the fourth quarter of 1997
and its Symmetrical Technologies, Inc., subsidiary in 1996. During 1995, TREEV
disposed of the following operations: Hunt Valley Division (formerly NSI, Inc.),
Network Imaging (UK Holdings) Limited, Microsouth, Inc., Tekgraf, Inc., P E
Systems, Inc., WildSoft Division, and IBZ Digital Production AG.
EMPLOYEES
TREEV's success is highly dependent on its ability to attract and retain
qualified employees. Competition for employees is intense in the software
industry and particularly in the Washington, D.C. metropolitan area. To date,
TREEV believes it has been successful in its efforts to recruit qualified
employees, but there is no assurance that it will continue to be as successful
in the future.
None of TREEV's employees are represented by a labor union. TREEV has
experienced no work stoppage and believes that its employee relations are good.
At November 6, 2000, TREEV employed 240 people.
PROPERTIES
As of November 6, 2000, TREEV leased 44,200 square feet for its
headquarters in Herndon, Virginia under a lease which commenced in May 2000 and
expires in April 2010. TREEV also leases an aggregate of approximately 55,000
square feet of similar facilities at other offices near Atlanta, Georgia;
Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; Los Angeles,
California; Minneapolis, Minnesota; and Orlando, Florida. TREEV's current rent
expense under real property leases on an annual basis is approximately $1.6
million. TREEV owns no real property and has no plans to purchase any real
property for either commercial or investment purposes in the foreseeable future.
TREEV believes that its facilities are adequate for its purposes.
LEGAL PROCEEDINGS
TREEV is not involved in any legal proceedings, other than routine
litigation incidental to the business.
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SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
TREEV
The following table sets forth information, as of November 6, 2000, with
respect to the beneficial ownership of TREEV common shares by (1) each
stockholder known by TREEV to be the beneficial owner of more than five percent
(5%) of the outstanding TREEV common shares; (2) each director of TREEV; (3) the
chief executive officer and the four other most highly compensated executive
officers of TREEV; and (4) all executive officers and directors of TREEV as a
group. Except as indicated in the footnotes to the table, persons named in the
table have sole voting and investment power with respect to all TREEV common
shares shown as beneficially owned by them.
The address of each person listed below, other than the Estate of Fred
Kassner, Mr. Ardinger and Mr. Adkins, is 13900 Lincoln Park Drive, Herndon,
Virginia 20171.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
NAME OF BENEFICIAL OWNER OR GROUP SHARES(1) PERCENTAGE OWNED
--------------------------------- --------- ----------------
<S> <C> <C>
Estate of Fred Kassner(2)................................ 2,860,426 17.6%
Horace T. Ardinger, Jr.(3)............................... 4,362,094 26.9%
Douglas Adkins(4)........................................ 1,179,788 7.3%
Deutsche Bank AG and Deutsche Funds Holding GmbH(5)...... 845,660 5.2%
Robert P. Bernardi(6).................................... 251,824 1.5%
James J. Leto(7)......................................... 693,679 4.3%
Thomas A. Wilson(8)...................................... 312,500 1.9%
John F. Burton(9)........................................ 38,578 *
Edwin A. Adams(10)....................................... 11,250 *
Brian H. Hajost(11)...................................... 139,582 *
Richard G. McMahon(12)................................... 78,768 *
Thomas Giampa(13)........................................ 98,100 *
C. Alan Peyser(14)....................................... 44,518 *
Michael J. Smith(15)..................................... 5,000 *
Directors and executive officers as a group(10 persons).. 1,673,799 10.3%
</TABLE>
---------------
* Less than one percent (1%).
(1) Under applicable rules of the U.S. Securities and Exchange Commission, a
person is deemed to be the beneficial owner of TREEV common shares if,
among other things, he or she directly or indirectly has or shares voting
power or investment power with respect to such shares. A person is also
considered to beneficially own TREEV common shares that he or she does not
actually own but has the right to acquire presently or within the next 60
days, by exercise of stock options or otherwise.
(2) The address of the Estate of Fred Kassner is 69 Spring Street, Ramsey, New
Jersey 07446. Of the total TREEV common shares shown, the Estate of Fred
Kassner has shared voting and dispositive power with respect to 2,860,426
TREEV common shares, including 20,000 TREEV common shares underlying a
warrant, held by Liberty Travel, Inc. of which the Estate is a
stockholder. Of the TREEV common shares reported as being held directly by
the Estate, 63,500 are issuable upon the exercise of warrants.
(3) The address of Mr. Ardinger is 3000 Thanksgiving Tower, Dallas, Texas
75201. The TREEV common shares listed in the table as beneficially owned
by Mr. Ardinger consist of 4,362,094 TREEV common shares currently owned
by Mr. Ardinger and/or warrants (the "Investor Warrants") purchased by Mr.
Ardinger and the Ardinger Family Partnership, which Mr. Ardinger controls.
The Investor Warrants were issued in connection with the private placement
of TREEV common shares in September 1998.
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<PAGE> 135
(4) The address of Mr. Adkins is 3000 Thanksgiving Tower, Dallas, Texas 75201.
The TREEV common shares listed in the table as beneficially owned by Mr.
Adkins consist of 1,136,038 TREEV common shares currently owned by Mr.
Adkins and the Adkins Family Trust Ltd. and the Baker Family Trust (both
of whose TREEV common shares Mr. Adkins may be deemed to beneficially own)
and 43,750 TREEV common shares issuable upon exercise of warrants
(including 40,000 issuable upon exercise of the Investor Warrants).
(5) The address of Deutsche Bank AG is Taunusanlage 12, D-60325 Frankfurt am
Main, Federal Republic of Germany. The address of Deutsche Funds Holding
GmbH is Feldbergstrasse 22, D-60612 Frankfurt am Main, Federal Republic of
Germany.
(6) Includes 12,500 warrants and 112,449 TREEV common shares issuable upon
exercise of options.
(7) Includes 4,000 warrants and 564,992 TREEV common shares issuable upon
exercise of options.
(8) All these TREEV common shares are issuable upon exercise of options.
(9) All these TREEV common shares are issuable upon exercise of options.
(10) All these TREEV common shares are issuable upon exercise of options.
(11) Includes 125,001 TREEV common shares issuable upon exercise of options.
(12) Includes 75,000 TREEV common shares issuable upon exercise of options.
(13) All these TREEV common shares are issuable upon exercise of options.
(14) Includes 38,518 TREEV common shares issuable upon exercise of options.
(15) All these TREEV common shares are issuable upon exercise of options.
CE
The following table sets forth information as of October 31, 2000, with
respect to the beneficial ownership of CE ordinary shares, which constitutes
CE's only outstanding class of voting securities, by (1) each person known to CE
to be the owner of more than ten percent (10%) of the ordinary shares and (2)
all members of the CE supervisory board and the CE management board and CE's
executive officers, as a group. All of the CE ordinary shares have been issued
in bearer form. Except as indicated, beneficial ownership includes the sole
power to vote and to dispose of the securities in question.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
NAME OF BENEFICIAL OWNER OR GROUP SHARES PERCENTAGE OWNED
--------------------------------- --------- ----------------
<S> <C> <C>
Hans-Jurgen Brintrup..................................... 4,825,000 24.12%
Thomas Wenzke............................................ 4,825,000 24.12%
All members of the CE supervisory board and the CE
management board as a group (7 persons)................ 9,650,000 48.24%
</TABLE>
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<PAGE> 136
MANAGEMENT AND EMPLOYEES
As required by German law, CE has a two-tier board system consisting of a
Management Board and a Supervisory Board. The CE management board is responsible
for the management of CE and representing CE in its dealings with third parties.
The CE supervisory board appoints and removes the members of the management
board and supervises the management board and the general course of corporate
and business affairs. The management board must keep the supervisory board
informed about the operations of CE, consult with the supervisory board on
important matters, and submit specified important decisions to the supervisory
board for its prior approval. The members of the management board are appointed
by the supervisory board for a term of up to five years and they may be
re-appointed or have their term extended for one or more terms of up to five
years. Under certain circumstances, such as a serious breach of duty or a bona
fide vote of no confidence by the CE shareholders, a member of the management
board may be removed by the supervisory board prior to the expiration of his
term. The members of the supervisory board are elected for a term of
approximately five years and may be re-elected. See "Comparison of Rights of
Holders of TREEV Common and Preferred Stock and CE Ordinary Shares."
CE MANAGEMENT BOARD
As of the effective time of the merger, the members of the CE management
board are expected to be as follows (ages are as of November 1, 2000):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------------
<S> <C> <C>
Hans-Jurgen Brintrup................... 45 Member of the Management Board, Marketing
and Sales
Thomas Wenzke.......................... 36 Member of the Management Board, Finance
Milan Stahl............................ 32 Member of the Management Board, Mergers and
Acquisitions and Investor Relations
Gerhard Buhrig-Ney..................... 43 Member of the Management Board, Human
Resources
</TABLE>
Hans-Jurgen Brintrup co-founded CE in 1998 and, in the same year, was
appointed as a member of the CE management board. From 1990 to 1998, Mr.
Brintrup served as a senior member of the management of CE's predecessor
company, CE computer equipment GmbH.
Thomas Wenzke co-founded CE in 1998 and, in the same year, was appointed as
a member of the CE management board. From 1984 to 1998, Mr. Wenzke served as a
senior member of the management of CE's predecessor company, CE computer
equipment GmbH. In June 2000, he was elected as a member of the supervisory
board of GROUP Technologies AG.
Milan Stahl has been a member of the CE management board since August 2000.
From 1997 through June 2000, Mr. Stahl worked in the Institutional Equity Sales
department of the DG Bank.
Gerhard Buhrig-Ney has been a member of the CE management board since
September 2000. From 1991 to 2000, he worked for Bertelsmann AG, where he was
head of the executive education department for the last two years.
It is expected that after the effective time of the merger, the CE
supervisory board will vote upon a resolution to appoint Thomas Wilson, a
director and the president and chief executive officer of TREEV, to the CE
management board.
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CE SUPERVISORY BOARD
As of the effective time of the merger, the members of the CE supervisory
board are expected to be as follows (ages are as of November 1, 2000):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------------
<S> <C> <C>
Dr. Uwe Swientek....................... 58 Chairman of the Supervisory Board
Prof. Dr. Peter Kupsch................. 56 Vice-Chairman of the Supervisory Board
Prof. Jurgen Witt...................... 66 Member of the Supervisory Board
</TABLE>
Dr. Uwe Swientek has been the chairman of the CE supervisory board since
1998. Dr. Swientek has been a member of the management board of BMG
Entertainment since 1994. He has been working for Bertelsmann in different
capacities since 1969. Dr. Swientek is a member of the supervisory board of
Bertelsmann and the chairman of the Bertelsmann Management Representative
Committee since 1990. Prior to 1990, he was a member of the divisional board in
the electronic media division (since 1985), a member of the divisional board in
the printing and industrial division (since 1980) and managing director of
Sonopress (since 1974). From 1967 to 1969, Dr. Swientek worked for AEG
Telefunken as a system development engineer. Dr. Swientek holds diplomas in
electronic communications technology from the University of Aachen and in
business administration from the University of Munster.
Prof. Dr. Peter Kupsch is a Professor of Economics at the University of
Bamberg. He also works as an auditor and tax adviser for an auditing firm in
Bamberg. His other professional activities include: member of the supervisory
boards of Wieland Elektric GmbH and Wieland Holding GmbH, two companies in the
electrical engineering industry; and member of the advisory board of Striewa
Bekleidungswerke GmbH, a company in the textile and food industry; and rendering
opinions in the areas of accounting, valuation of enterprises and reorganization
of enterprises.
Prof. Jurgen Witt is a Professor of Economics at the University of Applied
Sciences of Bielefeld, where he started lecturing in 1972. He also works as a
business consultant for a consultancy firm in Dusseldorf. Prof. Witt received a
diploma from the School of Economics of Mannheim. His other professional
activities include: Chairman of the Marketing Club of Bielefeld and conducting
research projects and management seminars. His areas of special expertise are
strategic management, product innovation and sales management.
COMPENSATION
The aggregate amount of compensation paid by CE to the members of the CE
management board in fiscal year 1999 amounted to DM 660,000. The aggregate
amount of compensation paid by CE to the members of the CE supervisory board in
fiscal year 1999 amounted to DM 45,000. Value added tax on the remuneration and
expenses of supervisory board members is reimbursed by CE. The pension reserves
for members of the CE management board, all of whom currently are active
management board members, amounted to DM 45,000 on December 31, 1999.
RELATED PARTY TRANSACTIONS AND RELATIONSHIPS
CE leases one of its material facilities from members of the CE management
board. The following table sets forth the names of these persons, their
relationships to CE, the location of the facility and the amount of such
consideration.
<TABLE>
<CAPTION>
LESSOR'S RELATIONSHIP
LESSOR'S NAME TO CE FACILITY LEASE PAYMENT
------------- --------------------- ------------------- -------------------
<S> <C> <C> <C>
Thomas Wenzke, Members of the CE Bavariaring 26, DM13,441.30 per
Hans-Jurgen Brintrup management board 80336 Munich, month
Germany
</TABLE>
130
<PAGE> 138
STOCK INCENTIVE PLAN
The shareholders of CE approved a resolution at the general shareholders'
meeting held on August 2, 2000 authorizing the CE management board, with the
consent of the CE supervisory board, to establish the CE Computer Equipment AG
2000 Stock Incentive Plan (the "stock incentive plan"), under which the
employees of CE and members of the CE management board as well as the members of
the management board, executive officers and directors and the employees of CE's
affiliated companies (the "eligible employees") may be granted rights to
purchase convertible bonds that are convertible into CE ordinary shares. CE
adopted the stock incentive plan on August 2, 2000.
The purposes of the stock incentive plan are to encourage ownership of CE
ordinary shares by eligible employees of CE and its subsidiaries so that such
employees have a proprietary interest in the performance of CE, to provide an
incentive for such employees to expand and improve the growth and prosperity of
CE and its subsidiaries, and to assist CE and its subsidiaries in attracting and
retaining such employees. The members of the CE supervisory board will not be
eligible to purchase convertible bonds. At the August 2, 2000 general
shareholders' meeting, the shareholders approved a resolution to conditionally
increase the share capital of CE by up to E1,928,572.00 to cover conversion
rights for up to 1,928,572 CE ordinary shares underlying the convertible bonds
to be purchased pursuant to the stock incentive plan. See "Description of CE
Ordinary Shares -- Share Capital."
Under CE's stock incentive plan, the term during which the rights to
purchase convertible bonds may be granted may not exceed five years. Subject to
the terms and conditions of the stock incentive plan, each convertible bond with
a par value of E0.10 will be convertible into one CE ordinary share. The stock
incentive plan will be administered by the CE management board; the CE
management board (or, with respect to members of the CE management board, the CE
supervisory board) will determine which eligible employees will participate in
the stock incentive plan. The aggregate number of CE ordinary shares to be
issued pursuant to convertible bonds will be determined by the CE management
board, or, in the case of rights to purchase convertible bonds granted to
members of the CE management board, by the CE supervisory board. The eligible
employees will purchase the convertible bonds at par value and will subsequently
be able to exercise their conversion rights for conversion into CE ordinary
shares after payment of the conversion price. In no event, however, may CE grant
rights to purchase convertible bonds nor may eligible employees exercise their
conversion rights on a date that does not fall within ten business days
following the second business day after: (i) the general shareholders' meeting
of CE, (ii) the press conference relating to the public announcement of CE's
annual financial reports, or (iii) the publication of any interim financial
reports with respect to the first, second and third quarter of the then current
fiscal year of CE. When used in this paragraph, "business day" shall mean any
day that is both (i) a day on which the Frankfurt Stock Exchange is open for
trading, and (ii) a day on which commercial banks in Frankfurt, Germany, are
open for business.
Pursuant to the stock incentive plan, eligible employees outside the United
States will be able to exercise their convertible bonds with respect to 50% of
the CE ordinary shares underlying such convertible bonds no earlier than two
years after the date of purchase or, in the case of eligible employees who are
resident in the United States, with respect to 25% of the CE ordinary shares
underlying such convertible bonds no earlier than one year after the date of
purchase and with respect to the remaining convertible bonds in equal monthly
installments over a 24-month period with respect to eligible employees outside
the United States and a 36-month period with respect to eligible employees who
are resident in the United States, in each case in accordance with the vesting
schedule set forth in their respective notices of purchase. The conversion price
per share will not be less than 100% of (i) the arithmetic average of the
weighted prices of CE ordinary shares as reported on the Frankfurt Stock
Exchange on the last five trading days prior to the issuance of the convertible
bonds or (ii) if higher, the single cash price ("Einheitspreis") of a CE
ordinary share in floor trading ("Parketthandel") (or, should such floor trading
be discontinued, the price most closely approximating the single cash price) on
the date on which the issuance of the convertible bond is approved by the CE
management board or the CE supervisory board, respectively.
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<PAGE> 139
In the event that the eligible employee's service terminates for any
reason, the unvested portion of the convertible bonds will no longer be eligible
to be converted as of such date. CE will repurchase such unvested convertible
bonds on the maturity date and pay out accrued taxes, if any. The vested portion
of the convertible bonds generally may be exercised during the next exercise
period following termination of employment (or in the event of the death,
retirement or permanent disability of an eligible employee, during the next four
exercise periods). In the event that the convertible bonds have not been
converted into CE ordinary shares prior to the maturity date, the right to
convert will lapse and CE will repurchase the convertible bonds as soon as
practicable thereafter at par value and pay out accrued taxes, if any.
As of the date of this proxy statement/prospectus, 165,553 convertible
bonds are outstanding each of which is convertible into five CE ordinary shares
to reflect CE's five-for-one stock split.
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<PAGE> 140
TRADING ON THE NEUER MARKT OF THE FRANKFURT STOCK EXCHANGE
THE FRANKFURT STOCK EXCHANGE AND THE NEUER MARKT
The Frankfurt Stock Exchange is the most significant of the eight German
stock exchanges and accounted for approximately 79 percent of the turnover in
traded shares in Germany in 1999. The aggregate annual turnover of the Frankfurt
Stock Exchange in 1999 of almost E4,009.41 billion (based on the Frankfurt Stock
Exchange's practice of separately recording the sale and purchase components
involved in any trade) for both equity and debt instruments made it the fourth
largest stock exchange in the world behind the New York Stock Exchange, Nasdaq
and the London Stock Exchange in terms of turnover. As of December 31, 1999, the
equity securities of 3,265 corporations, including 2,554 non-German
corporations, were traded on the Frankfurt Stock Exchange.
The Neuer Markt of the Frankfurt Stock Exchange is a trading segment that
was launched in March 1997. It is designed for innovative, small to mid-size
companies in high growth industries or in traditional industries that have an
international orientation and that are willing to provide active investor
relations services. Issuers are requested to provide investors on an ongoing
basis with information such as annual and quarterly reports (including cash flow
statements) and a corporate action timetable. This information is required to be
submitted in English and German as well as in electronic form, thus enabling the
stock exchange to disseminate corporate information via the Internet.
TRADING ON THE NEUER MARKT
Shares listed on the Neuer Markt are traded on the floor of the stock
exchange as well as via the computer-aided system Xetra. Markets in listed
securities are generally of the auction type, but listed securities also change
hands in inter-bank dealer markets off the Frankfurt Stock Exchange. Price
formation is determined by open bid by state-appointed specialists (amtliche
Makler) who are themselves exchange members, but who do not, as a rule, deal
with the public. Prices of currently traded securities are displayed
continuously during trading hours. At the half-way point of each trading day, a
single standard quotation is determined for all shares.
The members' association of the Frankfurt Stock Exchange publishes a daily
list of prices which contains the standard prices of all traded securities, as
well as their highest and lowest quotations during the past year.
Electronic trading via Xetra takes place during every business day between
9:00 a.m. and 8:00 p.m., Frankfurt time. Banks and securities dealers who have
been admitted to trading on at least one of Germany's stock exchanges may trade
through the Xetra system. Xetra is integrated into the Frankfurt Stock Exchange
and is subject to its rules and regulations.
Transactions on the Frankfurt Stock Exchange (including transactions within
the Xetra system) are settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange (for large volumes or if one of
the parties is not German) are generally also settled on the second business day
following trading, unless the parties have agreed upon a different date.
Following a recent amendment to the conditions of German banks for securities
trading (Sonderbedingungen fur Wertpapiergeschafte), customer orders to buy or
sell listed securities must be executed on a stock exchange, unless the customer
instructs otherwise. Trading can be suspended by the Frankfurt Stock Exchange if
orderly stock exchange trading is temporarily endangered or if a suspension is
in the public interest.
A unique feature of the Neuer Markt is the introduction of the obligatory
designated sponsor, i.e., an entity admitted for trading on the Frankfurt Stock
Exchange which provides additional liquidity by quoting prices for the buying
and selling of shares on request. Each issuer on the Neuer Markt has to nominate
at least two designated sponsors which will contribute to maintaining sufficient
liquidity for its shares and also serve as consultants on all stock market
related matters for the issuer.
Trading on German stock exchanges is regulated by, among others, the
Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt fur den
Wertpapierhandel).
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<PAGE> 141
Trading in the CE ordinary shares on the Neuer Markt under the symbol "CEE"
commenced on April 27, 1998. The Neuer Markt is still a relatively new market.
Accordingly, CE can not assure you that an active trading market for the CE
ordinary shares will be maintained in the future on the Neuer Markt or that the
Neuer Markt will not experience problems in settlement of clearances as trading
develops. Any such delays or problems could adversely affect the market price of
the CE ordinary shares. Persons proposing to trade CE ordinary shares on the
Neuer Markt should inform themselves about the potential risks and costs of such
trading.
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<PAGE> 142
DESCRIPTION OF CE ORDINARY SHARES
Set forth below is a summary of certain information relating to CE's share
capital and of certain provisions of its articles of association and German law.
This summary does not purport to be complete. It is qualified in its entirety by
reference to CE's articles of association and German law in effect at the date
of this proxy statement/prospectus.
SHARE CAPITAL
The share capital of CE consists of CE ordinary shares, all of which have
been issued in bearer form. The CE ordinary shares are currently deposited with,
and held through, Clearstream Banking AG, the German clearing system based in
Frankfurt am Main, Germany. As of the date of this proxy statement/prospectus,
the issued and outstanding share capital (Grundkapital) of CE was E20,008,175,
divided into 20,008,175 no par value ordinary shares (Stuckaktien). The CE
ordinary shares have a calculated nominal value (rechnerischer Wert, amount of
the share capital proportionally attributed to one no par value share) of E1
each.
Under the German Stock Corporation Act and CE's articles of association,
CE's share capital may be increased in several ways, including but not limited
to the following. First, the shareholders may cause the share capital to be
increased in consideration for contributions in cash or in kind. Second, the
shareholders may create authorized capital (genehmigtes Kapital) and may
authorize the CE management board for a period (not exceeding five years) to
issue CE ordinary shares or preferred shares out of such authorized capital with
the approval of the CE supervisory board. Third, the shareholders may create
conditional capital (bedingtes Kapital) for the purpose of issuing CE ordinary
shares or preferred shares to holders of convertible bonds, to the holders of
bonds with warrants attached, as consideration in a merger or other business
combination or to employees or members of the management board of CE or any
affiliated entity. In each case, the increase in share capital must be
authorized by a resolution passed by three-quarters of the share capital
represented at the shareholders' meeting at which the resolution is passed. Any
decrease in CE's share capital must be authorized by a resolution passed by
three-quarters of the share capital represented at the shareholders' meeting at
which such resolution is passed.
The aggregate nominal amount of any authorized capital created by the
shareholders may not exceed 50 percent of the share capital outstanding at the
time such authorized capital is registered in the commercial register for CE.
The aggregate nominal amount of any conditional capital created by the
shareholders may not exceed 50 percent or, if created for the purpose of
offering CE ordinary shares or preferred shares to employees or members of the
management board of CE or any affiliated entity, 10 percent, of the share
capital outstanding at the time the resolution to create the conditional capital
is adopted.
The shareholders of CE have created an authorized capital of up to an
amount of E10,004,087.50 and authorized the CE management board to issue CE
ordinary shares or preferred shares out of such authorized capital against
contributions in cash or kind, in one or several steps, with the consent of the
supervisory board. This authorization is valid until December 31, 2004. Any
shares to be issued on the basis of this authorized capital will be subject to
the statutory preemptive rights of CE's shareholders unless the CE management
board, with the consent of the CE supervisory board, decides to exclude the
preemptive rights in connection with certain transactions, including, (1) an
issuance of shares to CE's employees, (2) an issuance of shares against
contributions-in-kind, for example, in connection with the acquisition of
companies or equity interests therein, or (3) a capital increase against a
contribution-in-cash that does not exceed 10 percent of the share capital and in
which the issue price is not significantly below the stock exchange price. The
CE management board, with the consent of the CE supervisory board, will
determine the terms and conditions upon which shares will be issued on the basis
of this authorized capital.
In addition, the shareholders of CE have created a conditional capital in
an aggregate amount of up to E1,928,572 to cover conversion rights for up to
1,928,572 CE ordinary shares underlying the convertible
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<PAGE> 143
bonds to be purchased pursuant to CE's stock incentive plan, adopted on August
2, 2000. Under the terms of the stock incentive plan, employees of CE and
members of the CE management board as well as members of the management board,
executive officers, directors and employees of CE's affiliated companies will be
eligible to purchase bonds that are convertible into CE ordinary shares. See
"Management and Employees -- Stock Incentive Plan." The conditional capital will
result in an increase of the share capital if and to the extent the convertible
bonds are converted by their holders and will then result in a corresponding
dilution of the holdings of CE's existing shareholders. The new ordinary shares
will be entitled to dividends as of the beginning of the fiscal year in which
they are issued as a result of the conversion of the corresponding convertible
bonds. The CE management board, with the consent of the CE supervisory board,
will determine the terms and conditions for the implementation of the stock
incentive plan and the conditional capital increase, except that the CE
supervisory board will determine the terms and conditions of the conditional
capital increase relating to convertible bonds purchased by members of the CE
management board.
OWNERSHIP REPORTING OBLIGATIONS
Under the German Stock Corporation Act, any enterprise (Unternehmen) owning
ordinary shares or preferred shares in a German stock corporation such as CE
must promptly notify such corporation in writing if the aggregate number of
ordinary shares or preferred shares held by it or on its behalf exceeds, or
subsequently falls below, a threshold of 25 or 50 percent of the corporation's
share capital. For purposes of this ownership reporting obligation, ordinary
shares or preferred shares owned by an enterprise are deemed also to include
ordinary shares or preferred shares owned by or on behalf of any other
enterprise it controls (directly or indirectly). If, and for so long as a
shareholder does not comply with these ownership reporting requirements, such
shareholder may not exercise any rights attached to his ordinary shares or
preferred shares, including the right to receive dividends or, in case of
ordinary shares, the right to vote the ordinary shares.
SHAREHOLDERS' MEETINGS
The annual general shareholders' meeting of CE must be held within the
first eight months following the end of each fiscal year (which runs from
January 1 to December 31) and is called by the CE management board. At the
annual general meeting the shareholders determine the allocation and
distribution of profits for the preceding fiscal year, ratify all the actions of
the members of the CE management board and the CE supervisory board during the
preceding fiscal year, appoint CE's auditors and, if applicable, elect the
members of the CE supervisory board. Shareholder approval is also required for
significant corporate actions, such as capital increases and decreases,
securities issuances, amendments to the articles of association, certain mergers
and business combinations and liquidation.
Special meetings of shareholders may be called by the CE management board
or the CE supervisory board or by shareholders holding, individually or in the
aggregate, at least five percent of the nominal value of CE's share capital.
Shareholders holding in the aggregate at least five percent of CE's share
capital or shares in an aggregate nominal amount of at least E500,000 may
propose resolutions or modifications to resolutions to be presented at the
shareholders' meeting and may require that such resolutions be published prior
to the shareholders' meeting.
The right to attend and vote at a shareholders' meeting is given only to
those shareholders who deposit their ordinary shares (or certificates of deposit
of a bank serving as a depositary for such securities) at least five German bank
working days prior to the meeting and through the end of the meeting, with CE, a
German notary, a bank serving as a depositary for such securities
(Wertpapiersammelbank) or any other place of deposit specified in the notice of
the shareholders' meeting. Shares are also deemed to be deposited if, with the
consent of one of the aforementioned depositees, they are held for such
depositee in a bank account and are blocked until the end of the shareholders'
meeting. In the event that CE ordinary shares are deposited with a depositee
other than CE, the holders of those CE ordinary shares must provide CE's
treasurer (Gesellschaftskasse), no later than three days prior to the date of
the shareholders' meeting, with a certificate of deposit or a copy thereof in
order to exercise the right to attend
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the shareholders' meeting. In the event that no share certificates have been
issued, the notice of the shareholders' meeting will set forth the requirements
to be met by the shareholders to be admitted to, and be allowed to vote at, the
shareholders' meeting. Shareholders may grant proxies to be represented at
shareholders' meetings. Any proxy has to be in writing.
Notice of shareholders' meetings must be published in the German Federal
Gazette (Bundesanzeiger) at least one month prior to the last day on which
shares must be deposited as described above. The notice must set forth the time
and place of the meeting, the agenda and the conditions for participation of
shareholders.
VOTING RIGHTS
Each CE ordinary share entitles the holder thereof to one vote at
shareholders' meetings. Generally, resolutions are passed at shareholders'
meetings by a simple majority of votes cast unless a higher majority is required
by German law or by CE's articles of association. The German Stock Corporation
Act requires that certain significant resolutions be passed by at least
three-quarters of the nominal share capital present or represented at the
shareholders' meeting at which the vote is taken. Significant resolutions
include the exclusion of the preemptive rights of the shareholders to subscribe
for newly issued shares, capital increases, amendments to the articles of
association modifying the corporate purpose of CE, capital decreases, certain
mergers and business combinations and the dissolution of CE. CE's articles of
association do not impose additional vote requirements for the adoption of any
additional resolutions.
DIVIDENDS AND OTHER DISTRIBUTIONS
CE has never declared or paid any dividends and currently intends to retain
all available earnings generated by its operations for the development and
growth of its business. As a result, CE does not currently anticipate paying any
cash dividends on its shares.
For each fiscal year, the CE management board approves the annual financial
statements and submits them to the CE supervisory board with the management
board's proposal as to the disposition of the annual profits (either payment of
dividends, transfer to reserves or carryforward to the next fiscal year). Upon
approval by the CE supervisory board, the CE management board and the CE
supervisory board submit their combined proposal as to the disposition of the
annual profits to the shareholders at the shareholders' annual general meeting.
The shareholders ultimately determine the disposition of the annual profits,
including the amount of the annual dividends. Shareholders generally participate
in distributions of any dividends in proportion to the number of shares they
own, except when otherwise provided in the articles of association; CE's
articles of association do not provide otherwise. Dividends or other
distributions on newly issued shares which have been outstanding for less than a
full year will be pro rated unless the shareholders' meeting resolves otherwise.
Pursuant to the provisions of CE's stock incentive plan, any shares that are
issued as a result of the exercise of options are entitled to participate in the
profits made in the fiscal year in which the option was exercised. Prior to the
dissolution of CE, only the distributable profits (Bilanzgewinn) may be used to
make dividend payments to shareholders. In determining the distributable balance
sheet profits, the CE management board and the CE supervisory board may allocate
to profit reserves up to one half of the annual surplus remaining after
allocations to statutory reserves and losses carried forward. CE's articles of
association provide that the CE management board and the CE supervisory board
may allocate to other revenue reserves up to an additional 25% of the annual
surplus, provided the other reserves do not exceed one half of the share capital
or would exceed one half of the share capital once the profits are so allocated.
Any dividends declared by CE will be in German Marks until the Euro becomes the
exclusive legal tender in Germany, at which time any dividends will be effected
in Euros.
PREEMPTIVE RIGHTS
Under the German Stock Corporation Act, an existing shareholder of a stock
corporation has a preemptive right to subscribe for any shares, debt instruments
convertible into shares, debt instruments
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with warrants to purchase shares (or involving a profit participation) and
participation rights issued by the corporation in proportion to the shares held
by such shareholder in the existing capital of such corporation. These rights do
not apply to shares issued out of conditional capital. The German Stock
Corporation Act provides that the preemptive right can be excluded or limited
only by a shareholders' resolution approved by three-quarters of the share
capital represented at the shareholders' meeting (in person or by proxy) at
which the capital increase is authorized. The resolution must specifically
approve both the share capital increase and the exclusion or limitation of the
shareholders' preemptive rights. Preemptive rights may be excluded or limited by
a shareholders' resolution only under limited circumstances, including capital
increases involving a contribution in cash, that do not exceed 10 percent of the
corporation's share capital and in which the issue price is not significantly
lower than the price of the corporation's shares on a stock exchange on which
its shares are listed. Preemptive rights resulting from a capital increase may
generally be transferred and may be traded on the Neuer Markt segment of the
Frankfurt Stock Exchange for a limited period prior to the final date on which
the preemptive rights may be exercised.
LIQUIDATION RIGHTS
In accordance with the German Stock Corporation Act, any liquidation
proceeds remaining after paying off all of CE's liabilities would be distributed
among the holders of CE ordinary shares in proportion to the total number of the
CE ordinary shares held by each shareholder.
SHARE REPURCHASES BY CE
Under the German Stock Corporation Act, a German corporation may not
repurchase its own shares, subject to certain limited exceptions provided by
law. Generally, the number of shares repurchased by a corporation may not, in
the aggregate, exceed 10 percent of its share capital.
The general shareholders' meeting of CE held on August 2, 2000 empowered CE
to repurchase its own shares up to an amount of E2,000,817 in one or more
transactions on or before December 31, 2001.
ANTI-TAKEOVER PROVISIONS
In compliance with the admission regulations of the Neuer Markt segment of
the Frankfurt Stock Exchange, CE has adopted the Takeover Code recommended by
the Stock Exchange Expert Commission (Borsensachverstandigenkommission) at the
German Federal Ministry of Finance. Although the Takeover Code does not have the
force of law, it is nevertheless adhered to by all relevant market participants.
The Takeover Code can provide a defense against hostile takeovers or delay and
impede changes in control or management of CE, including transactions that would
otherwise make it possible for shareholders to receive a premium for their
ordinary shares above the current market price. The Takeover Code also may limit
CE shareholders' opportunity to agree to plans that they regard as being in
their interest.
In particular under the Takeover Code, the offeror and target company
involved in a public tender offer are required to provide certain information to
all holders of the targeted class or classes of securities. The Takeover Code
requires that certain information about the content of the tender offer be given
to the exchange on which the targeted securities are listed, the German Federal
Supervisory Authority for Securities Trading (Bundesaufsichtsamt fur den
Wertpapierhandel), and the German Executive Office of the Takeover Commission,
and be published in at least one national newspaper designated for exchange
notices. The tender offer must remain open to holders of the targeted securities
for a period of no less than 28 days and no more than 60 days. If the offeror
obtains control over the target company, the Takeover Code mandates that an
offer be extended immediately to all other holders of securities of the target
company.
In addition, the Takeover Code provides that the target company must
publish immediately, no later than two weeks after the publication of the tender
offer, a reasoned comment upon the tender offer. The target company's management
may not act contrary to the interests of the target company's securities holders
in tendering their shares following the publication of the bid and before its
outcome has been published.
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AMENDMENT OF ARTICLES OF ASSOCIATION
Any resolution seeking to amend CE's articles of association may be
proposed either by the CE supervisory board or the CE management board or by
shareholders holding in the aggregate at least five percent of CE's share
capital or shares in the aggregate nominal amount of at least E500,000. Any such
resolution must be passed by at least three-quarters of the nominal share
capital present or represented at the shareholders' meeting at which the vote is
taken.
LISTING INFORMATION
The CE ordinary shares are listed on the Neuer Markt segment of the
Frankfurt Stock Exchange under the symbol "CEE". The German Securities
Identification Number of the ordinary shares is 542 000.
GENERAL
Pursuant to CE's articles of association, share certificates may be issued
in the form of global share certificates. The shareholders do not have the right
to request the issuance of individual share certificates. The form of the share
certificates and the dividend and renewal coupons is determined by the CE
management board. CE's 20,008,175 ordinary shares are issued in the form of
global share certificates with dividend coupons, which are deposited with the
German clearing system of Clearstream Banking AG, Frankfurt am Main. CE does not
intend to print individual share certificates.
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DESCRIPTION OF THE CE AMERICAN DEPOSITARY SHARES
AMERICAN DEPOSITARY SHARES
ADRs are American Depositary Receipts. The Bank of New York will execute
and deliver the ADRs. Each ADR is a certificate evidencing a specific number of
CE ADSs. Each CE ADS will represent one CE ordinary share (or a right to receive
one CE ordinary share) deposited with the principal Frankfurt office of either
Deutsche Bank AG or Dresdner Bank AG, as custodian for The Bank of New York in
Germany. Each CE ADS will also represent any other securities, cash or other
property which may be held by The Bank of New York under the deposit agreement.
The Bank of New York's office at which the ADRs will be administered is located
at 101 Barclay Street, New York, New York 10286.
You may hold CE ADSs either directly (by having an ADR registered in your
name) or indirectly through your broker or other financial institution. If you
hold CE ADSs directly, you are an ADR holder. This description assumes you hold
your CE ADSs directly. If you hold the CE ADSs indirectly, you must rely on the
procedures of your broker or other financial institution to assert the rights of
ADR holders described in this section. You should consult with your broker or
financial institution to find out what those procedures are.
As an ADR holder, CE will not treat you as one of its shareholders and you
will not have shareholder rights. German law governs shareholder rights. The
Bank of New York will be the holder of the CE ordinary shares underlying your CE
ADSs. As a holder of ADRs, you will have ADR holder rights. A deposit agreement
among CE, The Bank of New York and you, as an ADR holder, and the beneficial
owners of ADRs set out ADR holder rights as well as the rights and obligations
of The Bank of New York, as depositary. New York law governs the deposit
agreement and the ADRs.
The following is a summary of the material provisions of the deposit
agreement. For more complete information, you should read the entire deposit
agreement and the form of ADR. Directions on how to obtain copies of these are
provided under "Where You Can Find More Information".
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York will pay to you the cash dividends or other
distributions it or the custodian receives on CE ordinary shares or other
deposited securities after deducting its fees and expenses. You will receive
these distributions in proportion to the number of CE ordinary shares your CE
ADSs represent.
Cash
The Bank of New York will, as promptly as practicable after payment,
convert any cash dividend or other cash distribution CE pays on the CE ordinary
shares into U.S. dollars, if it can do so on a reasonable basis and can transfer
the U.S. dollars to the United States. If that is not possible or if any
approval from any government is needed and cannot be obtained, the deposit
agreement allows The Bank of New York to distribute the foreign currency only to
those CE ADS holders to whom it is possible to do so. It may hold the foreign
currency it cannot convert for the account of the CE ADS holders who have not
been paid. It will not invest the foreign currency and it will not be liable for
any interest.
Before making a distribution, The Bank of New York will deduct any
withholding taxes that must be paid under applicable laws. See "Material Income
Tax Considerations". It will distribute only whole U.S. dollars and cents and
will round fractional cents to the nearest whole cent. If the exchange rates
fluctuate during a time when The Bank of New York cannot convert the foreign
currency, you may lose some or all of the value of the distribution.
CE Ordinary Shares
The Bank of New York will distribute new CE ADSs representing any CE
ordinary shares CE distributes as a dividend or free distribution. The Bank of
New York will only distribute whole CE ADSs. It will sell CE ordinary shares
which would require it to deliver a fractional CE ADS and distribute the
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net proceeds in the same way as it does with cash. If The Bank of New York does
not distribute additional cash or CE ADSs, each CE ADS will also represent the
new CE ordinary shares distributed in respect of the CE ordinary shares
represented by such CE ADS at the time of such distribution.
Rights to receive additional CE ordinary shares
If CE offers holders of CE ordinary shares any rights, including rights to
subscribe for additional CE ordinary shares, The Bank of New York may make these
rights available to you, but only if CE instructs The Bank of New York to do so
and furnishes The Bank of New York with satisfactory evidence that it is legal
for it to do so. If The Bank of New York decides it is not legal and feasible to
make these rights available to you, The Bank of New York may sell the rights and
allocate the net proceeds to holders' accounts. The Bank of New York may allow
rights that are not distributed or sold to lapse. In that case, you will receive
no value for them.
If The Bank of New York makes rights available to you, upon instruction
from you it will exercise the rights and purchase the CE ordinary shares on your
behalf. The Bank of New York will then deposit the CE ordinary shares and
deliver CE ADSs to you. It will only exercise rights if you pay it the exercise
price and any other charges the rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation and
transfer of the CE ADSs issued after exercise of rights. For example, you may
not be able to trade the CE ADSs freely in the United States. The Bank of New
York will not offer you rights unless those rights and the securities to which
the rights relate are either exempt from registration or have been registered
under the Securities Act with respect to a distribution to you. CE will have no
obligation to register under the Securities Act those rights or the securities
to which they relate.
Other Distributions
The Bank of New York will, after consultation with CE, send to you anything
else CE distributes on deposited securities by any means it thinks is legal,
fair and practical. If it cannot make the distribution in that way, The Bank of
New York, after consultation with CE, may decide to sell what CE distributed and
distribute the net proceeds in the same way as it does with cash or it may
decide to hold what CE distributed, in which case the CE ADSs will also
represent the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful
or impractical to make a distribution available to any CE ADS holders. CE will
have no obligation to register CE ADSs, CE ordinary shares, rights or other
securities under the Securities Act. CE will also have no obligation to take any
other action to permit the distribution of CE ADSs, CE ordinary shares, rights
or anything else to CE ADS holders. This means that you may not receive the
distribution CE makes on CE ordinary shares or any value for them if it is
illegal or impractical for CE to make them available to you.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The Bank of New York will deliver the CE ADSs that you are entitled to
receive in the merger against deposit of the underlying CE ordinary shares. The
Bank of New York will deliver additional CE ADSs if you or your broker deposit
CE ordinary shares or evidence of rights to receive CE ordinary shares with the
custodian. Upon payment of its fees and expenses and of any taxes or charges,
such as stamp taxes or stock transfer taxes or fees, The Bank of New York will
register the appropriate number of CE ADSs in the names you request and will
deliver CE ADRs at its office to the persons you request. These taxes or charges
will not be payable by TREEV stockholders or by holders of outstanding TREEV
employee stock options or warrants in connection with their receipt of CE ADSs
pursuant to the merger agreement.
You may turn in the CE ADRs evidencing your CE ADSs at The Bank of New
York's office. Upon payment of its fees and expenses and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New
York will deliver the underlying CE ordinary shares and any other deposited
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securities underlying the CE ADS at the custodian's office to you or a person
you designate. Or, at your request, risk and expense, The Bank of New York will
deliver the deposited securities at its office in New York City, if feasible.
VOTING RIGHTS
You may instruct The Bank of New York to vote the CE ordinary shares
underlying your CE ADSs, but only if we ask The Bank of New York to ask for your
instructions. Otherwise, you will not be able to exercise your right to vote
unless you withdraw the CE ordinary shares. However, you may not know about the
meeting enough in advance to withdraw the CE ordinary shares except in
accordance with the instructions of ADR holders.
If we ask for your instructions, The Bank of New York will notify you of
the upcoming vote and arrange to deliver CE's voting materials to you. The
materials will (1) describe the matters to be voted on and (2) explain how you,
not later than a specified date, may instruct The Bank of New York to vote the
CE ordinary shares or other deposited securities underlying your CE ADSs as you
direct. For instructions to be valid, The Bank of New York must receive them on
or before the date specified in the instructions. The Bank of New York will try,
as far as practical and to the extent permitted by German law, subject to the
provisions of CE's articles of association, to vote or to have its agents vote
the CE ordinary shares or other deposited securities as you instruct. The Bank
of New York will not vote or attempt to vote any deposited CE ordinary shares.
CE cannot assure you that you will receive the voting materials in time to
ensure that you can instruct The Bank of New York to vote your CE ordinary
shares. In addition, The Bank of New York and its agents are not responsible for
failing to carry out voting instructions or for the manner of carrying out
voting instructions. This means that you may not be able to exercise your right
to vote and there may be nothing you can do if your CE ordinary shares are not
voted as you requested.
FEES AND EXPENSES
<TABLE>
<CAPTION>
CE ADS holders must pay: For:
<S> <C>
$5.00 (or less) per 100 CE ADSs Each issuance of a CE ADS, including as a result of a
distribution of CE ordinary shares or rights or other
property.
$5.00 (or less) per 100 CE ADSs Each cancellation of a CE ADS, including if the deposit
agreement terminates.
$.02 (or less) per CE ADS Any cash distribution to you or distribution to you of
any securities other than CE ADSs.
Registration or Transfer Fees Transfer and registration of CE ordinary shares to or
from the name of The Bank of New York or its agent when
you deposit or withdraw CE ordinary shares.
Expenses of The Bank of New York Conversion of foreign currency to U.S. dollars.
Expenses of The Bank of New York Cable, telex and facsimile transmission expenses, if
expressly provided in the deposit agreement.
Taxes and other governmental charges The As necessary.
Bank of New York or the custodian have to
pay on any CE ADS or CE ordinary share
underlying a CE ADS, for example, stock
transfer taxes, stamp duty or withholding
taxes
Any charges payable by The Bank of New As incurred.
York or its agent in connection with
servicing the deposited securities
</TABLE>
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NO CHARGES WILL BE PAYABLE BY TREEV STOCKHOLDERS OR BY HOLDERS OF OUTSTANDING
TREEV EMPLOYEE STOCK OPTIONS OR WARRANTS TO THE BANK OF NEW YORK IN CONNECTION
WITH THEIR RECEIPT OF CE ADSS PURSUANT TO THE MERGER AGREEMENT.
PAYMENT OF TAXES
The Bank of New York may deduct the amount of any taxes owed from any
payments to you. The Bank of New York may refuse to transfer your CE ADS or to
allow you to withdraw the deposited securities underlying your CE ADSs until you
pay any taxes or other charges owed on your CE ADSs or underlying CE ordinary
shares. The Bank of New York may withhold any dividends or other distributions,
and may also sell deposited securities, by public or private sale, to pay any
taxes owed. You will remain liable if the proceeds of the sale are not enough to
pay the taxes. If The Bank of New York sells deposited securities, it will, if
appropriate, reduce the number of CE ADSs held by you to reflect the sale and
pay to you any proceeds, or send to you any property, remaining after it has
paid the taxes.
RECLASSIFICATIONS, RECAPITALIZATION AND MERGERS
If CE: Changes the nominal or par value of the CE ordinary shares;
Reclassifies, splits up or consolidates any of the CE ordinary shares;
Distributes securities on the CE ordinary shares that are not distributed
to you; or
Recapitalizes, reorganizes, merges, liquidates, sells all or
substantially all of its assets, or takes any similar action,
Then:The cash, CE ordinary shares or other securities received by The Bank of
New York will become deposited securities under the deposit agreement.
Each CE ADS will automatically represent its equal share of the new
deposited securities.
The Bank of New York may, and will if CE asks it to, distribute some or all
of the cash, CE ordinary shares or other securities it received. It may
also issue new CE ADSs or ask you to surrender your outstanding ADRs in
exchange for new ADRs, identifying the new deposited securities.
DISCLOSURE OF INTERESTS
The obligation of a holder of CE ordinary shares and other persons with an
interest in the CE ordinary shares to disclose information to CE under German
law also applies to you and other persons with an interest in the CE ADSs. The
consequences for failure to comply with these provisions will be the same for
you and any other persons with an interest as for a holder of CE ordinary
shares. See "Description of CE Ordinary Shares -- Ownership Reporting
Obligations."
AMENDMENT AND TERMINATION
CE may agree with The Bank of New York to amend the deposit agreement and
the CE ADRs without your consent for any reason. If the amendment adds or
increases fees or charges, except for taxes and other governmental charges or
certain expenses of The Bank of New York, or prejudices an important right of CE
ADS holders, it will only become effective 30 days after The Bank of New York
notifies you of the amendment. At the time an amendment becomes effective, you
are considered, by continuing to hold your CE ADSs, to agree to the amendment
and to be bound by the CE ADR and the deposit agreement as amended.
The Bank of New York will terminate the deposit agreement if CE asks it to
do so. The Bank of New York may also terminate the deposit agreement if The Bank
of New York has told CE that it would like to resign and CE has not appointed a
new depositary bank within 90 days. In both cases, The Bank of New York must
notify you at least 30 days before termination.
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If any CE ADSs remain outstanding after termination, The Bank of New York
and its agents will stop registering the transfer of CE ADSs, will stop
distributing dividends to CE ADS holders and will not give any further notices
or do anything else under the deposit agreement other than:
- collect dividends and distributions on the deposited securities,
- sell rights and other property offered to holders of deposited
securities, and
- deliver CE ordinary shares and other deposited securities upon
cancellation of CE ADSs.
Any time after one year after termination, The Bank of New York may sell
any remaining deposited securities by public or private sale. After that, The
Bank of New York will hold the proceeds of the sale, as well as any other cash
it is holding under the deposit agreement for the pro rata benefit of the CE ADS
holders that have not surrendered their CE ADSs. It will not invest the money
and will have no liability for interest. The Bank of New York's only obligations
will be to account for the proceeds of the sale and other cash. After
termination CE's only obligations will be with respect to indemnification and to
pay fees and expenses of The Bank of New York.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO CE ADS HOLDERS
The deposit agreement expressly limits CE's obligations and the obligations
of The Bank of New York, and it limits CE's liability and the liability of The
Bank of New York. CE and The Bank of New York:
- are only obligated to take the actions specifically set forth in the
deposit agreement without negligence or bad faith;
- are not liable if either of them is prevented or delayed by law or
circumstances beyond their control from performing their obligations
under the deposit agreement;
- are not liable if either exercises discretion permitted under the
deposit agreement;
- have no obligation to become involved in a lawsuit or other proceeding
related to the CE ADSs or the deposit agreement on your behalf or on
behalf of any other person; and
- may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
In the deposit agreement, CE and The Bank of New York agree to indemnify
each other under specified circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will deliver or register transfer of a CE ADS,
make a distribution on a CE ADS, or withdraw CE ordinary shares, The Bank of New
York may require:
- payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any CE ordinary shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
- compliance with laws or governmental regulations relating to CE ADSs or
the withdrawal of deposited securities and any such reasonable
regulations, if any, The Bank of New York may establish, from time to
time, consistent with the deposit agreement, including presentation of
transfer documents.
The Bank of New York may refuse to deliver, transfer, or register transfers
of CE ADSs generally when CE's books or The Bank of New York's books are closed,
or at any time if The Bank of New York or CE thinks it advisable to do so.
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You have the right to cancel your CE ADSs and withdraw the underlying CE
ordinary shares at any time except:
- when temporary delays arise because CE or The Bank of New York has
closed its transfer books in connection with voting at a shareholders'
meeting or because CE is paying a dividend on the CE ordinary shares;
- when you or other CE ADS holders seeking to withdraw CE ordinary shares
owe money to pay fees, taxes and similar charges; or
- when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to CE ADSs or to the
withdrawal of CE ordinary shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
deposit agreement.
PRE-RELEASE OF CE ADSS
Subject to the provisions of the deposit agreement, The Bank of New York
may deliver CE ADSs before deposit of the underlying CE ordinary shares. This is
called a pre-release of CE ADSs. The Bank of New York may also deliver CE
ordinary shares prior to the receipt and cancellation of pre-released CE ADSs
even if the CE ADSs are cancelled before the pre-release transaction has been
closed out. A pre-release is closed out as soon as the underlying CE ordinary
shares are delivered to The Bank of New York. The Bank of New York may receive
CE ADSs instead of CE ordinary shares to close out a pre-release. The Bank of
New York may pre-release CE ADSs only under the following conditions:
- before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in
writing that it or its customer, as the case may be,
- owns the CE ordinary shares or CE ADSs to be remitted,
- will assign all beneficial rights, title and interest in the CE ADSs
or CE ordinary shares to The Bank of New York in its capacity as the
depositary and for the benefit of the holders of the CE ADSs and
- will not take any action with respect to the CE ADSs or CE ordinary
shares that is inconsistent with the assignment of beneficial
ownership, including, without the consent of The Bank of New York,
disposing of the CE ADSs or CE ordinary shares, other than in
satisfaction of the pre-release;
- the pre-release must be fully collateralized with cash or collateral
that The Bank of New York considers appropriate; and
- The Bank of New York must be able to close out the pre-release on not
more than five business days' notice.
In addition, The Bank of New York will limit the number of CE ADSs that may
be outstanding at any time as a result of pre-release, although The Bank of New
York may disregard the limit from time to time if it thinks it is appropriate to
do so. CE may request in writing that The Bank of New York cease delivering CE
ADSs as a result of pre-release.
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COMPARISON OF RIGHTS OF HOLDERS OF TREEV COMMON AND
PREFERRED STOCK AND CE ORDINARY SHARES
The rights of TREEV stockholders are governed by Delaware law, including
the Delaware General Corporation Law, and TREEV's restated certificate of
incorporation (including the Certificate of Designations with respect to the
TREEV Series A preferred shares) and by-laws. The rights of holders of CE
ordinary shares are governed by German law, including the German Stock
Corporation Act and CE's articles of association. The rights of holders of CE
ADSs will be governed by the deposit agreement among CE, The Bank of New York,
and holders of CE ADSs from time to time, pursuant to which the CE ADSs will be
issued. See "Description of the CE American Depositary Shares."
Upon consummation of the merger, TREEV common stockholders and Series A
preferred stockholders (as well as TREEV employee stock optionholders and
warrantholders who accept the exchange offer made to them) will become holders
of CE ordinary shares or CE ADSs, each of which will represent one CE ordinary
share. Copies of TREEV's current restated certificate of incorporation and by-
laws and CE's current articles of association have been filed with the SEC and
will be sent to any stockholder of TREEV or CE upon request.
A tabular comparison of the rights of holders of TREEV common shares and
preferred shares and holders of CE ordinary shares is included below. This table
is not intended to be a complete statement of all differences or a complete
description of the specific provisions referred to in this summary, and the
identification of specific differences is not intended to indicate that other
significant differences do not exist. However, the table includes a description
of those differences that we believe to be material.
<TABLE>
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TREEV COMMON SHARES AND
STOCKHOLDER RIGHTS SERIES A PREFERRED SHARES CE ORDINARY SHARES
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<S> <C> <C>
Voting, generally............ TREEV common shares: - 1 vote per share.
- 1 vote per share. - No cumulative voting.
- No cumulative voting. - Supermajority of three-
- Plurality vote to elect quarters of nominal share
directors. capital present or
- Majority vote to approve represented at
all other matters. shareholders' meeting to
approve certain
TREEV preferred shares: The significant resolutions
holders of Series A preferred (discussed below).
shares are not entitled to - Majority vote to approve
vote unless otherwise all other matters.
provided in the certificate
of designations of the Series
A preferred shares or under
Delaware law.
The certificate of
designations provides that
holders of Series A preferred
shares are entitled to one
vote per share to authorize
the issuance of:
(1) any class or series of
securities ranking senior to
the Series A preferred
shares; or
(2) any class or series of
securities ranking pari passu
with the Series A preferred
shares unless TREEV has the
right and chooses to redeem
the Series A preferred shares
prior to the issuance of such
senior or parity securities.
These matters must be
approved by the vote of a
majority of the outstanding
Series A preferred shares.
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<S> <C> <C>
Under Delaware law, the
holders of a class of
preferred stock are entitled
to vote upon any proposed
amendment of the certificate
of incorporation, if (1) such
amendment would increase or
decrease the aggregate number
of authorized shares of such
class, (2) increase or
decrease the par value of the
shares of such class, or (3)
alter or change the powers,
preferences or special rights
of the shares of such class
so as to affect them
adversely. These matters must
be approved by the vote of a
majority of the outstanding
Series A preferred shares.
---------------------------------------------------------------------------------------------
Approval of Certain Business Under Delaware law, subject Under German law, a merger of
Combinations............... to certain limited CE or any other form of
exceptions, the approval of transformation (Umwandlung)
the holders of a majority of of CE, including, without
the outstanding shares limitation, a spin-off
entitled to vote is required (Spaltung), a transfer of all
for any merger or or substantially all of CE's
consolidation of a Delaware assets or a change in CE's
corporation with another corporate form requires the
corporation or the sale, approval of at least three-
lease or exchange of all or quarters of the nominal share
substantially all of that capital present or
corporation's assets. represented at the
shareholders' meeting.
---------------------------------------------------------------------------------------------
Corporate Governance......... Under Delaware law, the As required by the German
business and affairs of every Stock Corporation Act, CE has
corporation are managed by or a two-tier board system
under the direction of a consisting of a management
board of directors. In board (Vorstand) and a
addition, a corporation may supervisory board
elect any number of officers (Aufsichtsrat). The CE
(see below). management board is
responsible for managing CE
and representing CE in its
dealings with third parties,
while the CE supervisory
board appoints and removes
the members of the CE
management board and oversees
the management of CE. The
German Stock Corporation Act
prohibits the supervisory
board from making management
decisions, except that the
supervisory board may
determine that certain
actions and business measures
require its prior approval.
The CE management board must
submit regular reports on the
operations of CE to the CE
supervisory board, and the CE
supervisory board is entitled
to request special reports at
any
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<S> <C> <C>
time. The German Stock
Corporation Act prohibits a
person from serving
simultaneously as a member of
the management board and the
supervisory board of the same
corporation.
---------------------------------------------------------------------------------------------
Number of Directors and Size Under Delaware law, the CE's articles of association
of Board................... certificate of incorporation provide that the management
or the by-laws may specify board must consist of at
the number of directors. least two members. The
supervisory board may appoint
TREEV's by-laws require the additional members.
number of directors to serve Currently, the CE management
on its board to be determined board consists of four
by a resolution of TREEV's members. It is expected that
board of directors. following the merger, the CE
supervisory board will vote
TREEV's board of directors upon a resolution to appoint
has adopted a resolution that Thomas A. Wilson, president
sets the number of directors and chief executive officer
at seven. of TREEV, to the CE
management board.
Pursuant to the German Stock
Corporation Act, the
supervisory board must
consist of at least three
members. The articles of
association of a company may
specify a higher number,
depending on the amount of
share capital of such
company, but such number must
be divisible by three.
Currently, CE's articles of
association provide that the
CE supervisory board consists
of three members.
---------------------------------------------------------------------------------------------
Directors' Term of Office.... Under TREEV's by-laws, each Under the German Stock
director serves for a Corporation Act, the members
one-year term. of the management board are
appointed by the supervisory
board for a maximum term of
five years. They may be re-
appointed or have their term
extended for additional
five-year terms.
The members of the
supervisory board are each
elected for a term of
approximately five years.
Such term expires at the
general shareholders' meeting
approving the actions taken
by the supervisory board held
during the fourth fiscal year
following its members'
election. The fiscal year in
which their term commences is
not counted for the purpose
of determining the expiration
of the term. Supervisory
board members may be
re-elected by a majority of
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the nominal share capital
present or represented at the
shareholders' meeting.
---------------------------------------------------------------------------------------------
Removal of Directors......... TREEV's by-laws provide that The German Stock Corporation
the TREEV board of directors Act provides that, under
or any individual director certain circumstances, such
may be removed from office at as a serious breach of duty
any time, with or without or a bona fide vote of no
cause, by the affirmative confidence by the
vote of the holders of a shareholders at a
majority of the TREEV common shareholders' meeting, a
shares then entitled to vote member of the management
at an election of directors. board may be removed by the
supervisory board prior to
the expiration of his term.
Pursuant to the German Stock
Corporation Act, a member of
the supervisory board may be
removed by the shareholders
by the vote of at least
three-quarters of the votes
cast at a duly held
shareholders' meeting. While
a company's articles of
association may provide for a
different majority and
additional requirements, CE's
articles of association
currently do not contain
different provisions.
Any member of the CE
supervisory board can be
removed for good cause by a
court decision upon request
of the CE supervisory board.
---------------------------------------------------------------------------------------------
Vacancies on the Board....... Under TREEV's by-laws, Under the German Stock
vacancies occurring on the Corporation Act, vacancies
TREEV board of directors as a occurring on the management
result of the removal of board for any reason may be
directors without cause, may filled by resolution of the
be filled by the affirmative supervisory board.
vote of the holders of a
majority of the TREEV common Vacancies occurring on the
shares then entitled to vote supervisory board for any
at an election of directors. reason may be filled by
Vacancies occurring on the resolution of the
TREEV board of directors for shareholders' meeting.
any other reason may be Substitute members may be
filled by the affirmative elected at the same
vote of the holders of a shareholders' meeting at
majority of the TREEV common which the members of the
shares then entitled to vote supervisory board are
at an election of directors elected. Currently, no
or by the TREEV board of substitute members to the CE
directors. supervisory board have been
elected.
---------------------------------------------------------------------------------------------
Officers..................... Under TREEV's by-laws, the The officers of a German
board of directors shall stock corporation are
elect a chairman, a chief generally the members of the
executive officer, a management board. However,
president, a secretary and a other officers may hold
treasurer. The board of important positions that are
directors may also elect one comparable to those of
or more vice presidents, executive officers of a
assistant secretaries and Delaware corporation.
assistant
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treasurers and such other
officers as it deems
necessary or appropriate. The
officers shall hold office
until their successors are
appointed and qualified or
their earlier death or
resignation or removal. Any
officers appointed by the
board of directors may be
removed, with or without
cause, at any time by the
board of directors or by the
affirmative vote of the
holders of a majority of the
TREEV common shares entitled
to vote thereon.
---------------------------------------------------------------------------------------------
Calling of Special Meeting of Under Delaware law, special Pursuant to the German Stock
Stockholders............... meetings of stockholders may Corporation Act, special
be called by the board of meetings may be called by the
directors or by persons management board or the
authorized to do so in a supervisory board or by
corporation's certificate of shareholders holding,
incorporation or by-laws. individually or in the
aggregate, at least five
percent of the nominal share
capital.
Under TREEV's by-laws,
special meetings of
stockholders of TREEV may be
called by the: - board of
directors;
- chairman of the board;
- chief executive officer;
- president;
- secretary; or
- by the holders of a
majority of the TREEV common
shares entitled to vote
thereat.
---------------------------------------------------------------------------------------------
Stockholder Action Without a Under Delaware law, unless Under the German Stock
Meeting.................... the certificate of Corporation Act, shareholders
incorporation provides exercise their corporate
otherwise, stockholder action rights in shareholders'
may be taken if written meetings exclusively. German
consents are received from law does not permit
the holders of the minimum shareholders to act by
number of votes that would be written consent outside of
necessary to authorize that shareholders' meetings.
action at a meeting at which
all shares entitled to vote
for that action were present
and voted.
TREEV's restated certificate
of incorporation does not
restrict the ability of
stockholders to act by
written consent.
---------------------------------------------------------------------------------------------
Notice of Certain Stockholder Neither TREEV's restated Under the German Stock
Actions and Proposals...... certificate of incorporation Corporation Act, shareholders
nor its by-laws require holding in the aggregate at
stockholders to give TREEV least five percent of CE's
advance notice of director nominal share capital or
nominations or business to be shares in an aggregate
presented at an annual or nominal amount of at least
general stockholders' E500,000 may require that
meeting.
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modified or additional
resolutions be presented at
the shareholders' meeting.
Prior notice of the
shareholders' request must be
given to CE not later than
ten days after the notice of
the shareholders' meeting is
published.
---------------------------------------------------------------------------------------------
Amendment to Certificate of Under Delaware law, any Under the German Stock
Incorporation and Articles provision of the certificate Corporation Act, any
of Association............. of incorporation may be amendments to the articles of
amended by the approval of association of a company may
the board and the affirmative be proposed either jointly by
vote of a majority of the the supervisory board and the
holders of the combined management board or by
voting power of the shareholders holding in the
outstanding stock entitled to aggregate at least five
vote, and a majority of each percent of the nominal share
class entitled to vote as a capital or shares in an
class. aggregate nominal amount of
at least E500,000. A
Under Delaware law, the resolution amending the
holders of a class of articles of association must
preferred stock are entitled be passed by a majority of
to vote upon any proposed the votes cast and, with only
amendment of the certificate minor exceptions, the vote of
of incorporation, if (1) such at least three-quarters of
amendment would increase or the nominal share capital
decrease the aggregate number present or represented at the
of authorized shares of such shareholders' meeting.
class, (2) increase or
decrease the par value of the
shares of such class, or (3)
alter or change the powers,
preferences or special rights
of the shares of such class
so as to affect them
adversely.
---------------------------------------------------------------------------------------------
Amendment to By-laws......... Delaware law provides that See "Amendment to Certificate
the by-laws may be amended by of Incorporation and Articles
action of the stockholders, of Association" above.
but that the certificate of
incorporation may also give
the power to amend the
by-laws to the board of
directors
TREEV's restated certificate
of incorporation allows the
board of directors to alter,
amend or repeal the by-laws.
---------------------------------------------------------------------------------------------
Dividends.................... Under Delaware law, a According to the German Stock
corporation may pay dividends Corporation Act, dividends
out of surplus or, if no may be paid out of CE's
surplus exists, out of net distributable profits for the
profits for the fiscal year preceding fiscal year as
in which the dividends are determined by resolution of
declared and/or its preceding the shareholders' meeting.
fiscal year. However,
dividends may not be declared
out of net profits if the
capital of the corporation is
less than the aggregate
amount of capital represented
by any issued and outstanding
preferred stock.
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<S> <C> <C>
The Series A preferred shares
accrue dividends (without
interest) at the rate of
$0.84 per share per annum on
each outstanding Series A
preferred share. The
dividends are payable in cash
or TREEV common shares. The
dividends on the Series A
preferred shares are
cumulative.
---------------------------------------------------------------------------------------------
Dissenters' Rights of Delaware law provides for A valuation proceeding
Appraisal.................. appraisal rights on the part (Spruchverfahren) is
of the stockholders of a available to a German
corporation only in the case corporation's shareholders
of certain mergers or under the German Stock
consolidations and not in the Corporation Act and the
case of other mergers, sales German Transformation Act
or transfers of all or (Umwandlungsgesetz) to
substantially all of a determine the adequacy of the
corporation's assets or consideration to be paid in
amendments to a corporation's certain corporate
certificate of incorporation. transactions. These
Moreover, unless the transactions include (1) a
certificate of incorporation merger, (2) an agreement
so provides, Delaware law establishing control and
does not provide for providing for the transfer of
appraisal rights in profits between a controlling
connection with a merger or shareholder and its dependent
consolidation for stock company, and (3) the "squeeze
listed on a national out" of minority shareholders
securities exchange or upon the corporation's
designated as a national consolidation with its parent
market system security on the corporation holding shares
Nasdaq stock market or held representing at least 95 % of
of record by more than 2,000 its nominal share capital.
stockholders, unless the
agreement of merger or
consolidation requires the
holders of the stock to
receive, in exchange for
their shares, any property
other than shares of stock of
the surviving corporation,
shares of stock of any other
corporation listed on a
national securities exchange
or designated as a national
market system security on the
Nasdaq stock market or held
of record by more than 2,000
stockholders, cash instead of
fractional shares or any
combination of the foregoing.
TREEV's restated certificate
of incorporation does not
provide for appraisal rights
in these circumstances. In
addition, Delaware law denies
appraisal rights to the
stockholders of the surviving
corporation in a merger if
the merger did not require
the approval of the
stockholders of the surviving
corporation.
---------------------------------------------------------------------------------------------
Fiduciary Duties of Under Delaware law, the Under the German Stock
Directors.................. business and affairs of a Corporation Act, the members
of
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corporation are managed by or the CE management board and
under the direction of its the members of the CE
board. In exercising their supervisory board owe a duty
powers, directors are charged of loyalty and care to CE.
with the fiduciary duties of
loyalty and care to both the In carrying out their duties,
corporation and the members of the management
stockholders. A party board and the supervisory
challenging the decision of a board must exercise the
board generally bears the standard of care of a prudent
burden of rebutting the and diligent businessman and
so-called "business judgment they have the burden of
rule," a presumption that, in proving that they did so if
making a business decision, their conduct is ever
directors acted on an contested. The interests of a
informed basis, in good faith corporation are deemed to
and in the honest belief that include the interests of its
the action was taken in the shareholders, the interests
best interests of the of its employees and, to some
corporation. Unless this extent, the public interest,
presumption is rebutted, the and both the management board
business judgment exercised and the supervisory board
by directors in making their must take all these interests
decisions is not subject to into account when taking
judicial review. To rebut actions or making decisions.
this presumption, a party The management board is
must demonstrate that, in required to respect the
reaching their decision, the rights of all shareholders to
directors breached one or equal treatment and equal
more of their fiduciary information. The management
duties. If the presumption is board also has a duty to
so rebutted, the directors maintain the confidentiality
bear the burden of of corporate information.
demonstrating the entire Members of the management
fairness of the relevant board who violate their
transaction. Notwithstanding duties may be held jointly
the foregoing, Delaware and severally liable by the
courts may subject directors' corporation for any resulting
defensive actions taken in damages, unless their actions
response to a threat to were validly approved by
corporate control or their resolution at a shareholders'
approval of a meeting. The members of the
change-of-control transaction supervisory board have
to enhanced scrutiny and may similar liabilities towards
require the directors to the corporation if they
maximize the short-term violate their duties. Claims
financial interests of by the corporation against
stockholders. the members of the management
board and of the supervisory
board will be asserted if a
shareholders' meeting so
resolves by simple majority
or upon request of
shareholders holding in the
aggregate at least 10% of the
nominal share capital.
No statutory law and, to CE's
knowledge, very limited case
law exists with respect to
the standard of conduct
applicable to the members of
the management board and of
the supervisory board of a
German Aktiengesellschaft in
the context of a threatened
change in
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control. The voluntary German
Takeover Code provides that
the management board of the
target company may not take
any measures that run counter
to the interest of the
shareholders in taking
advantage of the tender
offer. This recommendation is
based on the principle that
the target company's
management board has a duty
vis-a-vis the shareholders to
remain neutral.
---------------------------------------------------------------------------------------------
Limitation of Personal Delaware law permits a Under mandatory provisions of
Liability of Directors..... corporation to include in its the German Stock Corporation
certificate of incorporation Act, a stock corporation is
a provision that limits or not allowed to limit or
eliminates the liability of eliminate the personal
its directors to the liability of the members of
corporation or its either the management board
stockholders for monetary or the supervisory board for
damages arising from a breach damages due to a breach of
of fiduciary duty, except duty in their official
under certain circumstances. capacity. CE may, however,
Some of these circumstances waive any claims for damages
include a breach of the duty resulting from a breach of
of loyalty to the corporation duty or reach a settlement
or its stockholders, acts or with regard to such claims if
omissions not in good faith more than three years have
or which involve intentional passed after such claims have
misconduct or a knowing arisen and if the general
violation of law, an unlawful shareholders' meeting has
declaration of a dividend or approved such waiver or
unlawful authorization of the settlement, provided that
repurchase or redemption of such waiver may not be
stock or any transaction from granted and such settlement
which the director derived an may not be reached if
improper personal benefit. shareholders present at the
meeting holding in the
TREEV's restated certificate aggregate at least 10% of the
of incorporation eliminates nominal share capital file an
director liability to the objection and such objection
fullest extent permitted by is entered in the minutes of
Delaware law. the shareholders' meeting.
---------------------------------------------------------------------------------------------
Indemnification of Directors Under Delaware law, a Under German law, CE may
and Officers............... corporation may indemnify a indemnify certain officers
director or officer of the (leitende Angestellte), and,
corporation against expenses, under certain circumstances,
including attorney's fees, German labor law requires a
judgments, fines and stock corporation to do so.
settlement amounts actually However, CE may not indemnify
and reasonably incurred in a members of its management
civil or criminal action, board or supervisory board.
suit or proceeding by reason
of being or having been a A German stock corporation
representative of or serving may provide for insurance
at the request of the coverage for the members of
corporation. This the management board and the
indemnification is available supervisory board. In
if the person acted in good addition, German law permits
faith and reasonably believed a corporation to indemnify a
that his or her actions were member of the management
in or not opposed to the best board or the supervisory
interests of the corporation board
and, in a criminal
proceeding, had no
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reasonable cause to believe for legal fees incurred if
that his or her conduct was such member is the successful
unlawful. In an action party in a law suit that was
brought by or on behalf of brought in a country, such as
the corporation, this the United States, in which
indemnification is limited to the winning party is required
expenses incurred. Delaware to bear its own costs, if
law also provides that a German law would have
corporation may advance a required the losing party to
director, officer, employee pay such member's legal fees
or agent the expenses had the law suit been brought
incurred in defending any in Germany.
action, but that, in the case
of advances to directors or
officers the corporation must
first receive an undertaking
from the officer or director
to repay the amount advanced
if it is ultimately
determined that the person is
not entitled to
indemnification. A
determination of the amount
of the indemnification to be
paid in any circumstance must
be made by a majority of the
directors who are not parties
to the action, even though
less than a quorum, by a
committee of such
disinterested directors or,
if there are no such
directors or if such
directors so direct, by
independent legal counsel.
No indemnification for
expenses in derivative
actions is permitted under
Delaware law if the person is
found to be liable to the
corporation, unless a court
finds him or her entitled to
such indemnification. If,
however, that person is
successful, on the merits or
otherwise, in defending a
third-party or derivative
action, indemnification for
expenses incurred is
mandatory. The
indemnification provisions of
Delaware law are not
exclusive of any other rights
to which the party may be
entitled under any by-law,
agreement or vote of
stockholders or disinterested
directors.
TREEV's by-laws provide for
mandatory indemnification of
its directors, officers,
employees or agents to the
fullest extent provided by
law. However, TREEV will not
indemnify a person who was
adjudged to be liable to
TREEV, unless the court
decides that such person is
entitled to TREEV's
indemnity. TREEV's by-laws
provide for the advancement
of expenses for its
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directors and officers if
they agree to repay all
amounts advanced if it is
later determined that they
are not entitled to be
indemnified.
---------------------------------------------------------------------------------------------
Anti-Takeover Provisions..... Under Delaware law, a German law does not
corporation is prohibited specifically regulate
from engaging in any business combinations with
"business combination" with interested shareholders.
an "interested stockholder," However, certain general
which is defined as a person principles of German law,
who, together with affiliates including the voluntary
or associates, owns, or Takeover Code recommended by
within a three-year period the Stock Exchange Expert
did own, 15% or more of the Commission
corporation's voting stock, (Borsensachverstandigen-
for a period of three years kommission) and which has
following the date on which been adopted by CE, may
the stockholder became an restrict business
interested stockholder, combinations under certain
unless: circumstances.
- the certificate of Those circumstances may
incorporation provides include the following:
otherwise;
The Takeover Code can provide
- prior to the date on which a defense against hostile
the person became an takeovers or delay and impede
interested stockholder, changes in control or
the board approved either management of CE, including
the business combination transactions that would
or the transaction which otherwise make it possible
resulted in the for shareholders to receive a
stockholder becoming an premium for their ordinary
interested stockholder; shares above the current
market price. The Takeover
- the interested stockholder Code also may limit CE
owned 85% or more of the shareholders' opportunity to
voting stock of the agree to plans that they
corporation, excluding regard as being in their
specified shares, upon interest.
completion of the
transaction as the result In particular under the
of which the person became Takeover Code, the offeror
an interested stockholder; and target company involved
or in a public tender offer are
required to provide certain
- on or after the date on information to all holders of
which such person became an the targeted class or classes
interested stockholder, of securities. The Takeover
the business combination Code requires that certain
is approved by the board information about the content
and the affirmative vote, of the tender offer be given
at a special meeting and to the exchange on which the
not by written consent, of targeted securities are
at least 66 2/3% of the listed, the German Federal
outstanding voting shares Supervisory Authority for
of the corporation, Securities Trading
excluding shares held by (Bundesaufsichtsamt fur den
such interested Wertpapierhandel), and the
stockholder. German Executive Office of
the Takeover Commission, and
A "business combination" be published in at least one
includes: national newspaper designated
- mergers, consolidations for exchange notices. The
and sales or other tender offer must remain open
dispositions of 10% or to holders of the targeted
more of the assets of a securities for a period of no
corporation to or with an less than 28 days and no more
than
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<S> <C> <C>
interested stockholder; 60 days. If the offeror
obtains control over the
- certain transactions target company, the Takeover
resulting in the issuance or Code mandates that an offer
transfer to an interested be extended immediately to
stockholder of any stock all other holders of
of such corporation or its securities of the target
subsidiaries; and company.
- other transactions In addition, the Takeover
resulting in a Code provides that the target
disproportionate financial company must publish
benefit to an interested immediately, no later than
stockholder. two weeks after the
publication of the tender
offer, a reasoned comment
upon the tender offer. The
target company's management
may not act contrary to the
interests of the target
company's securities holders
in tendering their shares
following the publication of
the bid and before its
outcome has been published.
---------------------------------------------------------------------------------------------
Rights of Inspection......... Under Delaware law, every The German Stock Corporation
stockholder, upon proper Act does not permit
written demand stating the shareholders to inspect
purpose, may inspect the corporate books and records.
corporate books and records Shareholders are, however,
as long as the inspection is permitted to inspect the
for a proper purpose and share register upon request
during normal business hours. and have the right to receive
A "proper purpose" is any the information at a
purpose reasonably related to shareholders' meeting that is
the interest of the necessary for a proper
inspecting person as a evaluation of the relevant
stockholder. item on the agenda.
Shareholders only have the
right to request oral
information at a
shareholders' meeting. While
the corporation may choose to
provide shareholders with
written information, the
shareholders are not entitled
to receive written
information. As a practical
matter, shareholders may
receive certain written
information about CE through
its public filings with the
commercial register
(Handelsregister) and the
Federal Gazette
(Bundesanzeiger) or through
other publications.
---------------------------------------------------------------------------------------------
Liquidation Rights........... Upon the liquidation or Apart from liquidation as a
dissolution of TREEV, holders result of bankruptcy
of TREEV common shares have proceedings, CE may be
the right to receive any liquidated only with the vote
surplus that remains after of three-quarters of the
paying or providing for all nominal share capital present
liabilities of TREEV and or represented at a
after all distributions have shareholders' meeting at
been made to stock having a which the vote regarding the
preference to the common with liquidation is taken. In
respect to liquidation or accordance with the German
dissolution. Stock Corporation Act, upon
CE's liquidation, any
</TABLE>
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<PAGE> 165
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
TREEV COMMON SHARES AND
STOCKHOLDER RIGHTS SERIES A PREFERRED SHARES CE ORDINARY SHARES
---------------------------------------------------------------------------------------------
<S> <C> <C>
Upon the liquidation or liquidation proceeds
dissolution of TREEV, holders remaining after paying off
of TREEV Series A preferred all of CE's liabilities would
shares have the right to be distributed among the
receive $12.00, plus an holders of ordinary shares in
additional amount equal to proportion to the total
all unpaid accumulated number of the ordinary shares
dividends, for each TREEV held by each shareholder.
Series A preferred share. In
a liquidation, the TREEV
Series A preferred shares
have the right to be paid
prior to the TREEV common
shares.
---------------------------------------------------------------------------------------------
Change in Control Rights..... In the event of a "Change in Not applicable.
Control" of TREEV, each
holder of TREEV Series A
preferred shares has the
right to require TREEV to
purchase such Series A
preferred share at $25.00 per
share, in accordance with and
subject to the procedures for
exchange set forth in the
Certificate of Designations
with respect to the TREEV
Series A preferred shares.
TREEV has the right to pay
such amount in cash and/or
TREEV common shares.
---------------------------------------------------------------------------------------------
Preemptive Rights............ Under Delaware law, a Under the German Stock
stockholder is not entitled Corporation Act, in general,
to preemptive rights to an existing shareholder in a
subscribe for additional stock corporation has a
issuances of stock or any preemptive right
security convertible into (Bezugsrecht) to subscribe
stock unless preemptive for any issuance by such
rights are specifically corporation of shares, debt
granted in the certificate of instruments convertible into
incorporation. TREEV's shares, debt instruments with
restated certificate of warrants to purchase shares
incorporation does not (or involving a profit
provide for preemptive rights participation) and
for the holders of TREEV participation rights in
common shares or Series A proportion to the shares held
preferred shares. by such shareholder in the
existing share capital of
such corporation. The German
Stock Corporation Act
provides that this preemptive
right can be excluded only by
a shareholders' resolution. A
shareholders' resolution
excluding preemptive rights
requires the vote of at least
three-quarters of the nominal
share capital present or
represented at the meeting at
which the vote is taken.
---------------------------------------------------------------------------------------------
Stockholders' Suits.......... Under Delaware law, a The German Stock Corporation
stockholder may initiate a Act does not provide for
derivative action to enforce class actions, and does not
a right of a corporation if generally permit shareholder
the corporation fails to derivative suits, even in the
enforce the case of breach
</TABLE>
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<PAGE> 166
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
TREEV COMMON SHARES AND
STOCKHOLDER RIGHTS SERIES A PREFERRED SHARES CE ORDINARY SHARES
---------------------------------------------------------------------------------------------
<S> <C> <C>
right itself. An individual of duty by the members of the
also may commence a class management board or
action suit on behalf of supervisory board. The
himself and other similarly shareholders' meeting, acting
situated stockholders when by a simple majority of the
the requirements for votes cast, or a minority of
maintaining a class action the shareholders holding in
under Delaware law have been the aggregate at least 10% of
met. The complaint must (1) the issued share capital, are
state that the plaintiff was entitled to request the
a stockholder at the time of corporation to claim damages,
the transaction of which the but are not entitled to
plaintiff complains or that assert any rights on behalf
the plaintiff's shares of the corporation. Upon such
thereafter devolved on the request, the corporation must
plaintiff by operation of prosecute such claim within
law, and (2) (a) allege with six months after the
particularity the efforts shareholders' meeting. If
made by the plaintiff to such request is not complied
obtain the action the with, a court will appoint a
plaintiff desires from the special representative upon a
directors or (b) state the motion of shareholders either
reasons for the plaintiff's holding shares representing
failure to obtain the action at least 5% of the issued
or for not making the effort. share capital or shares in
the aggregate amount of
Additionally, the plaintiff E500,000. To avoid abuse,
must remain a stockholder shareholders exercising the
through the duration of the minority right to request a
derivative suit. The action claim for damages must
may not be dismissed or establish that they have held
compromised without the their shares for at least
approval of the Delaware three months prior to the
Court of Chancery. shareholders' meeting at
which they make the request.
The shareholder group must
reimburse the corporation for
all costs of litigation if
such proceedings are
unsuccessful or only
partially successful, but in
the latter case only to the
extent that such costs exceed
any amounts awarded to the
corporation in such a
proceeding. Each shareholder
who was present at the
general meeting of the
shareholders and has objected
to the resolutions in the
minutes may within one month
after adoption of the
respective resolutions of the
general meeting of the
shareholders take action
against the Company to
contest the resolution
(Anfechtungsklage).
---------------------------------------------------------------------------------------------
</TABLE>
159
<PAGE> 167
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
CE is offering to purchase, subject to the satisfaction of the conditions
to the merger, any validly tendered TREEV employee stock options that are
outstanding immediately prior to the effective time of the merger (whether or
not they are then vested and exercisable) and any validly tendered warrants to
acquire TREEV common shares that are outstanding immediately prior to the
effective time of the merger (whether or not they are then exercisable), in each
case which are not withdrawn prior to 5:00 p.m., New York time, on the
expiration date of the offer.
The exchange offer will commence when CE notifies TREEV employee stock
optionholders and warrantholders of the "fair value" of their employee stock
options and warrants and provides such holders with this proxy
statement/prospectus and an acceptance form to use to accept the exchange offer.
We expect that CE will provide them with this information on or about November
30, 2000. The exchange offer must be open for at least 20 U.S. business days and
is currently scheduled to expire at 5:00 p.m., New York time, on January 2,
2001. TREEV employee stock optionholders and warrantholders may tender some or
all of their employee stock options and warrants in the exchange offer.
In exchange for validly tendered employee stock options and warrants, an
employee stock optionholder or warrantholder that is not an affiliate of TREEV
or CE will receive CE ADSs (and any such holder that is an affiliate of TREEV or
CE will receive CE ordinary shares and not ADSs) equal to (1) the "fair value"
(in accounting terms) of such employee stock options and warrants, divided by
(2) the CE average closing price.
- The fair value of each TREEV employee stock option and warrant has been
calculated as of the record date for the TREEV stockholders' meeting. It
has been calculated as generally accepted using the "Black-Scholes"
methodology. CE and TREEV have agreed on the fair value calculation of
each employee stock option and warrant. The Black-Scholes valuation
model determines the theoretical fair value of employee stock options
and similar securities based on the volatility of the underlying
security, the exercise price of the option, the price of the underlying
security, the risk-free interest rate, the yield rate of the underlying
security and the amount of time until the option or warrant expires.
- CE average closing price means the average closing price per CE ordinary
share as reported on the Neuer Markt segment of the Frankfurt Stock
Exchange during the 15-trading-day period ending three trading days
prior to the TREEV stockholders' meeting, converted into U.S. dollars at
the average noon buying rate in New York City for cable transfers in
Euros as certified for customs purposes by the Federal Reserve Bank of
New York during such period.
Instead of receiving a fractional CE ADS or CE ordinary share in the
exchange offer, a TREEV employee stock optionholder or warrantholder will
receive cash, without interest, equal to the product obtained by multiplying (1)
the fractional CE ADS or CE ordinary share to which such employee stock
optionholder or warrantholder would otherwise be entitled (after taking into
account all fractional CE ADSs or CE ordinary shares to which such holder is
then entitled to in respect of TREEV employee stock options and warrants) by (2)
the CE average closing price.
The Bank of New York, as the exchange agent for the exchange offer, will
withhold from the consideration otherwise payable to employee stock
optionholders and warrantholders such number of CE ADSs or ordinary shares as is
necessary to satisfy any applicable tax withholding requirements.
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<PAGE> 168
FOR EXAMPLE:
If the aggregate "fair value" of all of a holder's employee stock
options and warrants is $5,150, the CE average closing price is $19.82
(after conversion from Euros into U.S. dollars) and the holder accepts the
offer with respect to all of his employee stock options and warrants, the
holder will receive, at the effective time of the merger:
- 259 CE ADSs or CE ordinary shares and
- $16.62, instead of a fraction of a CE ADS or a CE ordinary share.
THIS EXAMPLE DOES NOT REFLECT THE TAX CONSEQUENCES, INCLUDING THE IMPOSITION OF
ANY APPLICABLE WITHHOLDING TAXES, OF AN EMPLOYEE STOCK OPTIONHOLDER'S OR
WARRANTHOLDER'S ACCEPTANCE OF THE EXCHANGE OFFER.
This proxy statement/prospectus is being sent to each TREEV employee stock
optionholder and warrantholder. CE intends to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC.
As a result of the merger, all TREEV employee stock options outstanding under
the 1997 Director Stock Option Plan will immediately vest and become
exercisable. If these options are not exchanged in the exchange offer, they will
continue to be exercisable for one year following the merger as options to
acquire shares of common stock of the surviving corporation of the merger (and
not of CE). All other TREEV employee stock options outstanding under TREEV's
employee stock option plans will become exercisable immediately prior to the
merger; if the options are not exercised prior to the merger and are not
exchanged in the exchange offer, they will terminate at the time of the merger
without any payment therefor. Most of the outstanding TREEV warrants will, if
not exercised prior to the merger and not exchanged in the exchange offer,
remain outstanding following the merger as warrants to acquire shares of common
stock of the surviving corporation of the merger (and not of CE). Three
outstanding TREEV warrants will, if not exercised prior to the merger and not
exchanged in the exchange offer, be converted at the time of the merger into a
warrant to acquire CE ordinary shares.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer is currently scheduled to expire at 5:00 p.m., New York
time, on January 2, 2001, unless CE extends the exchange offer, in which case
the exchange offer will terminate at 5:00 p.m., New York time, on the last day
of the extension. In any event, the exchange offer will be held open for at
least 20 U.S. business days. CE reserves the right, in its sole discretion (but
not in violation of the merger agreement), to delay accepting employee stock
options or warrants, to extend the exchange offer, to terminate the exchange
offer if the conditions to the merger shall not have been satisfied or waived,
and to amend the terms of the exchange offer.
If CE delays, extends, terminates or amends the exchange offer, CE will
issue a press release or other public announcement to the Dow Jones News Service
or the Public Relations Newswire.
PROCEDURES FOR ACCEPTING THE EXCHANGE OFFER
Each TREEV employee stock optionholder and warrantholder will receive a
letter which will specify the number of employee stock options and warrants
owned by such holder and the "fair value" of such employee stock options and
warrants, along with an acceptance form to accept the exchange offer. To validly
accept the exchange offer, an employee stock optionholder or warrantholder must
complete and execute the acceptance form. THE ORIGINALLY EXECUTED ACCEPTANCE
FORM ACCOMPANIED BY THE CERTIFICATES REPRESENTING THE WARRANTS IN RESPECT OF
WHICH THE EXCHANGE OFFER IS BEING ACCEPTED (ALONG WITH ANY OTHER DOCUMENTATION
REASONABLY REQUIRED) MUST BE RETURNED TO AND RECEIVED BY THE BANK OF NEW YORK AT
THE ADDRESS SPECIFIED ON THE ACCEPTANCE FORM NO LATER THAN 5:00 P.M., NEW YORK
TIME, ON JANUARY 2, 2001.
The offer may be accepted with respect to any or all of a holder's employee
stock options and/or warrants. If a holder returns an acceptance form which does
not specify the number of employee stock
161
<PAGE> 169
options and warrants with respect to which the holder is accepting the offer,
the holder will be deemed to have accepted the offer with respect to all of such
holder's employee stock options and warrants.
As soon as practicable after expiration of the offer period, The Bank of
New York, as the exchange agent, will (1) cause to be accepted for exchange all
TREEV employee stock options and warrants tendered and not validly withdrawn and
(2) cause to be canceled all such employee stock options or warrants so
accepted.
The TREEV board of directors unanimously approved the merger agreement and
the transactions contemplated by the merger agreement, including the merger of
CE and TREEV, as it believes that the combined companies will create a stronger
company that will become a leading licensor of enterprise-wide software in the
market for integrated document and content management software. The TREEV board
of directors recommends that employee stock optionholders and warrantholders
accept the exchange offer from CE. Before making a final decision on whether to
accept the exchange offer, each employee stock optionholder and warrantholder
should evaluate the exchange offer on his or her own and should consider his or
her personal circumstances, including such things as his or her financial
circumstances, investment strategy and tax position. ALL EMPLOYEE STOCK
OPTIONHOLDERS AND WARRANTHOLDERS ARE URGED TO CONSULT WITH THEIR OWN INVESTMENT,
TAX OR OTHER ADVISORS IN DETERMINING WHETHER TO ACCEPT OR REJECT THE EXCHANGE
OFFER.
REGULATORY FILINGS AND APPROVALS NECESSARY TO COMPLETE THE EXCHANGE OFFER
German Stock Corporation Act. As soon as possible after the effective time
of the merger, Aspen Merger Corporation (which, in its capacity as the
contribution agent, will at that time hold legal title to all of the outstanding
shares of capital stock of the surviving corporation of the merger) will
contribute those shares to CE as a contribution-in-kind. Pursuant to the German
Stock Corporation Act and prior to the effective time of the merger, the CE
management board, with the consent of the CE supervisory board, will pass a
resolution to approve CE's capital increase in respect of the
contribution-in-kind, conditional only upon the merger being effective. In
addition, as required by the German Stock Corporation Act, Brandau & Koster, a
German accounting firm, has been appointed by CE to determine the adequacy of
the contribution-in-kind as consideration for the CE ordinary shares issued in
the capital increase. Following the determination of the adequacy of the
contribution-in-kind, Aspen Merger Corporation will execute a subscription
certificate (establishing a contractual relationship between CE and Aspen Merger
Corporation, as the contribution agent) identifying the TREEV shares that
comprised the contribution-in-kind, the party effecting the contribution-in-kind
and the number of CE ordinary shares to be issued in consideration for the
contribution-in-kind. Finally, the increase of the stated share capital of CE
will be registered with the commercial register (Handelsregister) for CE, and CE
will issue to Aspen Merger Corporation and cause to be delivered to The Bank of
New York for the account of Aspen Merger Corporation, as the contribution agent,
and for the benefit of the former stockholders of TREEV and the former
optionholders and warrantholders of TREEV who validly accept the exchange offer,
the CE ordinary shares.
WITHDRAWAL RIGHTS
A TREEV employee stock optionholder or warrantholder may withdraw its
acceptance of the exchange offer in respect of any employee stock options or
warrants at any time prior to 5:00 p.m. New York time, on the expiration date.
For a withdrawal of tendered employee stock options and/or warrants to be
effective, a written notice of withdrawal must be received by The Bank of New
York at its address specified below under "Exchange Agent", prior to 5.00 p.m.
New York time, on the expiration date.
Any such notice of withdrawal must:
- specify the employee stock optionholders' or warrantholders' name;
- identify the employee stock options and/or warrants to be withdrawn; and
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<PAGE> 170
- be signed by the employee stock optionholder or warrantholder in the
same manner as the original signature on the acceptance form by which
the employee stock options and/or warrants were tendered, including any
required signature guarantees.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by CE and CE's determination will be
final and binding on all parties. Any employee stock options and/or warrants
withdrawn will be considered not to have been validly tendered for exchange for
the purposes of the exchange offer. Any employee stock options/warrants which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the employee stock optionholder or warrantholder without cost as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer relating to such employee stock options and/or warrants. Properly
withdrawn employee stock options and/or warrants may be retendered by following
one of the procedures described in "The Exchange Offer -- Procedures for
Accepting the Exchange Offer" at any time on or prior to the expiration date.
EXCHANGE AGENT
All executed acceptance forms should be directed to the exchange agent. CE
has appointed The Bank of New York as the exchange agent for the exchange offer.
Questions, requests for assistance and requests for additional copies of the
proxy statement/prospectus should be directed to the exchange agent addressed as
follows:
<TABLE>
<S> <C> <C>
If by Hand, Express Mail or If by Facsimile Transmission: If by Mail:
Overnight Courier:
The Bank of New York Fax: (212) 815-6213 The Bank of New York
101 Barclay Street Tel: (800) 507-9357 P.O. Box 11248
New York, New York 10286 (for confirmation) Church Street Station
Attention: Receive and New York, New York 10286
Deliver Window Attention: Tender and
Exchange Dept.
</TABLE>
Delivery to other than any of the above addresses will not constitute valid
delivery.
CONDITIONS OF THE EXCHANGE OFFER
The exchange offer is conditioned upon the satisfaction of the conditions
to the merger. Unless such conditions are satisfied, CE will not be required to
purchase any TREEV employee stock options or warrants of any holders who accept
the exchange offer. If these conditions are not satisfied and the exchange offer
is not completed, all acceptances of the exchange offer will be rejected and
employee stock optionholders will retain their TREEV employee stock options and
warrantholders will retain their TREEV warrants. The conditions to the exchange
offer will be satisfied or waived on or prior to the expiration of the offer.
For a description of the conditions to the merger, see "The Transaction
Documents -- The Merger Agreement -- Closing Conditions."
RISK FACTORS
Investments in CE ADSs and CE ordinary shares are subject to risks. TREEV
employee stock optionholders and warrantholders should consider carefully all of
the information included in this proxy statement/prospectus, including, in
particular, the risk factors set forth under the caption "Risk Factors"
beginning on page 19 of this proxy statement/prospectus relating to the merger
and the exchange offer and relating to the business of CE.
EMPLOYEE STOCK OPTIONHOLDERS AND WARRANTHOLDERS SHOULD UNDERSTAND THAT THE
EXCHANGE OFFER IS CONDITIONED UPON THE SATISFACTION OF THE CONDITIONS TO THE
MERGER. SEE "THE TRANSACTION DOCUMENTS -- THE MERGER AGREEMENT -- CLOSING
CONDITIONS."
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<PAGE> 171
MATERIAL U.S. INCOME TAX CONSIDERATIONS
See "Material Income Tax Considerations."
EMPLOYEE STOCK OPTIONHOLDERS AND WARRANTHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF ACCEPTING THE EXCHANGE OFFER.
OTHER MATTERS
The exchange offer is not being made to holders of TREEV employee stock
options or warrants in any jurisdiction in which the making or acceptance of the
offer would not be in compliance with the laws of such jurisdiction. CE,
however, in its sole discretion, may take such actions as it may deem necessary
to make the offer in any such jurisdiction, and may extend the offer to holders
of TREEV employee stock options or warrants in any such jurisdiction.
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<PAGE> 172
ENFORCEABILITY OF CIVIL LIABILITIES
CE is organized under the laws of the Federal Republic of Germany. It may
not be possible for investors to effect service of process within the United
States upon CE's directors and officers and the experts named herein under
"Experts" who reside outside the United States or to enforce, in courts outside
the United States, judgments against such persons obtained in United States
courts, including actions based on the civil liability provisions of the federal
securities laws of the United States. Furthermore, since most directly owned
assets of CE following the merger will be outside the United States, any
judgment obtained in the United States against CE may not be collectible within
the United States.
CE conducts and will continue to conduct its operations through direct and
indirect subsidiaries, some of which are outside Germany. There is currently no
treaty between the United States and the Federal Republic of Germany providing
for the reciprocal acknowledgment and enforceability of judgments in civil and
commercial matters. Therefore, the general rules of the German Code of Civil
Procedures ("ZPO") govern such issues. ZPO Sections 722 and 723 require that an
enforcement action in Germany be based upon a non-appealable foreign judgment
only. As a general rule a German court will not review the merits of the foreign
judgment in any enforcement proceedings. It will, however, dismiss the
enforcement action pursuant to ZPO Section 723 sub-section 2, sentence 2, if the
exceptions regarding the acknowledgment of foreign judgments set forth in ZPO
Section 328 sub-section 1 apply. The exceptions can be generally summarized as
follows:
(i) the foreign court had no personal jurisdiction according to German
law;
(ii) due service of process was not effected on the defendant;
(iii) the foreign judgment is irreconcilable with a prior German or other
foreign judgment to be acknowledged in Germany or proceedings on
the same subject matter had been filed in Germany before suit was
instituted in the foreign jurisdiction;
(iv) acknowledgment of the foreign judgment would produce a result in
contravention of German public policy; or
(v) the foreign jurisdiction whose judgment is sought to be acknowledged
does not reciprocate with respect to acknowledgment of judgments
entered in Germany.
The application of exception (v) above depends on the law and practice in
the relevant state of the United States where the judgment was rendered, and the
result may vary from time to time as the law and practice changes. According to
information available as of the date of this proxy statement/prospectus, German
judgments would be acknowledged and enforced in the courts of almost all states
in the United States and, accordingly, with respect to such states, reciprocity
by German courts is warranted and the relevant exception does not apply. United
States judgments awarding punitive damages may contravene German public policy
and may therefore not be acknowledged in their full amount or in part pursuant
to exception (iv) above. CE and its legal advisors are, however, not aware of
any reasons under current German law for avoiding enforcement of a judgment of a
United States court regarding the CE ADSs on the ground that the same would be
contrary to German public policy. The enforcement of any United States judgment
rendered in any currency other than German Marks or euros would be effected in
German Marks and euros. The exchange rate from U.S. dollars to euros would be
determined at the time payment is made.
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<PAGE> 173
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
As of the date of this proxy statement/prospectus, Germany does not
restrict the export or import of capital, except for investments in areas
covered by United Nations resolutions such as Iraq. However, for statistical
purposes only, every individual or corporation residing in Germany must report
to the German Central Bank (Deutsche Bundesbank), subject only to certain
immaterial exceptions, any payment received from or made to an individual or a
corporation resident outside of Germany if such payment exceeds DM 5,000 (or the
equivalent in another currency). In addition, every German resident individual
or corporation except for credit institutions must report any claims against or
any liabilities payable to a non-German resident individual or corporation if
such claims or liabilities, in the aggregate, exceed DM 3 million (or the
equivalent in another currency) during any one month. German residents must also
report any direct investment outside Germany if such investment exceeds
DM100,000.
There are no limitations on the right of non-German residents or non-German
owners to hold or vote the CE ordinary shares or the CE ADSs imposed by German
law or CE's articles of association.
STOCKHOLDER PROPOSALS
If the merger does not occur, stockholder proposals intended to be
presented at the 2001 Annual Meeting of Stockholders of TREEV must be received
by the secretary of TREEV not later than March 1, 2001 in order to be brought
before that meeting. In order to have a shareholder proposal included in TREEV's
proxy materials for that meeting pursuant to Rule 14a-8 of the Exchange Act, the
proposal must have been received by the secretary of TREEV by December 31, 2000.
LEGAL MATTERS
Certain legal matters with respect to the validity of the CE ordinary
shares to be issued in the merger will be passed upon for CE by Dr. Besche &
Kollegen. Certain U.S. federal tax consequences of the merger will be passed
upon for TREEV by Cooley Godward LLP and for CE by PricewaterhouseCoopers LLP.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of CE as of December 31, 1999 and 1998 and
the consolidated statements of income and cash flows for each of the three years
in the period ended December 31, 1999, included in this proxy
statement/prospectus, have been included in reliance on the report of PwC
Deutsche Revision, independent accountants, given on the authority of said firm
as experts in accounting and auditing.
With respect to the unaudited consolidated financial information of CE for
the six-month periods ended June 30, 2000 and 1999, included in this proxy
statement/prospectus, PwC Deutsche Revision reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report dated August 22, 2000 appearing
herein states that they did not audit and they do not express an opinion on that
unaudited consolidated financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. PwC Deutsche Revision is
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their report on the unaudited consolidated financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by PwC Deutsche Revision within the meaning of Sections 7
and 11 of the Securities Act of 1933.
The balance sheets of SiDoc as of September 30, 1998 and 1997 and the
statements of income and cash flows for each of the three years in the period
ended September 30, 1998, included in this proxy statement/prospectus, have been
included in reliance on the report of PwC Deutsche Revision, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
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<PAGE> 174
The balance sheets of INSIDERS Information Management GmbH as of December
31, 1999 and June 16, 1999 and the income statement for the period from June 16,
1999 (inception) to December 31, 1999, included in this proxy
statement/prospectus have been included in reliance on the report of PwC
Deutsche Revision independent accountants, given on the authority of said firm
as experts in accounting and auditing.
The consolidated balance sheets of TREEV as of December 31, 1999 and 1998
and the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999,
included in this proxy statement/prospectus, have been included in reliance on
the report of Ernst & Young LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
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<PAGE> 175
WHERE YOU CAN FIND MORE INFORMATION
TREEV files annual, quarterly and current reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements
and other information filed by TREEV at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please feel free to
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. TREEV's SEC filings are also available to the public from commercial
document retrieval services and at the internet world wide web site maintained
by the SEC at www.sec.gov.
CE has filed a registration statement on Form F-4 to register with the SEC
the CE ordinary shares to be issued in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of CE, as well as being a proxy statement of TREEV. In addition, The
Bank of New York, as depositary, has filed a registration statement on Form F-6
to register with the SEC the CE ADSs to be issued in the merger.
As allowed by the SEC rules, this proxy statement/prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. NEITHER CE NOR TREEV HAS AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED
NOVEMBER 22, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO TREEV STOCKHOLDERS NOR
THE ISSUANCE OF CE ORDINARY SHARES IN THE MERGER SHALL CREATE ANY IMPLICATION TO
THE CONTRARY.
168
<PAGE> 176
INDEX TO CE FINANCIAL STATEMENTS
CE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the years
ended December 31, 1999, 1998, and 1997................... F-6
Notes to the Consolidated Financial Statements.............. F-7
Report of Independent Accountants........................... F-20
Condensed Consolidated Balance Sheets as of June 30, 2000
and 1999 (unaudited)...................................... F-21
Condensed Consolidated Statements of Income for the six
months ended
June 30, 2000, 1999 and 1998 (unaudited).................. F-22
Condensed Consolidated Statements of Cash Flows for the six
months ended
June 30, 2000, 1999 and 1998 (unaudited).................. F-23
Notes to Condensed Consolidated Interim Financial Statements
(unaudited)............................................... F-24
SIDOC GMBH
Report of Independent Accountants........................... F-26
Balance Sheets as of September 30, 1998 and 1997............ F-27
Statements of Income for the years ended September 30, 1998
and 1997.................................................. F-28
Statements of Cash Flows for the years ended September 30,
1998 and 1997............................................. F-29
Notes to the Financial Statements........................... F-30
INSIDERS INFORMATION MANAGEMENT GMBH
Auditors Report............................................. F-35
Balance Sheets at December 31, 1999 and June 16, 1999....... F-36
Income Statement for the period from June 16, 1999
(inception) to December 31, 1999.......................... F-37
Notes to the Financial Statements........................... F-38
Balance Sheet at June 30, 2000 (unaudited).................. F-40
Income Statement for the six months ended June 30, 2000
(unaudited)............................................... F-41
</TABLE>
F-1
<PAGE> 177
REPORT OF INDEPENDENT ACCOUNTANTS
To the Supervisory Board of CE Computer Equipment AG
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of CE
Computer Equipment AG and its subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States, all expressed in
German Marks. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Siegen, June 26, 2000
except as to the August stock split which is as of August 21, 2000
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftspruefungsgesellschaft
<TABLE>
<S> <C>
Muller Wilke
(Wirtschaftsprufer) (Wirtschaftsprufer)
(CPA)
</TABLE>
F-2
<PAGE> 178
CE COMPUTER EQUIPMENT AG
CONSOLIDATED BALANCE SHEET
(in thousands of German Marks, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
NOTES 1999 1998
----- ------- -------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. 25,720 15,258
Accounts receivable, net of allowance for doubtful
accounts............................................... (5) 72,584 28,844
Inventories, net of reserves of DM 193 and DM 142
respectively........................................... 2,409 2,297
Other current assets...................................... (5) 10,629 2,844
------- -------
Total current assets........................................ 111,342 49,243
Long-term receivables..................................... (5) 973 21,034
Property and equipment, net............................... (5) 8,301 4,501
Investment in associated companies........................ (3) 4,738 --
Deferred income taxes..................................... (8) 1,337 --
Goodwill and intangible assets, net....................... (5) 29,924 31,364
------- -------
Non-current assets.......................................... 45,273 56,899
TOTAL ASSETS................................................ 156,615 106,142
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... 6,239 8,320
Short term debt........................................... 25,322 1,963
Accrued and other current liabilities..................... (5) 21,753 11,451
Current portion of lease obligations...................... (10) 1,217 2,662
------- -------
Total current liabilities................................... 54,531 24,396
Long term portion of lease obligations...................... (10) 457 2,181
Pension obligation.......................................... (6) 3,361 3,627
Deferred income taxes....................................... (8) -- 31
Long-term debt.............................................. (7) 23,186 3,332
------- -------
Total non-current liabilities............................... 27,004 9,171
Minority interest........................................... 98 --
Shareholders' Equity
Common shares, E0.20 par value, 28,928,585 shares
authorized, 19,285,725 issued and outstanding............. 7,544 6,429
Additional paid in capital................................ 62,077 63,192
Retained earnings......................................... 5,361 2,954
------- -------
Total shareholders' equity.................................. 74,982 72,575
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 156,615 106,142
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-3
<PAGE> 179
CE COMPUTER EQUIPMENT AG
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of German Marks, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
NOTES 1999 1998 1997
----- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Licenses.......................................... 63,609 29,517 7,415
Services.......................................... 22,103 8,167 4,054
Hardware.......................................... 12,398 7,743 7,972
--------- --------- ---------
Total revenues................................. 98,110 45,427 19,441
Cost of revenues:
Licenses.......................................... 3,686 1,426 505
Services.......................................... 17,731 6,857 2,775
Hardware.......................................... 11,188 6,584 5,975
Total costs of revenues........................ 32,605 14,867 9,255
--------- --------- ---------
GROSS PROFIT........................................ 65,505 30,560 10,186
--------- --------- ---------
Operating expenses:
Sales and marketing............................... 23,632 9,880 2,434
Research and development.......................... 15,201 7,430 1,197
General and administrative........................ 20,726 8,831 3,982
--------- --------- ---------
OPERATING INCOME (LOSS)............................. 5,946 4,419 2,573
Interest income..................................... 1,422 1,009 1,247
Interest expense.................................... (1,370) (1,340) (2,459)
Other income........................................ 493 422 347
Equity in net loss in associated company............ (262) -- --
--------- --------- ---------
Income (loss) before income taxes................... 6,229 4,510 1,708
Provision for income taxes.......................... (8) 3,934 2,602 936
--------- --------- ---------
NET INCOME BEFORE MINORITY INTEREST................. 2,295 1,908 772
Minority interest in loss of consolidated
subsidiaries...................................... (112) -- --
NET INCOME (ATTRIBUTABLE TO CE AG).................. 2,407 1,908 772
========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Basic and diluted................................... (4) 0.12 0.13 0.07
========= ========= =========
Weighted average common shares outstanding.......... 19,285,725 14,739,285 11,100,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-4
<PAGE> 180
CE COMPUTER EQUIPMENT AG
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of German Marks)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ 2,407 1,908 772
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 11,213 3,472 949
Changes in assets and liabilities:
Accounts receivable.................................. (21,655) (7,848) 1,441
Inventories.......................................... (101) (598) 375
Other current assets................................. (7,605) (609) (1,114)
Non-current assets................................... (1,337) -- --
Accounts payable..................................... (2,989) 4,998 460
Accrued and other current liabilities................ 8,707 (2,385) 126
Other liabilities.................................... (924) (5,190) 3,456
------- ------- ------
Net cash used in operating activities............. (12,284) (6,252) 6,465
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (5,958) (1,861) (1,310)
Purchase of software...................................... (3,453) (3,487) (371)
Investment in associates.................................. (5,000) -- --
Acquisitions, net of cash acquired of DM 479 in 1999 and
DM 625 in 1998......................................... (2,421) (33,056) --
------- ------- ------
Net cash used in investing activities............. (16,832) (38,404) (1,681)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock................ -- 67,321 --
Principal payments under capital lease obligation......... (3,169) (4,531) (6,014)
Proceeds from bank loan................................... 44,710 5,294 2,056
Repayment of bank loan.................................... (1,963) (8,792) (291)
------- ------- ------
Net cash provided by financing activities......... 39,578 59,292 (4,249)
------- ------- ------
Net increase (decrease) in cash and cash equivalents........ 10,462 14,636 535
Cash and cash equivalents at beginning of period............ 15,258 622 87
------- ------- ------
Cash and cash equivalents at end of period.................. 25,720 15,258 622
------- ------- ------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid............................................. 1,370 1,340 2,459
------- ------- ------
Income taxes paid......................................... 243 833 69
======= ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-5
<PAGE> 181
CE COMPUTER EQUIPMENT AG
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of German Marks, except share and per share data)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996.................... 4,200,000 1,400 200 274 1,874
Net income........................... -- -- -- 772 772
---------- ----- ------ ----- ------
DECEMBER 31, 1997.................... 4,200,000 1,400 200 1,046 2,646
Capital increase................... 6,900,000 2,300 -- -- 2,300
Issuance of common stock, in April
at DM 6 per share, net of issuance
costs of DM 1,345 (net of DM 1,645
income tax benefit)................ 3,900,000 1,300 22,835 -- 24,135
Issuance of common stock, in
October at DM 10 per share, net of
issuance costs of DM 411 (net of DM
502 income tax benefit)............ 4,285,725 1,429 40,157 -- 41,586
Net income........................... -- -- -- 1,908 1,908
---------- ----- ------ ----- ------
DECEMBER 31, 1998.................... 19,285,725 6,429 63,192 2,954 72,575
Change in par value from E0.16 to
E0.20 (Note 2)..................... -- 1,115 (1,115) -- --
Net income........................... -- -- -- 2,407 2,407
---------- ----- ------ ----- ------
DECEMBER 31, 1999.................... 19,285,725 7,544 62,077 5,361 74,982
========== ===== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
<PAGE> 182
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of German Marks, except share and per share amounts)
NOTE 1. BUSINESS OF THE COMPANY
CE Computer Equipment GmbH was incorporated in Germany in 1984 and merged
as of January 1, 1998 into CE Computer Equipment AG ("CE" or the "Company"), a
company which was formed in 1998 for the purpose of this transaction. The
Company develops, markets and supports archiving and document management
systems. The Company's products provide the user with tailored solutions for
enterprise-wide mapping and processing of workflows.
In 1998, the Company made its initial public offering on the "Neuer Markt"
in Germany. In two public offerings, CE raised, after the deduction of issuance
costs of DM 3,903 a total amount of DM 65,721.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
reporting currency for all periods is the German Mark.
In preparation for its initial public offering, the Company's shareholders
approved share capital increases in January and March 1998 of 2,100,000 and
4,800,000 shares, respectively. These increases were effected through cash and
asset contributions by the Company's two 50% shareholders.
In June 1999, the Company effected a three-for-one stock split of its
common stock and, in August 2000, the Company effected a five-for-one stock
split of its common stock. All references in the consolidated financial
statements and notes thereto to number of shares and per share amounts have been
restated to reflect the stock splits.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CE AG and its
wholly owned subsidiaries. The results of subsidiaries acquired during the year
are included from the effective date of acquisition using the purchase method of
accounting. All intercompany balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable (including unbilled receivables). The Company generally requires no
collateral for its accounts receivable and maintains reserves for potential
credit losses. In the year ended December 31, 1997 no customer accounted for
more than 10% of revenues. In 1998, the two largest customers accounted for 17%
and 25% of revenues and in 1999 one customer accounted for 16% of revenues. At
December 31, 1999 and 1998 the two largest customers accounted for 25% and 14%,
and 26% and 17% of the accounts receivable balances, respectively.
F-7
<PAGE> 183
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable are reflected in the consolidated
financial statements at their fair value due to their short-term maturity. The
carrying value of long-term debt represents approximately its fair market value.
Long-term receivables are reported at their present value. Capital leases are
recorded at net present value of the minimum lease payments. The implicit
interest rates for the leases approximately reflect current market rates.
FOREIGN CURRENCY TRANSLATION
Each of the consolidated companies' financial statements are stated in
German Marks ("DM") or other denominations of the Euro. The Company's operations
are primarily in Germany and the functional and reporting currency of the
consolidated companies is the German Mark. Gains and losses resulting from
foreign exchange transactions are included in the consolidated statements of
operations and were not significant during any of the periods presented. To
date, the Company has not entered into derivative financial instruments to
attempt to manage foreign currency exposure. There are no translation
adjustments related to the Company's subsidiaries.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
UNBILLED RECEIVABLES
Unbilled receivables represent services rendered to customers prior to the
balance sheet date but unbilled at that date based on the customer's cycledate
of billing.
CAPITALIZED MERGER COSTS
Other assets include DM 2,347 of capitalized merger costs. These costs were
incurred relating to the pending acquisition of TREEV, Inc. ("TREEV") which is
expected to be completed during the second half of 2000. The costs include only
fees paid to external consultants, lawyers and accountants.
INVENTORIES
Inventories are stated at the lower of the weighted average cost or market.
The Company regularly monitors inventories for excess or obsolete items and
makes any necessary adjustments at each balance sheet date. Inventories consist
primarily of acquired hardware held for resale.
LEASING TRANSACTIONS
Until 1997, the Company leased hardware to several cities and governmental
units in Germany. These transactions have been accounted for as sales type
leases. The hardware components were acquired from distributors, sold to a
leasing company, leased back by the Company and then sold to end users under
sales type leases. The leasing transactions in which the Company acted as both
lessee and lessor were accounted for as capital leases in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 13. The Company's
financial statements therefore include obligations to the local leasing company
and receivables from end users.
INVESTMENT IN ASSOCIATED COMPANIES
As of October 1, 1999, the Company acquired a 25% interest in Consultec AG
for DM 5,000. The company is a provider of e-commerce and e-transaction services
and provides a portal solution for e-business in the health care environment.
The Company shows its interest in Consultec under the equity method of
accounting. Accordingly, the interest in Consultec's net losses and the
amortization of the
F-8
<PAGE> 184
acquired goodwill is deducted from the historic acquisition costs to arrive at
the period end investment balance.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the assets' useful lives to write down cost to
residual values, applying the following periods of useful life:
<TABLE>
<S> <C>
Cars..................................................... 5 years
Hardware................................................. 3-5 years
Office Equipment......................................... 5-10 years
</TABLE>
GOODWILL AND INTANGIBLE ASSETS
For each acquisition, the Company determines the fair value of tangible and
intangible assets acquired. Goodwill is amortized on a straight-line basis over
its estimated useful life of 5 years. Intangible assets are stated at cost and
amortized over their estimated useful lives as follows:
<TABLE>
<S> <C>
Acquired Customer Base................................... 5 years
Acquired Workforce....................................... 5 years
Acquired and Purchased Software.......................... 3-4 years
</TABLE>
The Company evaluates the recoverability of its intangible assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to Be Disposed Of". SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets. If a long-lived asset is deemed to be impaired, impairment losses are
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets based on discounted cash flows. The Company
periodically reviews the carrying value of long-lived assets to determine
whether or not an impairment to such value has occurred. Based on its most
recent analysis, the Company believes that no impairment existed at December 31,
1999.
SOFTWARE DEVELOPMENT COSTS
Costs related to research, design and development of computer software for
external use are expensed as incurred. SFAS 86 requires the capitalization of
certain software development costs once technological feasibility is
established. The capitalized cost is then amortized on a straight-line basis
over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. To date, the period between
achieving technological feasibility, which the Company has defined as the
establishment of a working model, and the general availability of such software
has been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This standard
requires companies to capitalize qualifying computer software costs, which are
incurred during the application development stage, and amortize them over the
software's estimated useful life. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. The adoption of this standard did not have a
material impact on the Company's results of operations or equity for the year
ended December 31, 1999.
REVENUE RECOGNITION
The Company's revenues are derived from the sale of perpetual licenses for
its software and related services, which include maintenance and support,
consulting and training services. Revenues from license
F-9
<PAGE> 185
arrangements are recognized when all of the following conditions are met: a
signed contract is obtained, delivery has occurred, the total sales price is
fixed and determinable, collectibility is probable, and any uncertainties with
regard to customer acceptance are insignificant. In multiple element license
arrangements, revenue is recognized pursuant to the residual method. Under this
method, revenue is first allocated to the undelivered elements based on their
vendor-specific objective evidence of fair value and the remainder, along with
any discount, is allocated to the delivered elements. Vendor-specific objective
evidence of fair value for services is based on the standard billing rates for
the Company's consultants, and vendor-specific objective evidence of fair value
for post-contract customer support (PCS) is based on the price charged for PCS
when it is sold separately. Payments received in advance of revenue recognition
are recorded as deferred revenue. Revenues from maintenance and support are
deferred and recognized ratably over the term of the contract, usually one
quarter. Consulting and training services are recognized as revenue as the
services are performed on a time and materials basis using the standard billing
rates charged to customers. Because customers are on different billing cycles,
at period-ends services have been provided to some customers for which invoices
have not yet been issued. These amounts are recorded as unbilled receivables.
Software licences sold to resellers including original equipment
manufacturers (OEMs) and value-added resellers (VARs) are recognized as revenue
in a similar manner to sales to other customers. Sales of software licenses to
resellers do not provide for any rights of return, price protection or upgrade
rights and are sold without services or post-contract customer support.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the consolidated
financial statements or tax returns in accordance with SFAS No. 109, "Accounting
for Income Taxes." Deferred tax liabilities and assets are determined on the
basis of the difference between the tax bases of assets and liabilities and
their respective financial reporting amounts in the consolidated financial
statements using enacted tax rates in effect in the years in which the
differences are expected to reverse. The Company provides a valuation allowance
for deferred tax assets when it is more likely than not, based on available
evidence, that some portion or all of the deferred tax assets will not be
realized.
EARNINGS PER SHARE
The Company computes net income (loss) per common share in accordance with
SFAS No. 128, "Earnings Per Share". Under the provision of SFAS No. 128, basic
income (loss) per share is computed by dividing the net income (loss)
attributable to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common and common share equivalents outstanding
during the period. As of December 31, 1999 and December 31, 1998, the Company
had not issued any dilutive securities such as convertible bonds, preferred
stock, or stock options.
SEGMENT INFORMATION
During the years ended December 31, 1999, 1998 and 1997, the Company
operated in a single business segment, primarily in Germany. Shipments to buyers
outside of Germany were insignificant for all periods presented.
ACCUMULATED COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" establishes standards for
the reporting of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is comprised of net
income (loss) and other comprehensive earnings such as foreign currency
translation gain/loss and unrealized gains or losses on available for sale
securities. There have been no items of comprehensive income, other than net
income (loss) for all periods presented.
F-10
<PAGE> 186
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all quarters of all fiscal years beginning after June 15, 2000,
with earlier adoption permitted. SFAS 133 will require the Company to record all
derivatives on the balance sheet at fair value. For derivatives that are hedges,
changes in the fair value of derivatives will be offset by the changes in the
fair value of the hedged assets, liabilities or firm commitments. The Company
believes the impact of adopting this standard will not be material to its
results of operations or equity.
NOTE 3. ACQUISITIONS
ACQUISITIONS IN 1999
In 1999, the Company acquired 51% of the share capital of HAVI Computer
Service GmbH, Hamburg (HAVI) and 100% of netconcept Gesellschaft fuer innovative
Netzdienste mbH, Karlsruhe (netconcept) for DM 2,000 and DM 900, respectively.
In October 1999, the Company acquired a 25% interest in Consultec AG, Frankfurt
for DM 5,000. Each purchase price was paid in cash. The acquisitions of HAVI and
netconcept were accounted for as purchase transaction, in accordance with the
provisions of Accounting Principles Board Opinion ("APB") No. 16. The investment
in Consultec is reported using the equity method.
HAVI is engaged in the migration of archive solutions and the organization
of data management systems. In 1999, HAVI reported revenue from consulting
activities of approximately DM 2,500. The purchase price of DM 2,000 was
allocated to net tangible assets and liabilities of DM 179 and goodwill of DM
1,821 as no other identifiable intangible assets exist. Goodwill is amortized
over 5 years. The purchase agreement includes contingent consideration according
to which the seller will receive 51.5% of HAVI's income before taxes and
extraordinary items for the period 1999 to 2003, up to a maximum of DM 2,400.
Netconcept provides services, concepts and support for innovative
communication systems, especially the integration of network systems, on-line
and off-line net-services and multimedia application services. In 1999,
netconcept generated revenue of about DM 5,200. The purchase price of DM 900 was
allocated to tangible assets and liabilities of DM 184 and goodwill of DM 716.
Goodwill is amortized over 5 years. The purchase agreement includes a contingent
consideration according to which the seller will receive five times the amount
of netconcept's income before taxes and extraordinary items for the period 1999
to 2003, up to a maximum of DM 5,100.
For both acquisitions, the contingent consideration will be reported as
additional acquisition costs based on APB 16.
The following are unaudited combined results of operations for the Company
and the two companies acquired in 1999 (HAVI and netconcept), assuming that the
acquisitions had taken place at the beginning of the fiscal year for each of the
periods presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Net revenues....................................... 101,630 51,857
Net income (loss).................................. 2,320 1,444
Net income (loss) per share........................ 0.12 0.10
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
of goodwill. They do not purport to be indicative of the results of operations
that actually would have resulted had the combination occurred on January 1,
1998.
F-11
<PAGE> 187
ACQUISITION OF "CE MUNICH" ("SiDoc") IN 1998
On October 1, 1998 the Company acquired all of the outstanding share
capital of SiDoc GmbH, Munich, a subsidiary of Siemens-Nixdorf AG engaged in the
selling and implementation of data management systems with approximately 90
employees, for a cash payment of DM 23,627. After the acquisition, SiDoc was
renamed CE Computer Equipment GmbH & Co. KG ("CE Munich").
SiDoc was incorporated in 1996 as a shell company without any operating
activities. Siemens-Nixdorf AG transferred its data management and archive
business to SiDoc in a tax-free transaction. All losses previously incurred by
the operating unit remained with Siemens-Nixdorf AG so that SiDoc had no net
operating losses carried forward as of April 1, 1998. The acquisition was
accounted for as a purchase in accordance with the provisions of APB No. 16. The
results of operations for SiDoc, now named CE Munich, have been included with
those of the Company for periods subsequent to the date of acquisition.
The total purchase price of the acquisition was DM 23,650 including
acquisition expenses of DM 23. The purchase price was allocated to the assets
acquired and liabilities assumed based upon their estimated fair value at the
date of acquisition as follows:
<TABLE>
<S> <C>
Customer base............................................... 1,382
Software.................................................... 605
Workforce................................................... 4,095
Goodwill.................................................... 14,499
Tangible assets acquired.................................... 12,348
Liabilities assumed......................................... (9,279)
------
Total purchase price........................................ 23,650
======
</TABLE>
The purchased customer base, workforce and goodwill are amortized over 5
years, and the software is amortized over 4 years.
The consolidated financial statements of the Company include CE Munich's
operations from October 1, 1998.
OTHER ACQUISITIONS IN 1998
The Company acquired Group Dr. Rainer Kossow EDV Unternehmensberatung GmbH
& Co. KG, Muenster and Group Wege & Partner EDV-Unternehmensberatung GmbH & Co.
KG, Karlsruhe in 1998 for DM 5,338 and DM 5,093 respectively. Both of these
unrelated companies provide middleware and archive solutions in the Lotus Notes
environment. Both acquisitions were accounted for as purchase transaction, in
accordance with the provisions of APB No. 16. The purchase price was allocated
as follows:
<TABLE>
<CAPTION>
MUENSTER KARLSRUHE
-------- ---------
<S> <C> <C>
Net assets and liabilities assumed...................... (367) 411
Software................................................ 798 594
Goodwill................................................ 4,907 4,088
----- -----
Total................................................... 5,338 5,093
===== =====
</TABLE>
Software is amortized over four years, and goodwill is amortized over 5
years.
F-12
<PAGE> 188
The following are unaudited proforma combined results of operations for the
Company and the three companies acquired in 1998, assuming that the acquisitions
had taken place at the beginning of the fiscal year for each of the periods
presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
-------- ---------
<S> <C> <C>
Net revenues............................................ 69,055 40,595
Net income (loss)....................................... (2,439) (15,312)
Net income (loss) per share............................. (0.17) (1.38)
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
of goodwill. They do not purport to be indicative of the results of operations
that actually would have resulted had the combination occurred on January 1,
1997.
NOTE 4. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net income (loss) attributable to common
stockholders................................. 2,407 1,908 772
========== ========== ==========
Denominator:
Weighted average common shares outstanding..... 19,285,725 14,739,285 11,100,000
Basic and diluted earnings per share........... 0.12 0.13 0.07
</TABLE>
Basic and diluted earnings per share are the same since no common stock
equivalents existed during the above periods.
NOTE 5. BALANCE SHEET COMPONENTS
Accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Trade accounts receivable................................... 67,581 23,383
Leasing receivables......................................... 1,291 3,388
Unbilled receivables........................................ 4,905 3,029
Total accounts receivable................................... 73,777 29,800
Less allowance for doubtful accounts........................ (1,193) (956)
------ ------
72,584 28,844
====== ======
</TABLE>
Allowance for doubtful accounts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Balance at beginning of period.............................. 956 617 589
Charged to costs and expenses............................... 646 339 28
Writeoffs................................................... (409) -- --
----- --- ---
1,193 956 617
===== === ===
</TABLE>
F-13
<PAGE> 189
Other current assets:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1999 1998
------ -----
<S> <C> <C>
Loan to TREEV, Inc.......................................... 3,831 --
Income tax claim............................................ 2,368 567
Capitalized merger costs.................................... 2,347 --
Prepaid expenses............................................ 1,072 330
Other....................................................... 1,011 1,947
------ -----
10,629 2,844
====== =====
</TABLE>
The loan to TREEV is due on June 30, 2000 and bears interest at 14%.
Long-term receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1999 1998
---- ------
<S> <C> <C>
Trade accounts receivable................................... 176 15,675
Leasing receivables......................................... 797 5,359
--- ------
973 21,034
=== ======
</TABLE>
Property and Equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Property.................................................... 1,159 1,013
Furniture and Fixtures...................................... 11,742 5,867
------ ------
12,901 6,880
Less accumulated depreciation............................. (4,600) (2,379)
------ ------
8,301 4,501
====== ======
</TABLE>
Goodwill and intangible assets:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Acquired customer base...................................... 1,382 1,382
Acquired workforce.......................................... 4,095 4,095
Software.................................................... 8,326 4,981
Goodwill.................................................... 26,031 23,494
------ ------
39,834 33,952
Less accumulated amortization............................... (9,910) (2,588)
------ ------
29,924 31,364
====== ======
</TABLE>
F-14
<PAGE> 190
Accrued expenses and other current liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Taxes payable............................................... 7,635 2,411
VAT payable................................................. 4,867 2,792
Compensation and related payroll taxes...................... 4,518 3,663
Other....................................................... 4,733 2,585
------ ------
21,753 11,451
====== ======
</TABLE>
NOTE 6. PENSIONS
The Company sponsors a retirement plan for some of its employees. This
defined benefit plan provides old age, disability and survivors benefits. In
accordance with U.S. GAAP, pension plan benefits for defined benefit plans are
determined in accordance with SFAS No. 87. Under SFAS No. 87, pension plans and
their costs are determined using the projected unit credit method. The plan is
unfunded. All changes in the value of either the projected benefit obligation or
the plan assets resulting from experience different from that assumed or from a
change in an actuarial assumption are recognized immediately.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Components of pension expense:
Net service cost.......................................... 177 53
Interest cost............................................. 216 57
Expected return on plan assets............................ -- --
Actuarial gains........................................... 748 68
---- --
Net periodic cost......................................... (355) 42
==== ==
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1999 1998
----- -----
<S> <C> <C>
Change in benefit obligation during the year:
Benefit obligation at January 1............................. 3,627 80
Service cost................................................ 177 53
Interest cost............................................... 216 57
Contributions by plan participants.......................... -- --
Actuarial gains............................................. 748 68
Benefits paid............................................... 19 --
Acquisition................................................. 108 3,505
----- -----
Benefit obligation at December 31........................... 3,361 3,627
===== =====
</TABLE>
Assumptions used to determine the pension cost for the plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate............................................... 6.5% 5.5% 6.0%
Salary growth............................................... 3.0% 2.5% 2.5%
</TABLE>
F-15
<PAGE> 191
NOTE 7. DEBT
The Company reported the following long-term bank loans:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998 INTEREST RATE MATURITY
------- ------- ------------- --------
<S> <C> <C> <C> <C>
Fixed rate loan............................ 2,001 -- 4.27 3/2009
Fixed rate loan............................ 3,911 -- 4.57 3/2019
Fixed rate loan............................ 12,030 -- 4.82 9/2009
Fixed rate loan............................ 3,150 -- 4.57 9/2019
Variable rate loan......................... 2,094 3,332 5.45 10/2001
------ ------
23,186 3,332
====== ======
</TABLE>
The fixed-rate interest loans are received from DG Bank AG and are secured
by a mortgage on the building under construction in Bielefeld. In addition to
the long-term fixed-rate loans, DG Bank AG provided a line of credit of up to DM
20,000 for the acquisition of additional participations. At the end of 1999, DM
10.3 million of the credit line was unused.
In November 1998, the Company received a variable-rate long-term loan of DM
5,000 from Dresdner Bank AG. The loan is due October 31, 2001 and bears variable
interest of three-month- LIBOR + 2%. The interest rate on this loan at December
31, 1999 was 5.45%. The loan is secured by a personal guarantee of the two
members of the Company's management board who each pledged 18,000 of their own
shares in the Company.
Aggregate long-term debt installments for the next five years due at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
DM
------
<S> <C>
Year ending December 31,
2000........................................................ 1,793
2001........................................................ 2,033
2002........................................................ 1,373
2003........................................................ 1,373
2004........................................................ 3,236
------
Due within five years....................................... 9,808
Thereafter.................................................. 15,171
------
24,979
Less current portion of long-term debt...................... 1,793
------
Total....................................................... 23,186
======
</TABLE>
In 1999, the Company entered into several overdraft facilities ("the
facilities") with Dresdner Bank AG. The facilities allow for borrowings of up to
DM 31,666 bearing interest at rates between 4.7% and 7.0% and expire June 30,
2000. At December 31, 1999 DM 26,667 was utilized under this facility. In
connection with the agreement, the bank does not charge annual facility fees for
any unused credit available to the Company.
NOTE 8. INCOME TAXES
German corporate tax law applies a split-rate imputation with regard to the
taxation of the income of a corporation and its shareholders. In accordance with
the tax law in effect for fiscal 1999, retained corporate income is initially
subject to a federal corporate tax of 40% plus a solidarity surcharge of 5.5% on
federal corporate taxes payable. Including the impact of the surcharge, the
federal corporate tax rate amounts to 42.2%. Upon distribution of retained
earnings to shareholders, the corporate income tax rate on
F-16
<PAGE> 192
earnings is adjusted to 30%, plus a solidarity surcharge of 5.5% on the
distribution corporate tax, for a total of 31.65%, by means of a refund for
taxes previously paid. Additionally, German companies are subject to a local
trade tax on income of approximately 17-20%, which is deductible for corporate
tax purposes. Prior to 1999, the tax rate for corporate income tax was 45% for
earnings not distributed to shareholders.
In 1998, stock issuance costs of DM 3,903, which were netted with the
proceeds of the issued shares, are deductible under German tax law. According to
SFAS 109 "Accounting for Income taxes", the tax effects of the stock issuance
costs were directly credited to equity.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------ ----- ----
<S> <C> <C> <C>
Current:
Income tax................................................ 3,032 2,041 370
Trade tax................................................. 2,270 932 232
------ ----- ---
5,302 2,973 602
Deferred.................................................. (1,368) (371) 334
------ ----- ---
3,934 2,602 936
====== ===== ===
</TABLE>
Deferred tax assets/liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1999 1998
----- -----
<S> <C> <C>
Net operating loss carryforward............................. 1,268 580
Goodwill and intangible amortization........................ 1,314 42
Pension obligation.......................................... 238 405
----- -----
Deferred tax assets......................................... 2,820 1,027
Merger costs................................................ 1,220 --
Inventory valuation......................................... 136 131
Leasing contracts........................................... 127 927
----- -----
Deferred tax liabilities.................................... 1,483 1,058
----- -----
Net tax assets (liabilities)................................ 1,337 (31)
===== =====
</TABLE>
At December 31, 1999, the Company had DM 3,020 in net operating loss
carryforwards for corporation income taxes, which can be utilized to reduce
future taxable income taxes at a rate of 42%. This loss carryforward can be
utilized on an unlimited basis.
The differences between the statutory tax rate of 52% (55% for prior years)
in Germany and the effective tax rate of 56% in 1999 and 1998 is due to the
lower applicable tax rate of 42% for the deferred tax asset related to the net
operating losses.
NOTE 9. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
The Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services, geographic areas and
significant customers. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the Company's chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision-makers are the two members
of its management board.
F-17
<PAGE> 193
The Company's management considers its business activities to be focused on
the license of its products and related services to customers. Since
management's primary form of internal reporting is aligned with the offering of
products and services, the Company believes it operates in one segment. The
Company markets its products mainly in Germany through its direct sales force
and distributors.
NOTE 10. LEASES
The following is a summary, by year, of future gross minimum rental
payments for all leases with terms greater than one year:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
(DM)
<S> <C> <C>
Fiscal year ending December 31:
2000...................................................... 1,305 1,306
2001...................................................... 2,562 450
2002...................................................... 2,226 82
2003...................................................... 1,607 --
Thereafter................................................ 1,473 --
----- ------
Total minimum lease payments................................ 9,173 1,838
===== ======
Less amount representing interest........................... (164)
------
Present value of net minimum lease payments................. 1,674
Less current maturities..................................... (1,217)
------
Long-term obligation........................................ 457
======
</TABLE>
The Company enters lease agreements as part of the ordinary course of its
business. Finance leases relate primarily to computer equipment rentals, while
operating leases primarily relate to the rental of office space. In 1997, the
Company sold acquired hardware for DM 3,185 to a leasing company and leased them
back at a present value of DM 3,459. The leasing contracts, which have terms
between four and five years, are accounted for as capital leases. Directly
related to these leasing transactions, the hardware was rented on a long-term
basis to governmental units. These contracts were accounted for as sales type
leases. After 1998, the Company did not acquire any equipment under capital
lease terms.
Total rent expense amounted to DM 6,930, DM 6,387 and DM 6,129 in the years
ended December 31, 1997, 1998 and 1999, respectively.
The following is a summary, by year, of future gross minimum rental
payments to be received for all sales type leases with terms greater than one
year:
<TABLE>
<CAPTION>
(DM)
<S> <C>
Fiscal year ending December 31:
2000.................................................... 1,357
2001.................................................... 704
2002.................................................... 154
2003.................................................... 34
Thereafter.............................................. --
------
Total minimum lease payments to be received............... 2,249
Less unearned income...................................... (161)
------
Net investment in sales type leases....................... 2,088
Less current portion...................................... (1,291)
------
Long-term portion......................................... 797
======
</TABLE>
F-18
<PAGE> 194
NOTE 11. RELATED PARTY TRANSACTIONS
Commencing February 1, 1999, the Company rents its administration
facilities in Munich from two senior officers of the Company. The leasing
contract expires on December 31, 2004. The annual rent amounts to DM 1,175. The
building is used by the employees of CE Munich.
NOTE 12. PLANNED ACQUISITION OF TREEV INC.
In November 1999, the Company signed a merger agreement with TREEV Inc, a
US based company listed on the NASDAQ stock exchange. TREEV is a developer and
marketer of content management solutions and provides client/server and internet
solutions for document management, document imaging and enterprise report
management.
According to the merger agreement, CE will issue 6,650,000 ordinary shares
in exchange for all of TREEV's outstanding shares, preferred shares, options and
warrants. As a result of this share transaction, the previous shareholders of CE
will own 74% and the previous shareholders of TREEV will own 26% of the company
immediately following the merger. The obligation of CE and TREEV to consummate
the merger is subject to certain conditions which include (a) approval of the
merger by the vote of shareholders; (b) receipt of approvals and consents
required by law in connection with the merger; (c) absence of material changes
affecting either CE or TREEV. The merger is expected to be consummated in the
second half of 2000.
The acquisition will be accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price will be allocated to
net tangible and intangible assets acquired based on their estimated fair value.
A portion will also be allocated to in-process research and development projects
that had not reached technological feasibility and had no probable alternative
future uses. This portion will be expensed in the first quarter after the
consummation of the merger. The Company is currently in the process of preparing
the purchase price allocation and determining the estimated useful lives of the
assets acquired.
NOTE 13. SUBSEQUENT EVENTS
In February 2000, CE agreed to acquire 76% of the share capital of Insiders
Information Management GmbH, Kaiserslautern, a company that develops technology
and products for intelligent, knowledge-based document and information
management in exchange for 661,150 shares of CE's common stock having an
approximate value of DM 34.3 million. In addition, in May 2000, CE agreed to
acquire 100% of Gesellschaft fur Image-Processing und Archivierung mbH (GIA), a
company specializing in consulting and project management in the area of
document-related technology and document management and imaging systems in
exchange for DM 500,000 in cash and 61,300 shares of CE's common stock having an
approximate value of DM 3.5 million. The closings of the purchases of each of
Insiders and GIA are expected to occur in July 2000 and August 2000,
respectively.
F-19
<PAGE> 195
REPORT OF INDEPENDENT ACCOUNTANTS
To the Supervisory Board of CE Computer Equipment AG:
We have reviewed the accompanying condensed consolidated balance sheet of
CE Computer Equipment AG as of June 30, 2000, and the related condensed
consolidated statements of income and cash flows for each of the six-month
periods ended June 30, 2000 and 1999. This interim financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated interim financial
information for them to be in conformity with accounting principles generally
accepted in the United States of America.
Siegen, August 22, 2000
PWC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C>
/s/ JORG MULLER /s/ JURGEN NASKRENT
Jorg Muller Jurgen Naskrent
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
F-20
<PAGE> 196
CE COMPUTER EQUIPMENT AG
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands of German Marks, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30,
------------------
2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. 909 3,297
Accounts receivable, net of allowance for doubtful
accounts............................................... 97,526 54,948
Inventories, net of reserves.............................. 3,409 5,084
Other current assets...................................... 21,506 3,553
------- -------
Total current assets.............................. 123,350 66,882
Long-term receivables....................................... -- 4,250
Property and equipment, net................................. 13,841 4,737
Investment in associated companies.......................... 4,017 --
Deferred income taxes....................................... 1,472 1,432
Goodwill and intangible assets, net......................... 26,126 28,688
------- -------
Non-current assets.......................................... 45,456 39,107
Total Assets...................................... 168,806 105,989
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... 8,409 5,595
Short term debt........................................... 34,687 6,893
Accrued and other current liabilities..................... 21,064 12,733
Current portion of lease obligations...................... -- 1,972
------- -------
Total current liabilities......................... 64,160 27,193
Long term portion of lease obligations...................... -- 1,327
Pension obligation.......................................... 3,557 3,734
Long-term debt.............................................. 24,092 2,348
------- -------
Total non-current liabilities..................... 27,649 7,409
Minority interest........................................... 223 --
Shareholders' Equity:
Common shares, E0.20 par value, 28,928,585 shares
authorized, 19,285,725 issued and outstanding.......... 7,544 7,544
Additional paid in capital................................ 62,077 62,077
Retained earnings......................................... 7,153 1,766
------- -------
Total shareholders' equity........................ 76,774 71,387
Total Liabilities and Shareholders' Equity........ 168,806 105,989
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
F-21
<PAGE> 197
CE COMPUTER EQUIPMENT AG
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of German Marks, except share and per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Licenses............................................. 37,971 22,598 6,120
Services............................................. 19,009 8,880 2,836
Hardware............................................. 3,911 6,895 2,938
---------- ---------- ----------
Total revenues............................... 60,891 38,373 11,894
Cost of revenues:
Licenses............................................. 1,783 1,425 416
Services............................................. 15,156 7,574 2,183
Hardware............................................. 3,279 5,292 2,586
---------- ---------- ----------
Total costs of revenues...................... 20,218 14,291 5,185
---------- ---------- ----------
GROSS PROFIT........................................... 40,673 24,082 6,709
========== ========== ==========
Operating expenses:
Sales and marketing.................................. 14,107 10,869 2,333
Research and development............................. 10,706 8,743 1,790
General and administrative........................... 12,613 7,467 1,916
---------- ---------- ----------
OPERATING INCOME (LOSS)................................ 3,247 (2,997) 670
Interest income........................................ 514 497 708
Interest expense....................................... (1,334) (427) (1,036)
Other income........................................... 1,299 444 376
Equity in net loss in associated company............... (496) -- --
---------- ---------- ----------
Income (loss) before income taxes...................... 3,230 (2,483) 718
Provision for income taxes............................. 1,343 (1,146) 387
---------- ---------- ----------
NET INCOME BEFORE MINORITY INTEREST.................... 1,887 (1,337) 331
Minority interest in income of consolidated
subsidiaries......................................... 95 -- --
---------- ---------- ----------
NET INCOME (ATTRIBUTABLE TO CE AG)..................... 1,792 (1,337) 331
---------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE:
Basic and diluted...................................... 0.09 (0.07) 0.02
Weighted average common shares outstanding............. 19,285,725 19,285,725 13,700,000
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
F-22
<PAGE> 198
CE COMPUTER EQUIPMENT AG
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of German Marks)
<TABLE>
<CAPTION>
SIX MONTH ENDED JUNE 30,
----------------------------
2000 1999 1998
------- ------- ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... 1,792 (1,337) 331
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 6,639 4,979 831
Changes in assets and liabilities:
Accounts receivable.................................. (24,942) (7,961) (5,400)
Inventories.......................................... (1,000) (2,787) (1,043)
Other current assets................................. (9,904) (1,638) 827
Non-current assets................................... (135) (1,432) --
Accounts payable..................................... 2,170 (2,725) (227)
Accrued and other current liabilities................ 44 1,282 695
Other liabilities.................................... (2,086) (1,319) (4,139)
------- ------- ------
Net cash used in operating activities............. (27,422) (12,938) (8,125)
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (7,245) (637) (759)
Purchase of software...................................... (415) (750) (630)
------- ------- ------
Net cash used in investing activities............. (7,660) (1,387) (1,389)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock................ -- -- 26,116
Principal payments under capital lease obligation......... -- (1,582) (2,524)
Proceeds from bank loan................................... 10,271 4,780 --
Repayment of bank loan.................................... -- (834) (9,322)
------- ------- ------
Net cash provided by financing activities......... 10,271 2,364 14,270
------- ------- ------
Net increase (decrease) in cash and cash equivalents........ (24,811) (11,961) 4,756
Cash and cash equivalent at beginning of period............. 25,720 15,258 622
Cash and cash equivalents at end of period.................. 909 3,297 5,378
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid............................................. 1,334 427 1,036
Income taxes paid......................................... 386 243 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE> 199
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands of German Marks, except share and per share amounts)
NOTE 1. BUSINESS OF THE COMPANY
CE Computer Equipment GmbH was incorporated in Germany in 1984 and merged
as of January 1, 1998 into CE Computer Equipment AG ("CE" or the "Company"), a
company which was formed in 1998 for the purpose of that transaction. The
Company develops, markets and supports archiving and document management
systems. The Company's products provide the user with tailored solutions for
enterprise-wide mapping and processing of workflows.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position, results of operations and cash flows as of June 30, 2000 and 1999.
These condensed consolidated financial statements and notes thereto are
unaudited and should be read in conjunction with the Company's audited financial
statements and related notes included in this Registration Statement on Form
F-4. The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The results of subsidiaries acquired
are included from the effective date of acquisition using the purchase method of
accounting. All intercompany balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable and accounts payable are reflected
in the consolidated financial statements at their fair value due to their
short-term maturity. The carrying value of long-term debt represents
approximately its fair value. Long-term receivables are reported at their
present value. Capital leases are recorded at net present value of the minimum
lease payments. The implicit interest rates for the leases approximately reflect
current market rates.
SEGMENT INFORMATION
During the six months ended June 30, 2000 and the years ended December 31,
1999, 1998 and 1997, the Company operated in a single business segment,
primarily in Germany. Shipments to buyers outside of Germany were insignificant
for all periods presented.
ACCUMULATED COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
the reporting of comprehensive income and its components in a full set of
general-purpose financial statements.
F-24
<PAGE> 200
Comprehensive income is comprised of net income (loss) and other comprehensive
earnings such as foreign currency translation gain/loss and unrealized gains or
losses on available for sale securities. There have been no items of
comprehensive income, other than net income (loss) for all periods presented.
NOTE 3. EARNINGS PER SHARE
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share". Under the provisions of SFAS No. 128, basic
income (loss) per share is computed by dividing the net income (loss)
attributable to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing the net income (loss) for the period by weighted
average number of common and common share equivalents outstanding during the
period. As of June 30, 2000, the Company had not issued any dilutive securities
such as convertible bonds, preferred stock, or stock options.
The following table sets forth the computation of earnings per share for
the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss) attributable to common
stockholders.............................. 1,792 (1,337) 331
--------- --------- ---------
Denominator:
Weighted average common shares
outstanding............................... 19,285,725 19,285,725 13,700,000
Basic and diluted earnings per share........ 0.09 (0.07) 0.02
</TABLE>
Basic and diluted earnings per share are the same since no common stock
equivalents existed during the above periods.
NOTE 4. SUBSEQUENT EVENT
In August 2000, the Company adopted the CE Computer Equipment AG 2000 Stock
Incentive Plan (the "Plan") under which the Company's employees, officers,
directors and management board members may purchase bonds which are convertible
into CE ordinary shares. Each convertible bond is purchased by employees for its
par value of Euro 0.10 and is convertible into CE ordinary shares upon payment
of an additional conversion price. That additional conversion price is
determined by reference to the market price of CE's ordinary shares on the date
the bonds are issued. The bonds become convertible over a defined service
period.
On August 17, 2000, 165,553 convertible bonds were issued to employees.
Because the Company effected a five-for-one stock split on August 21, 2000,
these bonds are now convertible into 827,765 ordinary shares. The conversion
price for these bonds is greater than the market price of CE's ordinary shares
on the date the bonds were issued.
F-25
<PAGE> 201
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
CE Computer Equipment AG
We have audited the accompanying balance sheets of SiDoc GmbH as defined in Note
1 to the financial statements, as of September 30, 1998 and 1997 and the related
statements of income and cash flows for each of the two years in the period
ended September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Germany, which are substantially the same as those followed in the United
States. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
The financial statements referred to above, have been prepared for SiDoc GmbH
from the records maintained by Siemens Nixdorf AG. These financial statements
may not necessarily be indicative of the financial position or results of
operations had the Company as defined in Note 1 to the financial statements been
operated on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of SiDoc GmbH as of
September 30, 1998 and 1997 and the results of operations and cash flows for
each of the two years in the period ended September 30, 1998 and 1997, in
conformity with accounting principles generally accepted in Germany.
Until September 30, 1998, the Company had been an operating unit of Siemens
Nixdorf AG and, as discussed in Notes 10, was engaged in various transactions
with Siemens Nixdorf AG and its various subsidiaries.
Application of accounting principles generally accepted in the United States
would have affected net assets as of September 30, 1998 and 1997, and net losses
for the twelve month period ended September 30, 1998 and 1997 to the extent
summarized in Note 15.
Siegen, May 19, 2000
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Muller
(Wirtschaftsprufer)
(CPA)
Wilke
(Wirtschaftsprufer)
F-26
<PAGE> 202
SIDOC GMBH
BALANCE SHEET
(In thousands of German Marks)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
NOTES ------ ------
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net of allowance for doubtful
accounts of 176 and 0.................................. 3 10,224 4,344
Inventory................................................. 92 0
------ ------
Total current assets................................... 10,316 4,344
Long term receivables..................................... 4 96 110
Equipment................................................. 5,127 5,735
Less accumulated depreciation............................. (4,343) (4,990)
------ ------
Equipment, net............................................ 784 745
TOTAL ASSETS................................................ 11,196 5,199
====== ======
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable.......................................... 5 760 863
Accrued and other current liabilities..................... 6 3,632 3,543
Income taxes.............................................. 8 1,126 0
Other taxes............................................... 546 203
------ ------
Total current liabilities.............................. 6,064 4,609
Pension accruals.......................................... 7 2,705 2,760
Net Assets (deficit)........................................ 9
Net deficit of division................................... (2,170)
Share capital............................................. 50
Retained earnings......................................... 2,377 --
------ ------
Total shareholders' equity (net deficit).................. 2,427 -2,170
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (NET DEFICIT).... 11,196 5,199
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-27
<PAGE> 203
SIDOC GMBH
STATEMENT OF INCOME
(In thousands of German Marks)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------
1998 1997
NOTES ------ -------
<S> <C> <C> <C>
Net sales................................................... 10 24,239 17,840
Costs of goods sold......................................... 10,302 9,680
------ -------
GROSS PROFIT................................................ 13,937 8,160
Marketing and selling....................................... 11 7,527 5,457
Research and development.................................... 9,460 12,745
General and administrative.................................. 382 267
------ -------
OPERATING LOSS.............................................. (3,432) (10,309)
Interest income............................................. 12 34 --
Interest expenses........................................... 12 77 --
Extraordinary expenses...................................... 13 -- 2,379
Income tax expense.......................................... 8 (1,126) --
------ -------
NET LOSS.................................................... (4,601) (12,688)
====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-28
<PAGE> 204
SiDoc GmbH
STATEMENT OF CASH FLOWS
(In thousands of German Marks)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------
1998 1997
------ -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... (4,601) (12,688)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 582 625
Changes in assets and liabilities:
Accounts receivable.................................... (5,866) (1,014)
Inventories............................................ (92) 0
Accounts payable....................................... (103) (661)
Accrued and other liabilities.......................... 1,503 (158)
------ -------
NET CASH USED IN OPERATING ACTIVITIES....................... (8,577) (13,896)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (621) (678)
------ -------
NET CASH USED IN INVESTING ACTIVITIES....................... (621) (678)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from owner.................................... 9,198 14,574
------ -------
NET CASH PROVIDED FROM FINANCING ACTIVITIES................. 9,198 14,574
------ -------
INCREASE IN CASH............................................ 0 0
------ -------
CASH AT BEGINNING OF YEAR................................... 0 0
------ -------
CASH AT END OF THE YEAR..................................... 0 0
------ -------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-29
<PAGE> 205
SIDOC GMBH
NOTES TO THE FINANCIAL STATEMENTS
(All amounts in thousands of German Marks)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The financial statements have been prepared in connection with the sale of
the data management system and archive business of Siemens Nixdorf AG
(hereinafter referred to as "SNI") to CE Computer Equipment AG. SiDoc GmbH was
formed on May 24, 1996 by SNI as a shell company and had from its inception
until March 31, 1998 no operating activities. At April 1, 1998, SNI transferred
its unincorporated data management system and archive business unit to SiDoc.
The operation of the data management system and archive business unit both prior
and subsequent to incorporation are referred to herein as "SiDoc" or the
"Company". The Company operates in a single industry segment as a developer and
reseller of SNI software products and related services.
Effective September 30, 1998, the Company was purchased by CE Computer
Equipment AG and renamed CE Computer Equipment GmbH & Co. KG.
The accompanying financial statements include those assets, liabilities,
revenues and expenses directly attributable to the Company's operations. These
financial statements have been prepared as if the Company had operated as a
stand-alone entity for all periods presented. The financial statements included
herein do not necessarily reflect what the financial position and results of
operations of the Company would have been had it operated as a stand-alone
entity during the periods covered, and may not be indicative of future
operations or financial positions.
The financial statements have been carved out according to the following
principles:
- the financial statements include revenues, expenses, assets and
liabilities relating to the portfolio of products contributed by SNI to
SiDoc;
- costs and expenses were allocated to the combined data management system
business according to SNI's general cost allocation system;
- property and equipment have been recorded based on SNI's fixed asset
register;
- rental expenses charged from SNI for the office space occupied by the
Company were allocated based on the office space used by SiDoc and the
expenses incurred by SNI;
- accounts payables represent SiDoc's share in total accounts payables of
SNI, based on the cost of sales ratio;
- income taxes were calculated as if the Company had prepared its separate
income tax return;
- other operating units of SNI also performed services for SiDoc and
incurred costs on behalf of the Company, including general and
administrative, sales and marketing and corporate overhead. SNI
allocated these costs to reasonably reflect the utilization of such
services by SiDoc.
Management believes that all carve out assumptions and allocation
methodologies utilized in preparing the financial statements are reasonable.
However, these financial statements may not necessarily be indicative of the
results of operations and financial position that would have resulted had the
carved out business unit operated independently of SNI.
The financial statements have been prepared in accordance with accounting
principles generally accepted in Germany for proprietors. A reconciliation to
net income and net assets to US GAAP is provided in note 16.
F-30
<PAGE> 206
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates fixed
assets on the declining balance method with rates of up to 30% applying the
following periods of useful life:
<TABLE>
<S> <C>
Hardware.................................................... 4 years
Office Equipment............................................ 5 years
</TABLE>
The depreciation method is changed to straight-line depreciation when the
straight-line depreciation exceeds the comparable amounts of the declining
balance method.
SOFTWARE DEVELOPMENT COSTS
Costs related to research, design and development of computer software are
expensed as incurred.
REVENUE RECOGNITION
The Company's revenues are derived from the sale of perpetual licenses for
its software and related services, which include maintenance and support,
consulting and training services. Revenues from license arrangements are
recognized when all of the following conditions are met: a signed contract is
obtained, delivery has occurred, the total sales price is fixed and
determinable, collectibility is probable, and any uncertainties with regard to
customer acceptance are insignificant. Revenue from license arrangements are
recognized upon shipment of the product if collection of the resulting
receivable is probable. Payments received in advance of revenue recognition, if
any, are recorded as deferred revenue. Revenues from annual maintenance and
support are deferred and recognized ratably over the term of the contract,
generally one quarter. Revenues from consulting and training are deferred and
recognized when the services are performed and collectibility is deemed
probable.
INCOME TAXES
Income taxes include taxes currently payable and deferred income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the balance sheets prepared for financial reporting purposes and those
prepared for tax reporting purposes. Deferred tax assets are reduced by a
valuation allowance if it is more likely than not that some or all of the
deferred tax assets will be realized.
3. ACCOUNTS RECEIVABLE
As of September 30, 1998, DM 9,480 of the accounts receivables balance
represented services and licenses provided to SNI and its subsidiaries and were
due within one year. In the year ended September 30, 1997, the data management
and archive business was still part of SNI. As most SNI subsidiaries
participated in a group-wide netting system, accounts payable and trade
receivables were settled on a monthly basis resulting in significantly lower
trade receivables at September 30, 1997.
4. LONG-TERM RECEIVABLES
Long-term receivables represent loans granted to employees. The loans have
average terms between 10 and 15 years and bear interest between 5% and 6% per
year.
5. ACCOUNTS PAYABLE
Accounts payable at September 30, 1998 represent liabilities to SNI related
entities of DM 164 and to other companies of DM 596. All accounts payables at
September 30, 1997 were due to SNI or its subsidiaries.
F-31
<PAGE> 207
6. ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities primarily comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1998 1997
----- -----
<S> <C> <C>
Payroll and related taxes................................... 1,569 1,522
Other personnel liabilities................................. 1,248 1,083
Warranties.................................................. 790 938
Other....................................................... 25 --
----- -----
TOTAL....................................................... 3,632 3,543
----- -----
</TABLE>
7. PENSION ACCRUALS
Pension indemnities relate to the employees of SiDoc. An actuarial
evaluation of commitments was performed in accordance with accounting principles
generally accepted in Germany. The commitments are not funded. Significant
actuarial assumptions include:
- Turnover assumptions for current personnel, together with mortality
assumptions
- An assumed retirement age of 60 to 65 years and service periods carrying
entitlement to retirement benefits at the full rate
- A discount rate used to determine the present value of the future
benefits obligation of 6% for all years.
8. INCOME TAXES
For all periods until March 31, 1998, the data management system and
archive business incurred significant losses. These losses were included in the
tax return of SNI. When SNI transferred its business to SiDoc, net losses
carried forward remained with SNI. Accordingly, no deferred tax asset had been
reported. For the period from April 1 to September 30, 1998, the Company
reported a profit before income taxes of DM 3,503. Accordingly, at September 30,
1998, SiDoc had a tax liability of DM 1,126 based on a rate of 30%.
9. NET ASSETS
Changes in the net assets for the years ended September 30, 1997 and 1998
are:
<TABLE>
<S> <C>
Net deficit as of September 30, 1996........................ (4,056)
Net loss for the year ended September 30, 1997.............. (12,688)
Contributions from SNI (net)................................ 14,574
-------
Net deficit as of September 30, 1997........................ (2,170)
Net loss for the period October 1, 1997 to March 31, 1998... (6,978)
Contribution from SNI (net)................................. 9,198
-------
Equity as of March 31, 1998 transferred to Incorporated
entity.................................................... 50
Net income for the period April 1, 1998 to September 30,
1998...................................................... 2,377
-------
Shareholder's equity as of September 30, 1998............... 2,427
=======
</TABLE>
10. NET SALES
All sales orders were received by SNI and allocated internally to SiDoc,
which then rendered its services and provided the software products to SNI. Net
sales were calculated based on SNI's internal sales and cost system and charged
to SNI. Net sales were generated mainly through license agreements for the
Company's major data management software products ARCIS and Filenet.
F-32
<PAGE> 208
11. SELLING, RESEARCH AND DEVELOPMENT AND ADMINISTRATIVE EXPENSES
These expenses include those expenses that were incurred either directly in
the Company's cost centers or represent a proportional share of costs at
different SNI entities. These overhead costs were allocated on key ratios and
primarily represent management salaries, rental expenses, marketing and
administrative costs, central services, legal, taxes and human resources and
logistic services provided by SNI. The key ratios are based on allocation
methods that represent the utilization of services by SiDoc and include among
others working hours at rates reflecting the level of employees involved or
office space utilized.
12. INTEREST
As a subdivision of SNI, the Company did not maintain its own bank accounts
nor was it engaged in any loan agreements. The Company's operations were solely
financed by cash contributed from SNI. No loan agreements between the Company
and another SNI entity existed.
13. EXTRAORDINARY EXPENSES
In 1994 the Company started sales activities in Canada together with other
SNI entities. As these operations were not successful, management decided in
1997 to discontinue its sales efforts in this market and closed its local sales
office. The decision to enter the Canadian market was supported by SiDoc's
management and costs related to start the business as well as the closing costs
would have occurred on a stand-alone basis as well. The total costs incurred by
SNI were allocated to the respective operating units and shown as extraordinary
expenses under German GAAP.
14. RELATED PARTY TRANSACTIONS
Prior to April 1, 1998, revenue was generated under the name of SNI, who
acted as the general contractor with external customers. Revenue related to the
data management and archive system business was allocated to the unincorporated
division based on SNI's revenue and cost center information system.
15. RECONCILIATION TO US GAAP
RECONCILIATION OF NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1998 1997
----- ------
<S> <C> <C>
Net assets in accordance with German GAAP................... 2,427 (2,170)
Pension liability......................................... (755) (873)
Warranty accrual.......................................... 290 241
----- ------
Net assets in accordance with US GAAP....................... 1,962 (2,802)
===== ======
</TABLE>
RECONCILIATION OF NET LOSS
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------
1998 1997
------ -------
<S> <C> <C>
Net loss in accordance with German GAAP................... (4,601) (12,688)
Pension liability....................................... 118 (77)
Warranty accrual........................................ 49 7
------ -------
Net loss in accordance with US GAAP....................... (4,434) (12,758)
====== =======
</TABLE>
F-33
<PAGE> 209
Pension accrual
Under German GAAP, pension costs and similar obligations are accounted for
in accordance with sec. 6a of the German Income Tax Code.
Under US GAAP, pension costs and similar obligations are accounted for in
accordance with SFAS No. 87, "Employers Accounting for Pensions". SFAS 87
requires actuarial computation of the pension costs for defined benefit plans
using the Projected Unit Credit Method and includes current service cost,
interest cost, return on plan assets and amortization of actuarial gains/losses
and prior service cost.
Warranty Accrual
According to German GAAP, a provision should be recognized only when the
enterprise has a present obligation to transfer economic benefits as a result of
past events, it is possible ('more likely than not') that such a transfer will
be required to settle the obligation and a reliable estimate of the amount of
the obligation can be made. The amount recognized should be the best estimate of
the expenditure required to settle the present obligation at the balance sheet
date.
Under U.S. GAAP, a provision is recognized only when it is probable (likely
to occur) that a loss will occur and the amount of loss can be estimated
reasonably. If a loss contingency is classified as probable and only a range of
possible loss can be established, then the minimum amount in the range is
accrued. Under German GAAP, the Company reports an accrual of DM 790 on
September 30, 1998 (DM 938 on September 30, 1997) for expected warranty costs,
based on experience. Under U.S. GAAP this accrual would be DM 500 (DM 697).
INCOME STATEMENT PRESENTATION UNDER US GAAP
The extraordinary losses reported under German GAAP would be classified as
an expense charged to income from ordinary business activities under US GAAP.
RECENT US GAAP ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The provisions
of the statement require the recognition of all derivatives as either assets or
liabilities in the financial statements and the measurement of those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This statement is effective for fiscal years beginning after June 15, 1999. The
Company is currently not separately engaged in any derivatives or hedging
activities.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which provides guidance
concerning recognition and measurement of costs associated with developing or
acquiring software for internal use. In 1998, the AICPA also issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities", which provides
guidance concerning the costs of start-up activities. For accounting purposes,
start-up activities are defined as one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory or with a new class of customer, initiating a new process in an
existing facility, or commencing some new operation. Both pronouncements are
effective for financial statements of years beginning after December 15, 1998,
with earlier application encouraged. Management does not believe that adoption
of these pronouncements will have a material impact on the financial statements
of the Company.
F-34
<PAGE> 210
AUDITORS REPORT
We have audited the financial statements of INSIDERS Information Management
GmbH (INSIDERS) at December 31, 1999 which consist of the income statement,
balance sheet and the notes to the INSIDERS financial statements. Responsible
for the preparation of INSIDERS financial statements is the company's Managing
Board. Our responsibility is to express an opinion -- on the basis of the audit
performed by -- us as to whether or not the financial statements comply with
German Accounting Standards.
We performed our audit in accordance with US -- Generally Accepted Auditing
Standards (US-GAAS). According to this standards the audit is to be planned and
carried out in such a way that the auditor is able to express an adequately
assured opinion as to whether or not the financial statements are free of
material false information. The audit of the INSIDERS financial statements
includes an examination, supported by sample-checks, of the evidence of the
amounts shown in the financial statements and of the information included in the
financial statements and in the notes to the financial statements of INSIDERS.
It includes also an examination of the accounting and valuation methods applied,
and the important estimates made by the Managing Board, as well as an evaluation
of the overall situation is presented in the financial statements. In our
opinion our audit represents an adequately assured basis for our audit opinion.
We are convinced that the INSIDERS financial statements present -- in all
material respects -- a true and fair view of INSIDERS financial position at
December 31, 1999 and its earnings during the period from June 16, 1999 to
December 31, 1999 and that their financial statements at December 31, 1999 are
in accordance with German Accounting Standards.
Siegen, November 17, 2000.
PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C>
Jurgen Naskrent Jorg Mulller
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
F-35
<PAGE> 211
INSIDERS INFORMATION MANAGEMENT GMBH
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------ JUNE 16, 1999
DM DM DM
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
A. Fixed Assets
I. Intangible Assets
Software, Licenses............... 348,770.00 0.00
II. Tangible Assets
Factory and office equipment..... 556,279.00 0.00
III. Financial Assets
Participations................... 1.00 0.00
------------- -------------
905,050.00 0.00
============= =============
B. Current Assets
I. Receivables and other assets
1. Trade receivables.......... 364,932.08 0.00
2. Other assets............... 41,145.88 0.00
------------- -------------
406,077.96 0.00
II. Cash in hand, bank balances...... 2,722,730.76 48,895.75
------------- -------------
3,128,808.72 48,895.75
============= =============
C. Prepaid and deferred items.............. 52,826.73 0.00
------------- -------------
4,086,685.45 48,895.75
============= =============
EQUITY AND LIABILITIES
A. Shareholders' Equity
I. Capital subscribed............... 391,166.00 48,895.75
II. Capital reserve.................. 4,427,627.19 0.00
III. Profit brought forward........... (1,816,055.58) 0.00
-------------
3,002,737.61 48,895.75
=============
B. Provisions and accrued liabilities
Other accruals......................... 236,205.00 0.00
-------------
C. Liabilities
1. Advance payments from
customers............................ 360,706.00 0.00
2. Trade payables................... 325,792.56 0.00
3. Other liabilities
-- of which taxes DM 82,054.81
--............................ 161,244.28 0.00
------------- -------------
-- of which relating to social
security...................... 847,742.84 0.00
-------------
DM 61,376.64 --
------------- -------------
4,086,685.45 48,895.75
============= =============
</TABLE>
F-36
<PAGE> 212
INSIDERS INFORMATION MANAGEMENT GMBH
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
JUNE 16, 1999 -- DECEMBER 31, 1999
----------------------------------
DM DM
--------------- ---------------
<S> <C> <C>
1. Sales.................................................. 616,397.63
2. Other operating income................................. 19,827.69
3. Personnel expenses
a) Wages and salaries................................. 1,381,352.32
b) Social security.................................... 217,131.82
-------------
1,598,484.14
4. Depreciation........................................... 174,238.12
5. Other operating expenses............................... 714,466.53
6. Interest and similar income............................ 35,011.10
7. Interest and similar expenses.......................... 23.99
-------------
8. Result from ordinary activities........................ (1,815,976.36)
9. Other taxes............................................ 79.22
-------------
Net income for the group............................... (1,816,055.58)
=============
</TABLE>
F-37
<PAGE> 213
NOTES ON GROUP FINANCIAL STATEMENTS 1999
A. ACCOUNTING AND VALUATION PRINCIPLES
The Group Financial Statements for INSIDERS Information Management GmbH,
Kaiserslautern, were prepared in compliance with the principles of the current
accounting regulations concerning limited corporations. The following principles
and methods are used:
Acquired intangible assets are capitalised at cost, decreased by straight
line depreciation based on an anticipated service life of three years. Tangible
assets are capitalised with production prices plus appropriate overheads minus
cash discounts, decreased by scheduled depreciation. Scheduled depreciation was
calculated according to the linear method and the anticipated service life of
the assets.
Movable property to a maximum value of DM 800 within fixed assets was
written off completely in the year of purchase, because due to the subsidy
guideline of the state of Rhineland-Palatinate, the corporation is given a
subsidy for activated movable property.
Depreciation in the year of acquisition is calculated on a monthly basis.
Financial assets are capitalised at purchase cost.
Receivables and other assets are valued at face value, cash in hand and
bank balances are valued at stated value.
Provisions are made due to reasonable commercial assessment; liabilities
are recorded at the repayment amount.
Prepaid and deferred items are recorded at the amount of the expenditures
paid before December 31, 1999 which constitute costs for a certain time
thereafter.
B. EXPLANATION TO THE BALANCE SHEET
All receivables and liabilities are due within one year.
Trade payables of TDM 365 mainly concern SAP AG, Walldorf, (TDM 174) and
Docutec corporation for intelligent document management (TDM 135). Because of
the general credit risk,
a valuation allowance of 2% was made.
Other assets mainly concern interest for fixed-term deposit accounts (TDM
22) and VAT which is deductible in the following year (TDM 13).
Liquid funds are cash in bank and cash on hand of DM 445.43.
The capitalized prepaid and deferred assets (TDM 53) mainly result of
prepaid expenditures for fairs and leasing.
The subscribed capital on December 31, 1999 is TDM 391 (T 200) and is fully
paid.
Other accruals mainly concern obligations from bonuses (TDM 73), vacations
which have not been taken yet (TDM 67) and overtime (TDM 23).
The liabilities consist of:
<TABLE>
<CAPTION>
DM
----------
<S> <C>
Received deposits........................................... 360,706.00
(from related parties)...................................... (68,450.00)
Trade payables.............................................. 325,792.56
Other liabilities........................................... 161,244.28
----------
847,742.84
==========
</TABLE>
F-38
<PAGE> 214
C. EXPLANATION TO THE INCOME STATEMENT
The sales mainly concern income from service. Other operating income mainly
consists of reimbursement for common exhibitions paid by third parties.
The personnel expenses in the year under report consist of:
<TABLE>
<CAPTION>
DM
------------
<S> <C>
Wages and salaries.......................................... 1,381,352.32
Social security............................................. 217,131.82
------------
1,598,484.14
============
</TABLE>
Other operating expenses (TDM 714) mainly include expenses for external
service, marketing and maintenance costs for the offices as well as costs for
legal advice, consulting, travel, and car park.
Other interest and similar income consist of interest for fixed-term
deposits (TDM 22) and interest for other bank credits (TDM 13).
D. OTHER DETAILS
As of December 31, 1999 the company has long-term liabilities resulting
from renting and leasing contracts of TDM 844.
E. DETAILS OF GROUP EXECUTIVE BODY
BOARD OF MANAGEMENT IN 1999
Prof. Dr. Andreas Dengel, Kaiserslautern
Jurgen Werner WeiSS, Kaiserslautern
SUPERVISORY BOARD IN 1999
Rainer Irsinghaus, Chairman
Prof. Dr. Gerhard Barth,
Elke Mai,
Dr. Friedrich-Leopold Baron of Stechow,
Gabriele Quandt-Langenscheidt,
Dr. Klaus J. Weschenfelder
sec. 288 HGB is applied to the statement of the average employees employed
during the financial year from June 16, 1999 to December 31, 2000 as well as to
the total income paid for the Members of the Board of Management and the
Supervisory Board in 1999.
Kaiserslautern, May 4, 2000
Board of Management
<TABLE>
<S> <C>
Prof. Dr. Andreas Dengel Jurgen Werner WeiSS
</TABLE>
F-39
<PAGE> 215
INSIDERS INFORMATION MANAGEMENT GMBH
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------
DM DM
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
A. Fixed Assets
I. Intangible Assets
Software, Licenses.............................. 266,586.62
II. Tangible Assets
Factory and office equipment.................... 549,784.06
III. Financial Assets
Participations.................................. 1.00
-------------
816,371.68
=============
B. Current Assets
I. Receivables and other assets
1. Trade receivables......................... 822,018.26
2. Other assets.............................. 117,448.53
-------------
939,466.79
II. Cash in hand, bank balances..................... 1,391,737.01
-------------
2,331,203.80
=============
C. Prepaid and deferred items............................. 27,754.88
-------------
3,175,330.36
=============
EQUITY AND LIABILITIES
A. Shareholders' Equity
I. Capital subscribed.............................. 391,166.00
II. Capital reserve................................. 4,427,627.19
III. Profit brought forward.......................... (1,816,055.58)
IV. Annual result.................................... (351,024.15)
2,651,713.46
B. Long-term liabilities.................................. 28,952.00
C. Provisions and accrued liabilities
Other accruals........................................ 108,770.00
D. Liabilities
1. Advance payments from customers................. --
2. Trade payables.................................. 19,368.00
3. Other liabilities............................... 366,526.90
-------------
385,894.90
-------------
3,175,330.36
=============
</TABLE>
F-40
<PAGE> 216
INSIDERS INFORMATION MANAGEMENT GMBH
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
JANUARY 1, 2000 -- JUNE 30, 2000
--------------------------------
DM DM
-------------- --------------
(UNAUDITED)
<S> <C> <C>
1. Sales.................................................. 2,250,602.33
2. Other operating income................................. 30,785.05
3. Personnel expenses
a) Wages and salaries................................. 1,681,869.66
b) Social security.................................... 272,306.21
------------
1,954,175.87
4. Depreciation........................................... 212,886.54
5. Other operating expenses............................... 507,571.13
6. Interest and similar income............................ 42,719.17
7. Interest and similar expenses.......................... 171.38
------------
8. Result from ordinary activities........................ (350,698.37)
9. Other taxes............................................ 325.78
------------
Net income for the group............................... (351,024.15)
============
</TABLE>
F-41
<PAGE> 217
NOTES ON GROUP INTERIM FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position and results of operations as of June 30, 2000. These consolidated
financial statements are unaudited and should be read in conjunction with the
Company's audited financial statements and related notes. The results of
operations for the six months ended June 30, 2000 are not necessarily indicative
of results that may be expected for any other interim period or for the full
fiscal year.
B. REVENUE
During the six months ended June 30, 2000, the Company for the first time
recognized revenue related to the sale of software licenses. Revenue on software
sales is recognized when delivery is complete, there are no further obligations
and collectibility is reasonably assured.
F-42
<PAGE> 218
INDEX TO TREEV FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-44
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-45
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-46
Consolidated Statement of Changes in Stockholders' Equity
for the years
ended December 31, 1999, 1998 and 1997.................... F-47
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-48
Notes to Consolidated Financial Statements.................. F-50
Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999......................................... F-68
Statements of Operations (unaudited) for the nine months
ended September 30, 2000 and 1999......................... F-69
Statement of Changes in Stockholders' Equity (unaudited) for
the nine months ended
September 30, 2000........................................ F-70
Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2000 and 1999......................... F-71
Notes to Financial Statements............................... F-72
</TABLE>
F-43
<PAGE> 219
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
TREEV, Inc.
We have audited the accompanying consolidated balance sheets of TREEV, Inc. as
of December 31, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also include the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TREEV, Inc. at
December 31, 1999 and 1998 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
McLean, Virginia
March 20, 2000
F-44
<PAGE> 220
TREEV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,886 $ 1,645
Accounts and notes receivable, net........................ 13,816 11,419
Inventories............................................... 1,135 911
Prepaid expenses and other................................ 1,111 490
--------- ---------
Total current assets.............................. 17,948 14,465
Fixed assets, net........................................... 1,237 1,578
Long-term notes receivable, net............................. 21 47
Software development costs, net............................. 3,627 2,978
Other assets................................................ 458 454
--------- ---------
Total assets...................................... $ 23,291 $ 19,522
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital
leases................................................. $ 7,572 $ 342
Accounts payable.......................................... 2,374 2,327
Accrued compensation and expenses......................... 1,160 1,448
Deferred revenue.......................................... 3,143 5,887
Other accrued expenses.................................... 1,497 1,945
--------- ---------
Total current liabilities......................... 15,746 11,949
Long-term debt and obligations under capital leases......... 120 43
--------- ---------
Total liabilities................................. 15,866 11,992
Stockholders' equity:
Convertible preferred stock, $.0001 par value, 20,000,000
shares authorized; 1,610,025 shares issued and
outstanding at December 31, 1999
and 1998............................................... -- --
Common stock, $.0001 par value, 100,000,000 shares
authorized; 14,237,009 and 12,367,888 shares issued and
outstanding at December 31, 1999 and 1998.............. 1 1
Additional paid-in-capital................................ 141,841 139,310
Accumulated deficit....................................... (134,417) (131,781)
--------- ---------
Total stockholders' equity........................ 7,425 7,530
--------- ---------
Total liabilities and stockholders' equity........ $ 23,291 $ 19,522
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 221
TREEV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Products............................................ $ 17,982 $ 16,813 $ 18,310
Services............................................ 13,227 11,389 17,496
----------- ---------- ----------
31,209 28,202 35,806
----------- ---------- ----------
Costs and expenses:
Cost of products sold............................... 6,887 6,894 8,383
Cost of services provided........................... 8,300 7,724 13,625
Product development................................. 4,110 3,788 4,428
Selling, general and administrative................. 14,202 15,579 20,263
Restructuring costs and other....................... -- 1,505 160
----------- ---------- ----------
33,499 35,490 46,859
----------- ---------- ----------
Loss before interest expense and income taxes......... (2,290) (7,288) (11,053)
Interest expense.................................... (346) (56) (286)
----------- ---------- ----------
Net loss.............................................. (2,636) (7,344) (11,339)
----------- ---------- ----------
Preferred stock dividends
Accrued dividends................................... (1,348) (1,348) (1,435)
Imputed dividends................................... -- -- (1,536)
----------- ---------- ----------
Net loss applicable to common shares.................. $ (3,984) $ (8,692) $ (14,310)
=========== ========== ==========
Net loss per common share............................. $ (0.30) $ (1.12) $ (2.27)
=========== ========== ==========
Weighted average shares outstanding................... 13,115,228 7,768,329 6,301,464
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 222
TREEV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ----------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMT. SHARES AMT. CAPITAL DEFICIT ADJUSTMENT TOTAL
---------- ---- ---------- ---- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996............... 1,605,675 $ -- 5,724,153 $ 1 $124,431 $(113,098) $ 384 $ 11,718
Issuance of common stock upon exercise
of warrants........................... 5,833 -- 23 23
Conversion of preferred stock........... (650) -- 755,028 -- --
Conversion of convertible notes......... 30,310 -- 98 98
Conversion of line of credit............ 4,000 -- 4,000 4,000
Issuance of preferred stock, net of
offering costs of $2,379.............. 6,550 -- 4,684 4,684
Accretion of series K&L preferred
stock................................. 1,536 1,536
Issuance of common stock................ 43,723 -- 174 174
Issuance of warrants.................... 430 430
Dividends on preferred stock............ (1,435) (1,435)
Imputed dividends on preferred stock.... (1,536) (1,536)
Translation adjustment.................. (384) (384)
Net loss................................ (11,339) (11,339)
--------
Total Comprehensive Income.............. (11,723)
---------- ---- ---------- ---- -------- --------- ----- --------
BALANCE DECEMBER 31, 1997............... 1,615,575 -- 6,559,047 1 132,405 (124,437) -- 7,969
Issuance of common stock, net of
offering costs of $245................ 1,334,625 -- 4,319 4,319
Issuance of preferred stock, net of
offering costs of $763................ 1,559,576 -- 9,667 9,667
Conversion of line of credit............ 1,000 -- 1,000 1,000
Conversion of preferred stock........... (1,560,876) -- 4,388,620 -- --
Redemption of preferred stock........... (5,250) -- (7,085) (7,085)
Issuance of warrants.................... 15 15
Dividends on preferred stock............ (1,348) (1,348)
Issuance of common stock in payment of
dividends............................. 85,596 -- 337 337
Net loss................................ (7,344) (7,344)
---------- ---- ---------- ---- -------- --------- ----- --------
BALANCE DECEMBER 31, 1998............... 1,610,025 -- 12,367,888 1 139,310 (131,781) -- 7,530
Issuance of common stock, net of
offering costs of $71................. 604,128 -- 1,041 1,041
Issuance of warrants.................... 72 72
Dividends on preferred stock............ (1,348) (1,348)
Issuance of common stock in payment of
dividends............................. 222,116 -- 674 674
Conversion of convertible notes......... 1,042,877 -- 2,092 2,092
Net loss................................ (2,636) (2,636)
---------- ---- ---------- ---- -------- --------- ----- --------
BALANCE DECEMBER 31, 1999............... 1,610,025 $ -- 14,237,009 $ 1 $141,841 $(134,417) $ -- $ 7,425
========== ==== ========== ==== ======== ========= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 223
TREEV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (2,636) $(7,344) $(11,339)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 2,314 2,307 4,464
Restructuring costs.................................... -- 827 --
Other gains and losses, net............................ (5) 33 160
Other non-cash interest fees........................... 405 -- --
Changes in assets and liabilities:
Accounts and notes receivable........................ (2,711) (2,884) (3,604)
Inventories.......................................... (224) (189) 4
Prepaid expenses and other........................... (579) 199 453
Accounts payable..................................... 48 291 1,626
Accrued expenses..................................... (780) (316) 1,232
Deferred revenue..................................... (2,744) 2,553 462
-------- ------- --------
Net cash used in operating activities....................... (6,912) (4,523) (6,542)
-------- ------- --------
Cash flows from investing activities:
Software development costs and purchased technology....... (1,762) (1,587) (1,454)
Purchases of fixed assets................................. (380) (712) (888)
Cash received from business divestitures and related
costs.................................................. 340 7,328 46
-------- ------- --------
Net cash provided by (used in) investing activities......... (2,002) 5,029 (2,296)
-------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............... 1,041 4,319 267
Proceeds from issuance of preferred stock, net............ -- 9,667 4,684
Proceeds from issuance of warrants, net................... -- -- 205
Cash dividends paid on preferred stock.................... (674) (674) (1,779)
Proceeds from borrowings.................................. -- -- 6,861
Redemption of Redeemable Series F preferred stock......... (6,548) (3,500)
Redemption of convertible preferred stock................. -- (7,085) --
Proceeds from issuance of convertible notes............... 1,997 -- --
Redemption of convertible notes........................... (200) (1,700) --
Proceeds from issuance of subordinated notes.............. 3,000 -- --
Borrowings of line of credit.............................. 23,453 -- --
Repayments of line of credit.............................. (19,340) -- --
Principal payments on capital lease obligations and
debt................................................... (122) (656) (1,547)
-------- ------- --------
Net cash provided by (used in) financing activities......... 9,155 (2,677) 5,191
-------- ------- --------
</TABLE>
F-48
<PAGE> 224
<TABLE>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Effect of exchange rate changes on cash and cash
equivalents............................................... -- -- (138)
Net increase (decrease) in cash and cash equivalents........ 241 (2,171) (3,785)
Cash and cash equivalents at beginning of year.............. 1,645 3,816 7,601
-------- ------- --------
Cash and cash equivalents at end of year.................... $ 1,886 $ 1,645 $ 3,816
======== ======= ========
Supplemental Cash Flow Information:
Interest paid............................................. $ 277 $ 207 $ 629
======== ======= ========
Non-cash financing activities:
Conversion of line of credit to preferred stock........... $ -- $ 1,000 $ 4,000
Accretion of series K & L preferred stock................. $ -- $ -- $ 1,536
Issuance of common stock.................................. $ -- $ -- $ 27
Issuance of warrants...................................... $ -- $ -- $ 225
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 225
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
TREEV, Inc. ("TREEV" or the "Company") is a developer and marketer of
document management software. Its flagship product line, the TREEV suite of
software products, allows organizations to electronically capture, manage,
store, and distribute large volumes of information. This information includes
computer reports, engineering drawings, scanned images, office documents,
photos, voice files and video clips.
The adverse results of operations that the Company has experienced have
been declining, and the Company's operating results were profitable during the
last two quarters of 1999. Although the Company expects the trend of improved
operating results to continue, there can be no assurances that the Company will
not experience adverse results of operations in the future. The Company believes
that its existing cash, anticipated cash flows from 2000 operations, and cash
availability under its line of credit should provide sufficient resources to
fund its activities in 2000. Anticipated cash flows from 2000 operations are
largely dependent upon the Company's ability to achieve its sales and gross
profit objectives for its TREEV suite of products. Achievement of these
objectives is subject to various risk factors related to, among other things:
the need to use a two-step distribution channel involving system integrators;
the long lead times in the sales cycle; the large dollar size of the average
unit sale requiring high level customer authorizations; the large number of
established and potential competitors in the marketplace; the fast pace of
technology evolution related to the product suite; the newness of the Company's
sales and marketing staff; and the evolving nature of the Company's sales and
marketing strategies. The Company nevertheless believes that its sales and gross
profit objectives are achievable in light of the successful installation of
TREEV and enterprise report management products in several major contracts
during 1999, the repositioning of its product lines, additions to the executive
sales management, and the refocusing of sales and marketing resources. If the
Company is unable to meet these objectives, it will consider alternative sources
of liquidity, such as public or private offerings of debt or equity securities;
the curtailment of certain capital expenditures and discretionary expenditures
(such as travel, marketing, consulting and salaries); and other various courses
of action.
F-50
<PAGE> 226
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation --
The consolidated financial statements for fiscal year 1997 include the
accounts of TREEV, Inc. and its subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Cash equivalents and short-term investments --
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Revenue recognition --
Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2), was
issued in October 1997 and was amended by Statement of Position 98-4 (SOP 98-4).
The Company adopted SOP 97-2 in 1998. The Company's revenue recognition policies
and practices for software license fees are consistent with SOP 97-2 and SOP
98-4. Additionally, in December 1998, the AICPA released SOP 98-9, "Modification
of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions".
SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue for
multiple element arrangements by means of the "residual method" when (1) there
is vendor-specific objective evidence of the fair values of all the undelivered
elements that are not accounted for by means of long-term contract accounting
(2) vendor-specific objective evidence of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of SOP
97-2 (other than the requirement for vendor-specific objective evidence of the
fair value of each delivered element) are satisfied. This pronouncement amends
SOP 97-2 and is effective for transactions entered into beginning January 1,
2000.
TREEV accounts for product revenues from the sale of software licenses and
hardware pursuant to AICPA Statements of Position 97-2 "Software Revenue
Recognition". Accordingly, revenues are recognized when license agreements are
fully executed, the product has been shipped, the fees are fixed and
determinable, collectibility is probable and objective evidence exists (i.e.
third party agreements or similar evidence specific to TREEV) to allocate the
total fee to elements of the arrangement(s). If TREEV has ongoing obligations
under the arrangement(s), revenue is deferred based on objective evidence of the
undelivered element. Revenue is allocated to the undelivered elements based on
each element's vendor specific objective evidence. Any applicable discounts are
fully applied to the delivered elements in accordance with SOP 97-2 as amended
by SOP 98-9. If objective evidence does not exist for all undelivered elements,
all revenue is deferred until sufficient evidence exists or all elements have
been delivered. Payments received in advance of revenue recognition are
recognized as deferred revenue. TREEV's software license agreements do not (i)
entitle the buyer to any right of return or exchange, or (ii) grant the customer
any right to product upgrades or enhancements.
TREEV determines its specific objective evidence of the fair value of its
products and services based on actual amounts charged to third party customers
for the specific elements when such elements are sold separately. These amounts
are based on separately established prices for the individual elements in
TREEV's internally published price lists. The internally published price list is
the basis for the computation of maintenance fees (i.e., a specific percentage
of list price which does not vary from customer to customer). In addition,
TREEV's GSA schedule represents consistent relative pricing, on a discounted
basis, to its internally published price lists and sales to federal, state, and
local government entities are at the GSA schedule price by product or service.
TREEV generally grants discounts for volume purchases, returning customers, and
market competition on a case by case basis. These discounts are applied to
software products delivered, on a pro rata basis as compared to the internally
published list prices. Discounts are generally denoted, in the aggregate, in the
written arrangement. TREEV does not generally discount services, maintenance, or
hardware elements of its arrangements. In addition, all service
F-51
<PAGE> 227
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
elements in customer contracts (such as training, conversion or installation
services) are separately priced in the written contract, not bundled with any
products and based on separately established billing rates. In the event that a
customer would enter into separate contracts for individual elements within a
reasonable period of time those contracts would be combined and treated as a
single multi-element contract arrangement. The billing rates are used by TREEV's
professional services group when providing such services independent of software
or product sales as well as being published on TREEV's GSA schedule. TREEV's
vendor specific objective evidence generally does not vary from customer to
customer within given classes of customers (i.e. end users vs. business alliance
program customers).
Software licenses sold to resellers, including value added resellers,
original equipment manufacturers and system integrators are recognized as
revenue in a manner consistent with end-user sales. The original payment terms
are generally 180 days from the date of sale. As such, reseller revenues are
recognized in the period when persuasive evidence of an arrangement exists,
delivery has occurred and title has transferred, the fee is fixed and
determinable and collectibility is probable without regard to the resellers
subsequent transaction with end users. Sales of software licenses to resellers
do not provide for any rights of return, price protection or upgrade rights and
are sold without services or post-contract customer support. Finally, payments
of obligations under the reseller agreements are not predicated upon resellers'
ultimate sale of such licenses to end-users. During 1999 the Company was unable
to adequately determine that fees associated with ten new resellers were fixed
and determinable at the time of delivery. For these ten new resellers the
Company will recognize revenue, as the payments become due, unless collection is
not probable. If collection is not probable at the due date, the revenue
associated with these ten new resellers will be deferred until such time as cash
is collected from the customer. As of December 31, 1999 the Company deferred
approximately $1 million revenue for these ten new resellers as questions arose
as to whether the fee was fixed and determinable at the delivery date. Discounts
are provided to these resellers based on volume purchases. These discounts are
consistent based on volume sales to these resellers and, therefore, have no
impact on TREEV's determination of vendor-specific objective evidence.
Maintenance and service agreements are marketed under separate annual
agreements that are not combined with other products sold by TREEV. Software
maintenance revenue is recognized ratably over the contract period, generally,
one year.
In addition to product revenues generated from sales of software licenses
and hardware, TREEV provides a variety of services to its customers ranging from
basic installation and conversion services to complex custom programming
services. Basic service contracts are generally negotiated and signed when the
software license and maintenance contracts are signed. Basic service contracts
are generally routine in the delivery and installation process of TREEV'S
software products and generally do not have customer acceptance clauses.
Additionally, the basic services do not represent significant customization or
modification of the software and are therefore not essential to the
functionality of the software. Generally, services revenue from basic training,
installation or consulting services is recognized as the services are performed
on a time and materials basis, subject to contractually agreed upon maximum fees
and there are no significant remaining TREEV obligations. In limited
circumstances where basic services are subject to fixed price contracts,
revenues are recognized ratably as the services are performed based on the ratio
of labor hours to total estimated labor hours.
Complex service contracts, such as custom programming, generally contain
customer acceptance clauses or contractual milestones, which must be achieved
before the customer can be billed. Historically, complex services have been
contracted for and sold substantially after the sale and use of the related
software. The Company's software is fully functional at the time of delivery as
specified in the initial sales agreement and does not require any complex
services to be performed. The customer acceptance clauses generally require
TREEV solutions to meet specific, measurable, objective performance criteria and
are generally readily determinable based on contractual terms. TREEV has not
historically experienced any
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<PAGE> 228
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
significant level of dispute with its customers regarding its completion of
customer acceptance or contractual milestones. As of December 31, 1999 and 1998,
the unbilled receivable balance related to these complex service contracts was
determined to be immaterial to the financial statements.
Inventories --
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market and are comprised of finished goods.
Fixed assets --
Fixed assets are stated at cost, net of accumulated depreciation.
Depreciation is computed using straight-line and accelerated methods over the
life of the related asset, generally three years. Leasehold improvements are
amortized over the shorter of the estimated useful life of the improvements or
the terms of the related lease.
Software development costs and purchased technology --
The Company capitalizes certain software development and enhancement costs
in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed" ("SFAS 86"). Amortization of software development costs is provided on
an individual product basis over the estimated useful life of the products,
which is principally three years, beginning when the related products are
available for general release. Costs for research and development incurred prior
to establishing technological feasibility of software products, or after their
commercial release, are expensed in the period incurred. The Company
periodically assesses capitalized software amounts and, when less than
anticipated net realizable value, charges any such excess to expense.
Goodwill --
The excess of the purchase price over the fair value of the net
identifiable tangible and intangible assets of businesses acquired is being
amortized on a straight-line basis over seven years. Amortization expense in
1999, 1998 and 1997 was $166,000, $166,000 and $743,000, respectively.
Accumulated amortization as of December 31, 1999 and 1998 was $1,004,000 and
$837,000, respectively. The Company routinely evaluates recoverability of
goodwill by comparing future undiscounted cash flows to the recorded carrying
value to determine if a write-down is required. If a write-down were required,
the Company would prepare a discounted cash flow analysis to determine the
amount of the write-down.
Concentration of Credit Risk --
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consists primarily of its cash equivalents, trade
accounts and notes receivable. The Company periodically performs credit
evaluations of customer's financial condition and generally requires no
collateral.
Fair Value of Financial Instruments --
The carrying value of the Company's financial instruments, including cash
equivalents, accounts and notes receivable, accounts payable and debt,
approximate fair value.
Product warranty --
Warranties for hardware sold by the Company are generally provided by the
manufacturer. The Company provides warranties and service contracts for certain
products and accrues related expenses based on actual claims history.
F-53
<PAGE> 229
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income taxes --
The Company's income taxes are presented in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under SFAS 109, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Foreign currency translation --
The functional currency of the Company's foreign operation was the
applicable local currency. Consequently, for the operation outside the United
States, assets and liabilities were translated into United States dollars using
exchange rates in effect at the balance sheet date and revenues and expenses
using the average exchange rate during the period. The gains and losses
resulting from such translations are included as a component of stockholders'
equity. Since the Company's French subsidiary operated only within France,
exposure to foreign exchange risk was limited (See Note 5).
Net loss per common share --
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform to the SFAS 128
requirements (See Note 12).
Stock Based Compensation --
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), which allows companies which have stock-based compensation arrangements
with employees to adopt a new fair-value basis of accounting for stock options
and other equity instruments, or to continue to apply the existing accounting
rules under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") but with additional disclosure. The Company has
adopted the disclosure provisions of SFAS 123 and accordingly the disclosure had
no effect on the Company's financial position or results of operations (See Note
8).
Comprehensive Income --
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting the components of comprehensive income and requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be included in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income includes
net income as well as certain items that are reported directly within a separate
component of stockholders' equity and bypass net income.
Segment Reporting --
The Company has adopted Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), in fiscal year 1998 (See Note 13).
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<PAGE> 230
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS 131 changes the way companies report segment information and requires
segments to be determined based on how management measures performance and makes
decisions about allocating resources.
Use of estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 -- RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Trade accounts receivable.............................. $ 13,892 $ 11,638
Notes receivable....................................... 563 902
Other receivables...................................... 594 102
-------- --------
15,049 12,642
Allowance for uncollectible accounts receivable........ (1,212) (1,176)
-------- --------
13,837 11,466
Less current receivables, net.......................... (13,816) (11,419)
-------- --------
Long term receivables, net............................. $ 21 $ 47
======== ========
</TABLE>
The Company's notes receivable balance of $563,000 at December 31, 1999,
included a $50,000 balance on a note resulting from the divestiture of
previously owned operating unit made during 1996 and $513,000 of notes
receivable from former stockholders of a subsidiary acquired in 1994 (See Note
16).
NOTE 3 -- FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Computer and office equipment............................ $ 3,273 $ 3,685
Furniture and leasehold improvements..................... 757 631
Furniture, fixtures and equipment under capital leases... 3,098 3,429
------- -------
7,128 7,745
Less: Accumulated depreciation........................... (5,891) (6,167)
------- -------
$ 1,237 $ 1,578
======= =======
</TABLE>
Depreciation and amortization expense related to fixed assets in 1999, 1998
and 1997 totaled $1.0 million, $1.4 million and $1.8 million, respectively.
Included in these amounts are $243,000, $530,000 and $489,000 of amortization
expense related to capital leases during 1999, 1998 and 1997, respectively.
F-55
<PAGE> 231
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Capitalized software development costs................... $ 6,781 $ 5,020
Less: Accumulated amortization........................... (3,154) (2,042)
------- -------
$ 3,627 $ 2,978
======= =======
</TABLE>
During 1999, 1998 and 1997, amortization of capitalized software
development costs totaled $1.1 million, $0.7 million and $1.6 million,
respectively, and was included in cost of products sold (See Note 10).
NOTE 5 -- DIVESTITURES OF BUSINESSES
During the fourth quarter of 1997, the Company sold the stock of Dorotech,
SA. ("Dorotech") a wholly owned subsidiary of the Company, in a transaction that
resulted in a $266,000 gain. The Company received as consideration a promissory
note totaling $7.0 million, which was paid to the Company during January 1998.
NOTE 6 -- OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Accrued preferred dividends................................ $ 337 $ 337
Accrued income, sales and other taxes...................... 350 253
Other...................................................... 810 1,355
------ ------
$1,497 $1,945
====== ======
</TABLE>
NOTE 7 -- BORROWING ARRANGEMENTS
Borrowings consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------- -----
<S> <C> <C>
Line of credit............................................ $ 4,450 $ --
Subordinated Promissory Notes bearing interest from 13.5%
to 14%.................................................. 3,073 --
Convertible Debentures bearing interest at 8%............. -- 200
Capital lease obligations bearing interest from 9.8% to
14%..................................................... 169 185
------- -----
7,692 385
Less current debt and capital lease obligations........... (7,572) (342)
------- -----
Long term debt and capital lease obligations.............. $ 120 $ 43
======= =====
</TABLE>
During the first quarter of 1999, the Company secured a $5 million
revolving line of credit from a commercial bank. The Company can draw up to $5
million on the line of credit for working capital needs based on 80% of its
eligible receivables. The line of credit bears interest at a rate equal to prime
plus 2%. The current interest rate at December 31, 1999, was 10.25%. The
agreement shall remain in effect until
F-56
<PAGE> 232
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, and automatically renews for successive additional terms of one
year each. The line of credit is collateralized by all of the Company's accounts
receivable, inventory, equipment, general intangibles, and other personal
property assets. At December 31, 1999, the Company had $4,450,000 outstanding
under the line of credit.
During the second, third and fourth quarters of 1999, the Company issued
Subordinated Promissory Notes (the "Promissory Notes") due June 1, 2000,
totaling $3 million and bearing interest from 13.5% to 14%. The Promissory Notes
are subordinated to the Company's revolving line of credit and are
collateralized by all of the Company's accounts receivable, inventory,
equipment, general intangibles, and other personal property assets. Interest
payments are due monthly and the Promissory Notes may be prepaid at any time
without premium or penalty. CE Computer Equipment AG is the lender of $2 million
of the Promissory Notes, which bear interest at 13.5%.
During July and August 1997, the Company issued, pursuant to a private
placement exemption under the Securities Act of 1933, as amended, 8% Convertible
Notes (the "Notes") due July 8, 2002 and August 20, 2002 totaling $2.0 million.
During December 1997, $100,000 of Notes was converted into 121,241 shares of
Common Stock. During 1998, $1.7 million of the Notes were redeemed in cash.
During the first quarter of 1999, the Company redeemed in cash the remaining
$200,000 balance of the Notes.
The Company leases certain of its furniture and equipment under capital
lease arrangements. Future minimum lease payments under these capital leases
are: 2000, $67,000; 2001, $52,000; 2002, $42,000; and 2003, $54,000. Of the
$215,000 total lease payments, $46,000 represents interest.
NOTE 8 -- STOCKHOLDERS' EQUITY
Common Stock --
During December 1998, the Company's stockholders approved a one-for-four
reverse stock split of the Company's outstanding Common Stock. All Common Stock
and per share data have been restated to reflect the reverse stock split.
During the first quarter of 1998, the Company completed a private placement
of 277,237 shares of Common Stock, together with warrants to purchase 12,500
shares of Common Stock, pursuant to Regulation D under the Securities Act of
1933. Proceeds from the offering were $1,075,000 and offering costs were
$26,000. Pursuant to the terms of the private placement, the Company is
obligated to file a registration statement with the Securities and Exchange
Commission to register the shares when the Company files a registration
statement to register shares for any other stockholder.
During the second quarter of 1998, the Company completed a private
placement of 726,782 shares of Common Stock, pursuant to Regulation D under the
Securities Act of 1933. Proceeds from the offering were $2,453,000 and offering
costs were $150,000. Pursuant to the terms of the private placement, the Company
is obligated to file a registration statement with the Securities and Exchange
Commission to register the shares when the Company files a registration
statement to register shares for any other stockholder.
During the second quarter of 1998, the Company issued 85,596 shares of
Common Stock as a quarterly dividend to the shareholders of the Company's Series
A Cumulative Convertible Preferred Stock.
During the third quarter of 1998, the Company completed a private placement
of 250,000 shares of Common Stock pursuant to Regulation D under the Securities
Act of 1933. Proceeds from the offering were $750,000 and offering costs were
$60,000. Pursuant to the terms of the private placement, the Company is
obligated to file a registration statement with the Securities and Exchange
Commission to register the shares when the Company files a registration
statement to register shares for any other stockholder. During the third
quarter, the Company also completed a private placement of 50,000 shares of
F-57
<PAGE> 233
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock, pursuant to Regulation D under the Securities Act of 1933.
Proceeds from the offering were $200,000 and offering costs were $10,000.
Pursuant to the terms of the private placement, the Company agreed to file a
registration statement with the Securities and Exchange Commission to register
the shares when the Company files a registration statement to register shares
for any other stockholder.
During the first quarter of 1999, the Company completed a private placement
of 388,500 shares of Common Stock pursuant to Regulation D under the Securities
Act of 1933, as amended. Proceeds from the offering were $777,000 and offering
costs were approximately $70,000.
During the second quarter of 1999, the Company issued, pursuant to
Regulation D under the Securities Act of 1933, as amended, 8% Convertible Notes
(the "Convertible Notes") due October 1, 1999, totaling $2,000,000, together
with warrants to purchase 46,000 shares of Common Stock at an exercise price of
$2.00 per share. The Company estimated the fair value of the warrants to be
approximately $61,000 in the aggregate and recognized this additional borrowing
cost over the term of the Convertible Notes. After giving consideration to the
stated interest rate and the estimated fair value of the warrants at the
issuance date, the Company's effective interest rate related to the Convertible
Notes was approximately 14.9%. The Convertible Notes were convertible, at the
Company's election, into Common Stock at a conversion price of $2.00 per share.
On September 30, 1999, the Convertible Notes and related interest were converted
into 1,042,877 shares of Common Stock.
During the fourth quarter of 1999, the Company issued 222,116 shares of
Common Stock as quarterly dividends to the shareholders of the Company's Series
A Cumulative Convertible Preferred Stock.
Series A Preferred Stock --
The issuance of up to 1,750,000 shares of the Series A Cumulative
Convertible Preferred Stock (the "Series A Stock") has been authorized and
1,605,025 shares are outstanding. A majority of the outstanding shares of the
Series A Stock and the Common Stock voted to approve amendments to the terms of
the Series A Stock ("the Amendments"), which became effective December 31, 1997.
As of the date of the effectiveness of the Amendments, the stockholders of
the Series A Stock are entitled to receive an annual dividend of $0.84 per
share, payable quarterly in cash or Common Stock, at the Company's option, and
convert to Common Stock at a rate of 1.92 shares of Common Stock for each share
of Series A Stock. The date the Company releases its earnings for the applicable
quarter shall also be the record date for the dividend payment. If the dividend
is paid in Common Stock, the number of shares of Common Stock distributed as a
dividend will be based on the average closing price per share of Common Stock
during the 10 day period following the Company's release of earnings for the
applicable quarter. Dividend payments will be made 20 days after the release of
earnings.
Beginning January 1, 1999, the Company can convert each share of the Series
A Stock into shares of Common Stock if the closing price per share of Common
Stock is at least equal to $16.00 per share for 20 consecutive trading days.
Beginning January 1, 2000, the Company can convert each share of Series A Stock
into shares of Common Stock if the closing price per share of Common Stock is at
least equal to $12.00 per share for 20 consecutive trading days. Beginning
January 1, 2001, the Company will be able to convert each share of the Series A
Stock into shares of Common Stock at any time at the Company's option.
The Series A stockholders vote as a class to approve or disapprove any
issuance of any securities senior to or on parity with the Series A Stock with
respect to dividends or distributions. The Series A Stock has a liquidation
price of $12.00 per share. At December 31, 1999, the Series A Stock was
convertible into 3,081,648 shares of Common Stock.
F-58
<PAGE> 234
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series H and J Preferred Stock --
The 260 shares of Series H and 390 shares of Series J Convertible Preferred
Stock outstanding at December 31, 1996 were converted during 1997 into 358,912
and 396,115 shares of Common stock, respectively.
Series K and L Preferred Stock --
During 1998, 1,300 shares of the Series K Convertible Preferred Stock (the
"Series K Stock") outstanding at December 31, 1997 were converted into 489,681
shares of common stock. In addition, the Company redeemed in cash the remaining
2,000 shares outstanding of the Series K Stock and the 3,250 shares of Series L
Convertible Preferred Stock (the "Series L Stock") outstanding at December 31,
1997 for $7,085,000 including outstanding interest. Proceeds from the
$10,000,000 issuance of the Company's Series N Convertible Preferred Stock (the
"Series N Stock") were used, in part, to fund the redemption of the Series K
Stock and the Series L Stock.
Series M Preferred Stock --
In December 1997, the Company converted $4 million of the outstanding $5
million Line of Credit into 4,000 shares of Series M Convertible Preferred Stock
the (the "Series M Stock"). The Company received no proceeds from the conversion
of the Line of Credit to equity. The Series M Stock issued and outstanding in
December 2001 automatically converts into Common Stock. During January 2000, the
4,000 shares of Series M Stock were converted into 1,177,219 shares of Common
Stock (See Note 18).
The Series M Stock has a per share liquidation preference, subject to the
liquidation preference of the Series A Stock, of an amount equal to the sum of
$1,000 plus 8 1/2% per annum simple interest thereon for the period since the
date of issuance. Each share is convertible at the option of the holder into the
number of shares of Common Stock determined by dividing an amount equal to the
initial purchase price of $1,000 by $1.00. The Series M Stock has a cumulative
dividend rate of 8 1/2% per annum which is payable at the time of conversion or
redemption in cash or shares of Common Stock, at the election of the Company.
The Series M holder has a right of redemption under various circumstances,
all of which are under the sole control of the Company. The Company has the
right, at any time, to redeem all of the then outstanding Series M Stock for a
price per share equal to $1,000 plus the accrued unpaid dividend.
Series M1 Preferred Stock --
In June 1998, the Company converted the remaining $1.0 million of the Line
of Credit outstanding at December 31, 1997 into 1,000 shares of Series M1
Convertible Preferred Stock (the "Series M1 Stock"). The Company agreed, by
amendment to the securities purchase agreement for the Series M1 Stock, to file
a registration statement to register the Common Stock issuable upon conversion
of the preferred stock when the Company files a registration statement to
register shares for any other stockholder. The Company received no proceeds from
the conversion of the Stockholder line of credit to equity. The Series M1 Stock
issued and outstanding in December 2001 automatically converts into Common
Stock. During January 2000, the 1,000 shares of Series M1 Stock were converted
into 337,719 shares of Common Stock (See Note 18).
The Series M1 Stock has a per share liquidation preference, subject to the
liquidation preference of the Series A Stock, of an amount equal to the sum of
$1,000 plus 8 1/2% per annum simple interest thereon for the period since the
date of issuance. Each share is convertible at the option of the holder into the
number of shares of Common Stock determined by dividing an amount equal to the
initial purchase price of $1,000 by $0.8125. The Series M1 Stock has a
cumulative dividend rate of 8 1/2% per annum which is
F-59
<PAGE> 235
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
payable at the time of conversion or redemption in cash or shares of Common
Stock, at the election of the Company. If the cumulative dividend is paid in
stock, the amount paid is based on 95% of the closing bid price on the date of
notice of conversion or redemption.
The Series M1 holder has a right of redemption under certain circumstances,
all of which are under the sole control of the Company. The Company has the
right, at any time, to redeem all of the then outstanding Series M1 Stock for a
price per share equal to $1,000 plus the accrued unpaid dividend.
Series N Preferred Stock --
In September 1998, the Company completed a private placement of 1,559,576
shares of Series N Stock, together with warrants to purchase 200,000 shares of
Common Stock at an exercise price of $2.50 per share. Proceeds from the offering
were $10,000,000 and offering costs were $619,000. In accordance with the terms
of the Series N Stock offering, approximately $7,085,000 of the proceeds was
used to redeem the Company's Series K Stock and Series L Stock, and the
remainder will be used for working capital purposes. The Company also issued
warrants to purchase 124,290 shares of Common Stock at an exercise price of
$2.80 per share to the placement agent in the transaction. In connection with
the sale of the Series N Stock, the Company agreed to register the Common Stock
issuable upon conversion of the preferred stock and execution of the warrants
upon such time as the Company files a registration statement to register shares
for any other stockholder of the Company. In December 1998, the 1,559,576 shares
of Series N Stock were converted into 3,898,940 shares of Common Stock.
Stock purchase warrants --
The Company has the following warrants outstanding at December 31, 1999,
all of which are currently exercisable:
<TABLE>
<CAPTION>
WARRANTS
WARRANTS EXERCISE OUTSTANDING SHARES ISSUABLE
ISSUANCE ISSUED PRICE RANGE EXPIRATION DEC 31, 1999 UPON EXERCISE
-------- --------- -------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Placement agents........ 589,425 $2.80 - $ 4.00 Aug 2001 - Jan 2003 290,267 290,267
Other................... 386,255 $2.00 - $27.28 Jan 2000 - Dec 2005 332,921 332,921
Series D Preferred...... 56,767 $30.28 July 2000 56,767 56,767
Series E Preferred...... 8,600 $28.80 July 2000 8,600 8,600
Private Placement....... 44,850 $4.00 - $16.00 Nov 2000 - Dec 2002 44,850 44,850
Series G Preferred...... 10,000 $15.00 December 2000 10,000 10,000
Series H Preferred...... 20,000 $3.00 - $15.00 June 2001 20,000 20,000
Series K Preferred...... 148,500 $4.00 July 2002 148,500 148,500
Series L Preferred...... 100,547 $4.00 December 2002 100,547 100,547
Series N Preferred...... 200,000 $2.50 September 2001 200,000 200,000
--------- --------- ---------
1,564,944 1,212,452 1,212,452
========= ========= =========
</TABLE>
During 1999, 660,642 warrants issued by the Company expired in accordance
with the terms and conditions of the related warrant agreements.
Stock option and stock purchase plans --
The Company applies APB 25 in accounting for its stock option plans ("the
Plans"), and accordingly, recognizes compensation expense for any difference
between the fair value of the underlying common stock and the grant price of the
option at the date of grant. Certain options qualify as incentive stock options
under the Internal Revenue Code. The Board of Directors determines the vesting
and terms of any options
F-60
<PAGE> 236
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
granted under the plans with the requirement that the term of an incentive stock
option shall not exceed ten years. To date, options granted range from five- to
ten-year terms. The exercise price per share of Common Stock subject to an
incentive stock option is not less than the fair market value at the time of
grant. The Company has also issued non-qualified plan options. An aggregate of
10.5 million shares has been authorized for issuance under the Company's stock
option plans.
During 1998, the Company established an Employee Stock Purchase Plan ("the
Plan"). Employees can choose to have up to 10% of their annual earnings withheld
to purchase the Company's Common Stock. Under the terms of the Plan, there are
two six-month offering periods beginning on January 1st and July 1st of each
year during which employees can participate. The purchase price is determined by
taking 85% of the lower of (a) the average of the high and low market prices on
the offering commencement date and (b) the average of the high and low market
prices on the offering termination date.
The terms of the Plan require that the purchaser hold the shares purchased
under the Plan for a minimum of six months from the date that the offering
period ends. Under the Plan, the Company sold 76,065 and 30,607 shares of Common
Stock to employees during 1999 and 1998, respectively.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock option and stock purchase plans under the fair value
method. The fair value of options granted during 1999, 1998 and 1997 are
estimated at $1.40, $1.05, and $3.16, per share respectively, on the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1999, 1998 and 1997 respectively: average risk-
free interest rates of 5.0%, 4.7% and 5.4%; dividend yields of 0.0%; volatility
factors of the expected market price of the Company's common stock is 0.85 for
1999, 0.74 for 1998 and 0.58 for 1997; and a weighted-average expected life of
the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. As the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma loss is $6.0 million, $11.2 million and $16.2 million for 1999, 1998
and 1997, respectively and pro forma net loss applicable to common shares is
$0.46, $1.44 and $2.56 for 1999, 1998 and 1997, respectively. The effect of
applying SFAS 123 on the 1999, 1998 and 1997 pro forma net losses is not
necessarily representative of the effects on reported net loss and net loss per
share for future years due to, among other things, 1) the vesting period of the
stock options and 2) the fair value of additional stock options in future years.
F-61
<PAGE> 237
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the activity in stock options issued by the
Company:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance, January 1, 1997................................ 1,753,459 $16.88
Granted............................................... 670,088 7.60
Exercised............................................. --
Forfeited............................................. (759,009) 16.60
----------
Balance, December 31, 1997.............................. 1,664,538 7.68
Granted............................................... 2,130,455 2.08
Exercised............................................. --
Forfeited............................................. (2,147,005) 6.37
----------
Balance, December 31, 1998.............................. 1,647,988 2.16
Granted............................................... 1,525,234 2.00
Exercised............................................. (142,940) 1.63
Forfeited............................................. (163,215) 4.43
----------
Balance, December 31, 1999.............................. 2,867,067 $ 1.97
==========
</TABLE>
In December 1998, the Board of Directors approved a plan to reprice the
Company's outstanding stock options. The plan allowed holders of
out-of-the-money options, excluding executives, officers and directors, to
receive a new exercise price of $1.63 per option share, the market price on the
date of the approved plan. The plan allowed executives, officers and directors
holding out-of-the-money options to also receive a new exercise price of $1.63
but for fewer shares of Common Stock determined pursuant to the Black-Scholes
formula intended to result in approximate economic equivalence between the old
and the new options. As a result of this repricing, options for an aggregate of
797,072 out of a total of 1,876,159 shares of Common Stock at exercise prices
ranging from $2.52 to $27.28 per share were surrendered.
In August 1997, the Board of Directors approved a plan to reprice the
Company's outstanding stock options. The plan allowed holders of
out-of-the-money options, excluding executives, officers, and directors, to
receive a new exercise price of $6.00 per option share, the market price on the
date of the approved plan. The plan allowed executives and officers holding
out-of-the-money options to also receive a new exercise price of $6.00 but for
fewer shares of Common Stock determined pursuant to the Black-Scholes formula
intended to result in approximate economic equivalence between the old and the
new options. As a result of this repricing, options for an aggregate of 140,438
out of a total of 408,750 shares of Common Stock at exercise prices ranging from
$7.64 to $27.28 per share were surrendered. Stock options held by the Company's
Board of Directors were not repriced.
In July 1997, the Company adopted the 1997 Director Stock Option Plan ("the
Director Plan") for the Company's Directors and discontinued cash payments to
the Board Members for their service. The Director Plan provides stock option
grants in the amount of 7,500 shares at each annual board meeting for those
directors who are not executive officers of the Company and are not serving on
the Board as a representative of an institutional investor. Persons appointed to
the Board at any time after the annual grant receive pro-rata shares of the
option grant. Options vest 25% each quarter and become fully vested on the first
anniversary of their grant. The Company has reserved 360,000 shares of Common
Stock for issuance in connection with the Director Plan. During 1998, the
Company amended the Director Plan to provide stock option grants in the amount
of 1,875 shares per each calendar quarter. Options become fully vested ninety
days following the date of grant.
F-62
<PAGE> 238
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -----------------------------
RANGE OF REMAINING WEIGHTED- WEIGHTED-
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.44 - 2.09............. 2,390,346 7.9 $ 1.65 1,235,407 $ 1.63
2.19 - 2.94............. 407,583 9.6 2.79 20,833 2.19
3.38 - 4.00............. 14,526 9.1 3.54 14,526 3.54
5.52 - 6.00............. 25,736 6.3 5.87 25,736 5.87
10.00 - 14.76............. 21,876 7.5 10.68 21,876 10.68
16.52 - 17.00............. 7,000 6.0 16.57 7,000 16.57
</TABLE>
NOTE 9 -- REDEEMABLE PREFERRED STOCK
In December 1996, the Company entered into an agreement with the holder of
the Series F Preferred Stock to redeem the shares for an aggregate of $9.9
million or $5.50 per share. During the first quarter of 1997, the Company
redeemed $3.5 million of the Series F Preferred Stock. The Company used proceeds
from its Line of Credit to finance the Series F Preferred share buyback. During
the second quarter of 1997, the Company amended the December 1996 redemption
agreement and as a result, the remaining $6.4 million, excluding interest, was
due upon the sale of the Company's Dorotech subsidiary. During the fourth
quarter 1997, the Company sold its Dorotech subsidiary and in January 1998, the
Company redeemed the remaining shares of Series F Preferred Stock, including
outstanding interest, for $6.5 million.
NOTE 10 -- RESTRUCTURING CHARGES
During the second quarter of 1998, the Company incurred a charge of $1.5
million as a result of effecting a restructuring plan ("the Plan"). The Plan
provided for the elimination of duplicate job functions and outdated or
discontinued products. Under the Plan, the Company combined its three separate
customer support organizations into one support organization, and the Company's
strategic focus shifted its newest suite of integrated document management
software to using Microsoft based architecture. The restructuring charge
included a $827,000 write down to net realizable value of prepaid licenses and
capitalized software which related to products abandoned in favor of the new
integrated document management software suite. In addition, $677,000 of the
restructuring charge related to severance costs for 29 employees located
throughout the United States, including customer support, sales, marketing,
engineering and administrative personnel. The Plan was completed by the end of
the first quarter of 1999. During 1998 and 1999, the Company paid termination
benefits of approximately $655,000 and $22,000, respectively, and reduced the
restructuring reserve by such amounts.
NOTE 11 -- INCOME TAXES
The source of the loss before the income tax benefit was from the following
jurisdictions (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
U.S. ................................................ $(2,636) $(7,344) $(10,417)
Foreign.............................................. -- -- (922)
------- ------- --------
$(2,636) $(7,344) $(11,339)
======= ======= ========
</TABLE>
F-63
<PAGE> 239
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial purposes and
the amounts used for income tax purposes. Deferred tax assets and liabilities
are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss and capital loss carryforwards......... $ 47,174 $ 44,731
Other..................................................... 2,573 2,657
-------- --------
Gross deferred tax assets.............................. $ 49,747 $ 47,388
======== ========
Deferred liabilities:
Software development costs................................ (900) (1,174)
-------- --------
Gross deferred tax liabilities......................... (900) (1,174)
Net deferred tax asset valuation allowance.................. (48,847) (46,214)
-------- --------
$ -- $ --
======== ========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a $48,847,000 and $46,214,000 valuation allowance at December
31, 1999 and 1998, respectively, is necessary to reduce the deferred tax assets
to the amount that will more likely than not be realized.
Income tax expense (benefit) differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
the loss before income taxes as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. tax rate benefit............................. 34.0% 34.0% 34.0%
State income taxes, net..................................... 4.6 3.6 3.6
Operating losses and tax credits with no current tax
benefit................................................... (39.7) (37.2) (37.6)
Other....................................................... -- -- --
----- ----- -----
--% --% --%
===== ===== =====
</TABLE>
As of December 31, 1999, the Company had available net operating and
capital loss carry forwards of approximately $122 million which expire in years
through 2019 and are limited under Section 382 of the Internal Revenue Code.
Accordingly, the utilization of the net operating loss and capital loss carry
forwards will be limited in future years due to the changes in ownership. In
addition, the Company has research tax credit carry forwards of $1.2 million.
The Company sold its foreign subsidiary, Dorotech, during 1997. Due to a
difference between book and tax basis, the Company realized a capital loss of
approximately $25 million. In addition, due to the sale of Dorotech, the Company
has recognized a deferred tax benefit of approximately $46,000, which is
reflected in the gain on the sale of Dorotech.
F-64
<PAGE> 240
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Numerator (in thousands):
Net Loss....................................... $ (2,636) $ (7,344) $(11,339)
Preferred stock preferences
-- Accrued dividends........................ (1,348) (1,348) (1,435)
-- Imputed dividends........................ -- -- (1,536)
---------- --------- --------
Numerator of basic loss per share -- Net loss
applicable to common shares................. (3,984) (8,692) (14,310)
Effect of dilutive securities.................. -- -- --
---------- --------- --------
Numerator for diluted loss per share -- Net
loss applicable to common shares after
assumed
conversions................................. $ (3,984) $ (8,692) $(14,310)
---------- --------- --------
Denominator:
Denominator for basic loss per
share -- weighted average shares............ 13,115,228 7,768,329 6,301,464
Effect of dilutive securities.................. -- -- --
---------- --------- --------
Denominator for diluted loss per
share -- adjusted weighed average shares and
assumed conversions......................... 13,115,228 7,768,329 6,301,464
========== ========= ========
Basic loss per share........................... $ (0.30) $ (1.12) $ (2.27)
========== ========= ========
Diluted loss per share......................... $ (0.30) $ (1.12 $ (2.27)
========== ========= ========
</TABLE>
Since the Company has incurred losses in 1999, 1998 and 1997, securities
that could potentially dilute the basic earnings per share in the future were
not included in the dilution computation because they would have been
anti-dilutive for the periods presented. The potentially dilutive convertible
securities include the Company's Series A, Series M and Series M1 Convertible
Preferred Stock, which were convertible into 3,081,648 shares, 1,170,699 shares
and 350,409 shares of common stock, respectively, at December 31, 1999. Also
outstanding at December 31, 1999 were options and warrants, which were
convertible into 2,867,067 and 1,212,452 shares of common stock, respectively.
For additional disclosures regarding outstanding preferred stock, employee stock
options and warrants, see Note 8.
NOTE 13 -- BUSINESS SEGMENTS
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued effective for fiscal years ending after
December 15, 1998.
The Company's reportable segments are strategic business units that sell
its products and services to a wide variety of customers throughout the United
States. They are managed separately because each business requires different
technology, marketing and management strategies.
The Company's two reportable segments are its products and services groups.
The products segment includes sales of software licenses of the Company's TREEV
Suite of document management software and computer equipment. The services
segment includes sales of software maintenance contracts, installation, training
and customization. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating earnings of the respective business
units before income taxes and interest income and expenses. In
F-65
<PAGE> 241
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
addition, corporate related items and expenses not allocated to reportable
segments, such as sale of subsidiaries, exchange fee and gain, and restructuring
costs, are shown separately as "Corporate".
The following table sets forth summarized financial information concerning
the Company's reportable segments for the years ended December 31, 1999, 1998
and 1997 (in thousands).
<TABLE>
<CAPTION>
PRODUCTS SERVICES CORPORATE TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
1999
Revenues....................................... $17,982 $13,227 $ -- $ 31,209
Segment profit (loss) before interest and 1,789 (537) (3,541) (2,290)
taxes.......................................
Identifiable assets............................ 12,516 7,168 3,607 23,291
Depreciation and amortization.................. 1,440 598 276 2,314
Capital expenditures........................... 184 335 62 580
1998
Revenues....................................... $16,813 $11,389 $ -- $ 28,202
Segment profit (loss) before interest and 260 (2,008) (5,540) (7,288)
taxes.......................................
Identifiable assets............................ 9,641 7,057 2,824 19,522
Depreciation and amortization.................. 1,236 732 339 2,307
Capital expenditures........................... 263 363 86 712
1997
Revenues....................................... $18,310 $17,496 $ -- $ 35,806
Segment profit (loss) before interest and 580 (5,113) (6,520) (11,053)
taxes.......................................
Identifiable assets............................ 6,947 6,675 13,238 26,860
Depreciation and amortization.................. 1,925 1,069 1,470 4,464
Capital expenditures........................... 240 515 133 888
</TABLE>
The following table sets forth summarized financial information concerning
to the Company's operations by geographic area for the years ended December 31,
1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
UNITED STATES WESTERN EUROPE
------------- --------------
<S> <C> <C>
1999
Revenue................................................ $ 31,209 $ --
Net loss............................................... (2,636) --
Total assets........................................... 23,291 --
1998
Revenue................................................ $ 28,202 $ --
Net loss............................................... (7,344) --
Total assets........................................... 19,522 --
1997
Revenue................................................ $ 24,486 $11,320
Net loss............................................... (10,417) (922)
Total assets........................................... 26,680 --
</TABLE>
Revenue in 1999 and 1998 included sales to the U.S. Government totaling
$704,000 and $900,000 respectively. Revenue in 1997 included sales to the U.S.
Government and French Government totaling $1.6 million and $6.0 million,
respectively.
F-66
<PAGE> 242
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- COMMITMENTS
The Company leases its corporate office, sales offices, assembly facilities
and certain equipment under non-cancelable operating leases, certain of which
provide for both operating expense reimbursements and annual escalations that
are amortized over the lease term. Rent expense related to these leases was $1.2
million, $1.1 million and $1.1 million for the years ended December 31, 1999,
1998 and 1997, respectively.
Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 1,626
2001........................................................ 1,321
2002........................................................ 1,348
2003........................................................ 1,376
2004........................................................ 1,405
Thereafter.................................................. 6,457
-------
$13,533
=======
</TABLE>
NOTE 15 -- CONTINGENCIES
The Company is subject to legal proceedings and claims, which are in the
ordinary course of business. Management believes that the outcome of such
matters will not have a material impact on the Company's financial position or
its results of operations.
NOTE 16 -- RELATED PARTY TRANSACTIONS
During 1997, the Company renegotiated the termination of three consulting
agreements, with individuals who were current or former members of the Board of
Directors and officers of the Company, whereby all three would expire during
1998. The Company recognized total compensation expense of approximately
$211,000 and $553,000 in 1998 and 1997, respectively, related to these
agreements.
The Company holds two notes receivable totaling $513,000 from two former
stockholders of a subsidiary acquired in 1994. Interest accrues at 6.55% per
annum (See Note 2).
NOTE 17 -- EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN
The Company sponsors a 401(k) plan that covers all full-time employees.
Participants in the plan may make contributions of up to 15% of pre-tax annual
compensation or $10,500 whichever is lower. The Company may make discretionary
matching contributions at the option of the Board of Directors. The Company has
made no contributions in 1999, 1998 or 1997.
NOTE 18 -- SUBSEQUENT EVENTS
During January 2000, the 4,000 outstanding shares of Series M Stock were
converted into 1,177,219 shares of Common Stock.
During January 2000, the 1,000 outstanding shares of Series M1 Stock were
converted into 337,719 shares of Common Stock.
F-67
<PAGE> 243
TREEV, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 751 $ 1,886
Short term investments.................................... 348 --
Accounts and notes receivable, net........................ 10,768 13,816
Inventories............................................... 675 1,135
Prepaid expenses and other................................ 1,348 1,111
--------- ---------
Total current assets.............................. 13,890 17,948
Fixed assets, net........................................... 1,310 1,237
Long-term notes receivable, net............................. -- 21
Software development costs, net............................. 4,420 3,627
Other assets................................................ 380 458
--------- ---------
Total assets...................................... $ 19,928 $ 23,291
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital
leases................................................. $ 10,580 $ 7,572
Accounts payable.......................................... 2,162 2,374
Accrued compensation and expenses......................... 1,075 1,160
Deferred revenue.......................................... 3,673 3,143
Other accrued expenses.................................... 2,577 1,497
--------- ---------
Total current liabilities......................... 20,067 15,746
Long-term debt and obligations under capital leases......... 322 120
--------- ---------
Total liabilities................................. 20,389 15,866
Stockholders' equity (deficit):
Convertible preferred stock, $.0001 par value, 20,000,000
shares authorized; 1,605,025 and 1,610,025 shares
issued and outstanding................................. -- --
Common stock, $.0001 par value, 100,000,000 shares
authorized; 16,193,054 and 14,237,009 shares issued and
outstanding............................................ 2 1
Additional paid-in-capital................................ 142,017 141,841
Accumulated deficit....................................... (142,480) (134,417)
--------- ---------
Total stockholders' equity (deficit).............. (461) 7,425
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 19,928 $ 23,291
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 244
TREEV, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Products.................................................. $ 6,541 $ 12,354
Services.................................................. 10,180 9,803
----------- -----------
16,721 22,157
----------- -----------
Costs and expenses:
Cost of products sold..................................... 3,401 5,323
Cost of services provided................................. 6,668 6,310
Sales and marketing....................................... 7,767 7,828
General and administrative................................ 2,976 2,394
Product development....................................... 3,201 3,150
----------- -----------
24,013 25,005
----------- -----------
Loss before interest expense and income taxes............... (7,292) (2,848)
Interest expense, net..................................... (771) (178)
----------- -----------
Loss before income taxes.................................... (8,063) (3,026)
Income tax benefit........................................ -- --
----------- -----------
Net loss.................................................... (8,063) (3,026)
----------- -----------
Preferred stock dividends................................... (1,011) (1,011)
----------- -----------
Net loss applicable to common shares........................ $ (9,074) $ (4,037)
=========== ===========
Net loss per common share................................... $ (0.59) $ (0.32)
=========== ===========
Weighted average shares outstanding......................... 15,505,649 12,792,448
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 245
TREEV, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ----------------- PAID-IN ACCUMULATED
SHARES AMT. SHARES AMT. CAPITAL DEFICIT TOTAL
---------- ---- ---------- ---- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1999............................. 1,610,025 $ -- 14,237,009 $ 1 $141,841 $(134,417) $ 7,425
Issuance of common stock.............................. 333,699 -- 513 513
Conversion of preferred stock......................... (5,000) -- 1,514,938 1 -- 1
Dividends on preferred stock.......................... (1,011) (1,011)
Issuance of common stock in payment of dividends...... 107,408 -- 674 674
Net loss.............................................. (8,063) (8,063)
---------- ---- ---------- ---- -------- --------- --------
BALANCE SEPTEMBER 30, 2000............................ 1,605,025 $ -- 16,193,054 $ 2 $142,017 $(142,480) $ (461)
========== ==== ========== ==== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 246
TREEV, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (8,063) $(3,026)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,745 1,703
Other non-cash interest fees........................... 433 223
Changes in assets and liabilities:
Accounts and notes receivable........................ 2,535 (1,713)
Inventories.......................................... 460 (182)
Prepaid expenses and other........................... (212) (301)
Accounts payable..................................... (212) 310
Accrued expenses..................................... 659 (757)
Deferred revenue..................................... 530 (2,112)
-------- -------
Net cash used in operating activities....................... (2,125) (5,855)
-------- -------
Cash flows from investing activities:
Software development costs................................ (1,738) (1,252)
Purchases of fixed assets................................. (451) (384)
Cash received from business divestitures and related
costs.................................................. 534 285
-------- -------
Net cash used in investing activities....................... (1,655) (1,351)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............... 513 854
Cash dividends paid on preferred stock.................... -- (674)
Proceeds from issuance of convertible notes............... -- 1,997
Proceeds from issuance of subordinated notes.............. 2,500 1,100
Redemption of convertible notes........................... -- (200)
Borrowings from line of credit............................ 20,644 14,862
Repayments of line of credit.............................. (20,957) (11,745)
Principal payments on capital lease obligations and
debt................................................... (55) (105)
-------- -------
Net cash provided by financing activities................... 2,645 6,089
-------- -------
Net decrease in cash and cash equivalents................... (1,135) (1,117)
Cash and cash equivalents at beginning of year.............. 1,886 1,645
-------- -------
Cash and cash equivalents at September 30................... $ 751 $ 528
======== =======
Supplemental Cash Flow Information:
Interest paid............................................. $ 385 $ 144
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 247
TREEV, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(In thousands, except share and per share amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, which include
information and note disclosures not included herein. In the opinion of
management all adjustments, which include only those of a normal recurring
nature, necessary to fairly present the Company's financial position, results of
operations and cash flows have been made to the accompanying financial
statements. The results of operations for the nine-month period ended September
30, 2000, may not be indicative of the results that may be expected for the year
ending December 31, 2000.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. In June 2000, the SEC issued SAB
101B, further delaying the required implementation of SAB 101 by the Company
until the fourth quarter of fiscal year 2000. The Company does not expect the
application of SAB 101 to have a material impact on its financial position or
results of operations.
3. ISSUANCE OF SUBORDINATED NOTES
During the second and third quarters of 2000, the Company issued
Subordinated Promissory Notes due December 31, 2000, totaling $2.5 million and
bearing interest of 13.5%. These Promissory Notes were subsequently amended and
restated pursuant to an amended and restated promissory note dated November 21,
2000 (the "Promissory Note"), which increased the principal amount to reflect
accrued but unpaid interest and entered the maturity date to November 20, 2002.
The Promissory Note is subordinated to the Company's revolving line of credit
and is collateralized by all of the Company's accounts receivable, inventory,
equipment, general intangibles, and other personal property assets. Interest
payments are due semi-annually and the Promissory Note may be prepaid at any
time without premium or penalty. CE Computer Equipment AG is the lender of the
Promissory Note.
4. ISSUANCE OF COMMON STOCK
During the first quarter of 2000, all 4,000 outstanding shares of Series M
Stock were converted into 1,177,219 shares of Common Stock.
During the first quarter of 2000, all 1,000 outstanding shares of Series M1
Stock were converted into 337,719 shares of Common Stock.
During the first, second, and third quarters of 2000, the Company issued
317,993 shares of Common Stock attributable to exercises of previously granted
stock options and warrants.
During the first quarter of 2000, the Company issued 15,706 shares of
Common Stock under the Company's Employee Stock Purchase Plan (the "Plan").
Employees can choose to have up to 10% of their annual earnings withheld to
purchase the Company's Common Stock. Under the terms of the Plan, there are two
six-month offering periods beginning on January 1st and July 1st of each year
during which employees can participate. The purchase price is determined by
taking 85% of the lower of (a) the average
F-72
<PAGE> 248
TREEV, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999 (CONTINUED)
(In thousands, except share and per share amounts)
(Unaudited)
of the high and low market prices on the offering commencement date and (b) the
average of the high and low market prices on the offering termination date. The
terms of the Plan require that the purchaser hold the shares purchased under the
Plan for a minimum of six months from the date the offering period ends.
During the second quarter of 2000, the Company issued 107,408 shares of
Common Stock as quarterly dividends to the shareholders of the Company's Series
A Cumulative Convertible Preferred Stock.
5. BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that sell
its products and services to a wide variety of customers throughout the United
States. The products segment includes sales of software licenses of the
Company's TREEV Suite of document management software and computer equipment.
The services segment includes sales of software maintenance contracts,
installation, training, and customization. In addition, corporate related items
and expenses not allocated to reportable segments are shown separately as
"Corporate."
The following table sets forth summarized financial information concerning
the Company's reportable segments for the periods ended September 30, 2000 and
1999 (in thousands).
<TABLE>
<CAPTION>
PRODUCTS SERVICES CORPORATE TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
2000
Revenues....................................... $ 6,541 $10,180 $ -- $ 16,721
Segment (loss)................................. (1,150) (3,166) (2,976) (7,292)
1999
Revenues....................................... $12,354 $ 9,803 $ -- $ 22,157
Segment profit (loss).......................... 910 (1,364) (2,394) (2,848)
</TABLE>
6. BUSINESS COMBINATIONS
The Company has entered into an Agreement and Plan of Merger dated as of
November 19, 1999 (the "Merger Agreement") with CE Computer Equipment AG, a
German corporation. CE Computer Equipment and the Company amended and restated
the Merger Agreement as of May 8, 2000, to reflect that they no longer intend to
account for the transaction as a pooling of interests and expect that they will
account for the acquisition as a purchase transaction. Provided that certain
conditions are met, as set forth in the Merger Agreement, at the conclusion of
the merger, the Company will become a wholly owned subsidiary of CE Computer
Equipment. Under the terms of the Merger Agreement, CE Computer Equipment will
issue a total of 6,650,000 Ordinary Shares in the form of American Depositary
Shares ("ADSs") in exchange for the outstanding shares of the Company's Common
Stock and Preferred Stock and for the outstanding warrants and options for the
Company's Common Stock. The merger is subject to governmental and shareholder
approvals and customary closing conditions. Shareholders owning more than 33% of
the Company's Common Stock have agreed to vote their shares in favor of the
merger, which is expected to be completed in the fourth quarter of 2000.
F-73
<PAGE> 249
ANNEX A
EXECUTION COPY
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BETWEEN
CE COMPUTER EQUIPMENT AG
AND
TREEV, INC.
DATED AS OF NOVEMBER 19, 1999
AND AMENDED AND RESTATED AS OF MAY 8, 2000
<PAGE> 250
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
ARTICLE I
THE MERGER
1.01. Formation of Merger Sub..................................... A-1
1.02. The Merger.................................................. A-2
1.03. Effective Time; Closing..................................... A-2
1.04. Effect of the Merger........................................ A-2
1.05. Certificate of Incorporation; Bylaws........................ A-2
1.06. Officers.................................................... A-2
1.07. Board of Directors.......................................... A-2
ARTICLE II
SHARE EXCHANGE; CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES
2.01. The Share Exchange.......................................... A-3
2.02. Conversion of Company Common Stock and Series A Preferred A-3
Stock.......................................................
2.03. Exchange of Shares of Company Common Stock and Series A A-4
Preferred Stock.............................................
2.04. Treatment of the Company Stock Plans and the Company A-6
Warrants....................................................
2.05. Antidilution Protection For Exchange Ratio.................. A-6
2.06. Treatment of Fractional Shares.............................. A-6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Qualification; Subsidiaries................ A-7
3.02. Certificate of Incorporation and Bylaws..................... A-7
3.03. Capitalization.............................................. A-7
3.04. Authority Relative to this Agreement........................ A-8
3.05. No Conflict; Required Filings and Consents.................. A-8
3.06. Permits; Compliance with Laws............................... A-9
3.07. SEC Filings; Financial Statements........................... A-9
3.08. Absence of Certain Changes or Events........................ A-10
3.09. Absence of Litigation....................................... A-10
3.10. Employee Benefit Plans...................................... A-11
3.11. Labor Matters............................................... A-13
3.12. Real Property and Leases.................................... A-14
3.13. Intellectual Property....................................... A-14
3.14. Year 2000 Compliance........................................ A-16
3.15. Taxes....................................................... A-16
3.16. Environmental Matters....................................... A-17
3.17. Material Contracts.......................................... A-18
3.18. Insurance................................................... A-19
3.19. Receivables................................................. A-19
</TABLE>
A-i
<PAGE> 251
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
3.20. Brokers..................................................... A-20
3.21. Tax Matters................................................. A-20
3.22. Affiliates.................................................. A-20
3.23. Vote Required............................................... A-20
3.24. State Takeover Statutes..................................... A-20
3.25. Opinion of Financial Advisor................................ A-20
3.26. Board Approval.............................................. A-20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
4.01. Organization and Qualification; Subsidiaries................ A-21
4.02. Organizational Documents.................................... A-21
4.03. Capitalization.............................................. A-21
4.04. Authority Relative to this Agreement........................ A-22
4.05. No Conflict; Required Filings and Consents.................. A-22
4.06. Financial Information, Books and Records.................... A-22
4.07. Absence of Certain Changes or Events........................ A-23
4.08. Absence of Litigation....................................... A-23
4.09. Intellectual Property....................................... A-24
4.10. Parent Ordinary Shares...................................... A-24
4.11. Brokers..................................................... A-24
4.12. Tax Matters................................................. A-24
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.01. Conduct of Business by the Company Pending the Closing...... A-24
5.02. Conduct of Business by Parent Pending the Closing........... A-26
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. Access to Information; Confidentiality...................... A-26
6.02. No Solicitation of Transactions............................. A-26
6.03. Registration Statement and Proxy Statement.................. A-27
6.04. Stockholders' Meeting....................................... A-29
6.05. Further Action; Consents; Filings........................... A-29
6.06. Notices of Certain Events................................... A-30
6.07. Letters of Accountants...................................... A-30
6.08. Plan of Reorganization...................................... A-31
6.09. Continuation of Benefits.................................... A-31
6.10. Company Affiliate Letters................................... A-31
6.11. Indemnification of Directors and Officers................... A-32
6.12. Public Announcements........................................ A-32
</TABLE>
A-ii
<PAGE> 252
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C> <C>
6.13. Stock Exchange Listings..................................... A-32
6.14. Certain Obligations of Parent............................... A-33
ARTICLE VII
CLOSING CONDITIONS
7.01. Conditions to the Obligations of Each Party to Close........ A-33
7.02. Conditions to the Obligations of Parent..................... A-34
7.03. Conditions to the Obligations of the Company................ A-35
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01. Termination................................................. A-35
8.02. Effect of Termination....................................... A-37
8.03. Amendment................................................... A-37
8.04. Waiver...................................................... A-37
8.05. Fees and Expenses........................................... A-37
ARTICLE IX
GENERAL PROVISIONS
9.01. Non-Survival of Representations and Warranties.............. A-38
9.02. Notices..................................................... A-38
9.03. Certain Definitions......................................... A-39
9.04. Severability................................................ A-40
9.05. Entire Agreement; Assignment................................ A-40
9.06. Parties in Interest......................................... A-40
9.07. Specific Performance........................................ A-40
9.08. Governing Law............................................... A-40
9.09. Consent to Jurisdiction; Venue.............................. A-40
9.10. Headings.................................................... A-41
9.11. Counterparts................................................ A-41
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
EXHIBIT A List of officers of Surviving Corporation
EXHIBIT B List of directors of Surviving Corporation
EXHIBIT C Form of Company Tax Representation Letter
EXHIBIT D Form of Parent and Merger Sub Tax Representation Letter
EXHIBIT E Form of Company Affiliate Letter
</TABLE>
A-iii
<PAGE> 253
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
$ .......................................................... Section 9.03(d)
1998 Company Balance Sheet.................................. Section 3.07(c)
1998 Parent Balance Sheet................................... Section 4.06(b)
accumulated funding deficiency.............................. Section 3.10(e)
ADR......................................................... Section 2.03(b)
affiliate................................................... Section 9.03(a)
Agreement................................................... Preamble
Banc of America............................................. Section 3.20
beneficial owner............................................ Section 9.03(b)
Blue Sky Laws............................................... Section 3.05(b)(i)
business day................................................ Section 9.03(c)
Certificate of Merger....................................... Section 1.03
Change of Control Right..................................... Section 6.06(b)
Closing..................................................... Section 1.03
COBRA....................................................... Section 3.10(a)
Code........................................................ Recitals
Common Stock Exchange Ratio................................. Section 2.02(c)
Company..................................................... Preamble
Company Affiliate Letter.................................... Section 6.10
Company Common Stock........................................ Recitals
Company Disclosure Schedule................................. Section 3.01(b)
Company Material Adverse Effect............................. Section 3.01(a)
Company Optionholder........................................ Section 2.04(a)
Company Permits............................................. Section 3.06
Company Preferred Stock..................................... Section 3.03
Company Reports............................................. Section 3.07(a)
Company Shares Trust........................................ Section 2.06(b)
Company Stockholder Approval................................ Section 3.23
Company Stockholders' Meeting............................... Section 6.03(a)(i)
Company Stock Option........................................ Section 2.04(a)
Company Stock Plans......................................... Section 3.03(v)
Company Systems............................................. Section 3.14
Company Warrantholder....................................... Section 2.04(b)
Competing Transaction....................................... Section 6.02(a)(iii)
Confidentiality Agreement................................... Section 6.01(b)
Determination Period........................................ Section 2.02(b)
DGCL........................................................ Recitals
Draft Financial Statements.................................. Section 4.06(c)
Effective Time.............................................. Section 1.03
Encumbrance................................................. Section 6.05(c)
Environmental Laws.......................................... Section 3.16(a)(ii)
Environmental Permits....................................... Section 3.16(b)(v)
ERISA....................................................... Section 3.10(a)
</TABLE>
A-iv
<PAGE> 254
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Ernst & Young............................................... Section 2.04(a)
Excess Shares............................................... Section 2.06(a)
Exchange Act................................................ Section 3.05(b)(i)
Exchange Agent.............................................. Section 1.01
Exchange Fund............................................... Section 2.03(a)
Expenses.................................................... Section 8.05(c)
F-4 Registration Statement.................................. Section 6.03(a)(ii)
Governmental Entity......................................... Section 3.05(b)
Governmental Order.......................................... Section 9.03(e)
Hazardous Substances........................................ Section 3.16(a)(i)
HSR Act..................................................... Section 3.05(b)(i)
IAS GAAP.................................................... Section 4.06(a)
Indemnified Parties......................................... Section 6.11(b)
Insurance Amount............................................ Section 6.11(c)
Intellectual Property....................................... Section 3.13(a)
IRS......................................................... Section 3.10(a)
Law......................................................... Section 3.05(a)(ii)
License Agreements.......................................... Section 3.13(c)
Material Contracts.......................................... Section 3.17(a)
Merger...................................................... Recitals
Merger Consideration........................................ Section 2.01
Merger Sub.................................................. Section 1.01
Merger Sub Common Stock..................................... Section 1.01
Multiemployer Plan.......................................... Section 3.10(b)
Multiple Employer Plan...................................... Section 3.10(b)
NASDAQ...................................................... Section 2.02(b)
Neuer Markt................................................. Section 2.02(b)
Offer Period................................................ Section 6.03(f)
Old Company Certificates.................................... Section 2.03(b)
Option and Warrant Exchange................................. Section 2.04(b)
Option Exchange............................................. Section 2.04(a)
Original Merger Agreement................................... Recitals
Parent...................................................... Preamble
Parent ADSs................................................. Section 2.02(b)
Parent Average Closing Price................................ Section 2.02(b)
Parent Disclosure Schedule.................................. Section 4.01
Parent Financial Statements................................. Section 4.06(a)
Parent Interim Financial Statements......................... Section 4.06(a)
Parent Material Adverse Effect.............................. Section 4.01
Parent Ordinary Shares...................................... Section 2.02(b)
Parent Stock Plan........................................... Section 4.03(iii)
Parent Subsidiaries......................................... Section 4.01
PBO......................................................... Section 3.10(e)
person...................................................... Section 9.03(f)
</TABLE>
A-v
<PAGE> 255
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Plans....................................................... Section 3.10(a)
PricewaterhouseCoopers...................................... Section 2.04(a)
Proxy Statement............................................. Section 6.03(a)
Receivables................................................. Section 3.19
Representatives............................................. Section 6.01(a)(i)
Returns..................................................... Section 3.15(b)(i)
SEC......................................................... Recitals
Securities Act.............................................. Section 3.05(b)(i)
Series A Certificate of Designations........................ Section 6.06(b)
Series A Holder............................................. Section 6.06(b)
Series A Preferred Stock.................................... Section 2.02
Series A Preferred Stock Exchange Ratio..................... Section 2.02(b)
Series M Preferred Stock.................................... Recitals
Series M1 Preferred Stock................................... Recitals
Share Exchange.............................................. Section 2.01
Software.................................................... Section 3.13(d)(vi)
Software Products........................................... Section 6.05(c)
subsidiary/subsidiaries..................................... Section 9.03(g)
Surviving Corporation....................................... Section 1.02
Surviving Corporation Common Stock.......................... Section 2.02(d)
Tax/Taxes................................................... Section 3.15(a)
Terminating Company Breach.................................. Section 8.01(g)
Terminating Parent Breach................................... Section 8.01(i)
Termination Fee............................................. Section 8.05(b)
Third Party Provisions...................................... Section 9.06
Third Quarter 1999 Company Balance Sheet.................... Section 3.10(e)
Trademarks.................................................. Section 3.13(a)
Trade Secrets............................................... Section 3.13(a)
trading day................................................. Section 9.03(h)
Transactions................................................ Recitals
U.S. GAAP................................................... Section 2.03(f)
Voting Agreement............................................ Recitals
WARN........................................................ Section 3.10(g)
Warrant..................................................... Section 2.04(b)
Warrant Exchange............................................ Section 2.04(b)
Year 2000 Compliant......................................... Section 3.14
</TABLE>
A-vi
<PAGE> 256
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 19,
1999 and amended and restated as of May 8, 2000 (this "Agreement"), between CE
COMPUTER EQUIPMENT AG, an Aktiengesellschaft organized and existing under the
laws of the Federal Republic of Germany ("Parent") and TREEV, INC., a Delaware
corporation ("Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (i) has determined that the
merger of the Merger Sub (as defined herein) with and into the Company (the
"Merger") is fair to and in the best interest of the Company and its
shareholders and has approved, and declared the advisability of, this Agreement
and the transactions, including, without limitation, the Merger, contemplated
hereby (the "Transactions") and (ii) has recommended the adoption of this
Agreement and the approval of the Transactions by the shareholders of the
Company;
WHEREAS, the Management Board (Vorstand) of Parent has approved this
Agreement and the Transactions in accordance with the laws of the Federal
Republic of Germany and has authorized the execution and delivery of this
Agreement;
WHEREAS, Parent and the Company entered into an Agreement and Plan of
Merger dated as of November 19, 1999 (the "Original Merger Agreement") and they
now desire to amend and restate the Original Merger Agreement (it being
understood that all references herein to "this Agreement" refer to the Original
Merger Agreement as amended and restated hereby and that all references herein
to "the date hereof" or "the date of this Agreement" refer to November 19, 1999)
to reflect, among other things, that (i) the parties hereto no longer intend
that the Merger shall be accounted for as a "pooling of interests" for financial
reporting purposes under applicable United States accounting rules and the
accounting standards of the United States Securities and Exchange Commission
(the "SEC"), (ii) the approval of this Agreement by the stockholders of Parent
is not required and (iii) the Company's Series M Convertible Preferred Stock,
par value $.0001 per share (the "Series M Preferred Stock"), and the Company's
Series M1 Convertible Preferred Stock, par value $.0001 per share (the "Series M
1 Preferred Stock"), have been converted into common stock, par value $.0001 per
share, of the Company (the "Company Common Stock");
WHEREAS, certain holders of Company Common Stock have entered into a Voting
and Registration Rights Agreement with Parent, dated as of November 19, 1999 and
amended as of May 8, 2000, (the "Voting Agreement"), pursuant to which such
holders of Company Common Stock have agreed to vote all shares of the Company
Common Stock owned by them in favor of the Transactions at the Company
Stockholders' Meeting (as defined herein);
WHEREAS, the Merger will be consummated upon the terms and subject to the
conditions of this Agreement and in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"); and
WHEREAS, for United States federal income tax purposes, the Merger is
intended to qualify as a reorganization within the meaning of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. Formation of Merger Sub. As promptly as practicable following
the date hereof, Parent shall appoint a United States bank or trust company or
other independent financial institution in the United States reasonably
satisfactory to Parent to act as exchange agent for the Share Exchange (as
A-1
<PAGE> 257
defined below) and the delivery of the Merger Consideration (as defined below)
to former stockholders of the Company (the "Exchange Agent"). Following such
appointment, the Exchange Agent shall cause to be incorporated pursuant to the
DGCL a corporation which shall be a constituent company in the Merger (the
"Merger Sub") and which shall not transact any business other than participating
in the Merger as described herein. Parent shall enter into an Exchange Agent
Agreement with the Exchange Agent in form and substance reasonably satisfactory
to Parent and the Company, which agreement shall set forth the duties,
responsibilities and obligations of the Exchange Agent consistent with the terms
of this Agreement. Solely to accommodate the transactions described in this
Article I and Article II, the Exchange Agent shall hold, as the agent of Parent,
all the issued and outstanding shares of common stock, par value $.01 per share,
of the Merger Sub (the "Merger Sub Common Stock").
SECTION 1.02. The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the DGCL, at the Effective Time (as
defined below), the Merger Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of the Merger Sub shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
SECTION 1.03. Effective Time; Closing. As promptly as practicable and in no
event later than the third business day following the satisfaction or, if
permissible, waiver of the conditions set forth in Article VII (or such other
date as may be agreed in writing by each of the parties hereto), the parties
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware in such form as is required by, and executed in accordance with, the
relevant provisions of the DGCL. The term "Effective Time" means the date and
time of the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware (or such later time as may be agreed in writing by each of
the parties hereto and specified in the Certificate of Merger). Immediately
prior to the filing of the Certificate of Merger, a closing (the "Closing") will
be held at the offices of Shearman & Sterling, 801 Pennsylvania Avenue, NW,
Suite 900, Washington, D.C. 20004 (or such other place as the parties may
agree).
SECTION 1.04. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and the Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of each
of the Company and the Merger Sub shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.05. Certificate of Incorporation; Bylaws. (a) At the Effective
Time, the Certificate of Incorporation of the Surviving Corporation shall be
amended and restated in its entirety to read as the Certificate of Incorporation
of the Merger Sub, as in effect immediately prior to the Effective Time, and
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation;
provided, however, that, at the Effective Time, Article I of the Certificate of
Incorporation of the Surviving Corporation shall read as follows: "The name of
the Corporation is TREEV, Inc."
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by law, the Certificate of
Incorporation of the Surviving Corporation and such Bylaws.
SECTION 1.06. Officers. The officers of the Merger Sub immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, and such
individuals shall serve until their successors shall have been elected and shall
qualify. A list of such officers is attached hereto as Exhibit A.
SECTION 1.07. Board of Directors. The directors of the Merger Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, and such individuals shall serve until their successors shall have
been elected and shall qualify. A list of such directors is attached hereto as
Exhibit B.
A-2
<PAGE> 258
ARTICLE II
SHARE EXCHANGE; CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. The Share Exchange. Consistent with the terms of this
Agreement, as soon as possible after the Effective Time, Parent shall issue the
Parent Ordinary Shares (as defined below) underlying the Parent ADSs (as defined
below) to be issued on behalf of Parent in connection with the Merger (the
"Merger Consideration") and shall cause the Merger Consideration to be delivered
to the Exchange Agent for the account of the former stockholders of the Company,
and the Exchange Agent shall contribute, for the account of the former
stockholders of the Company, all of the issued and outstanding shares of
Surviving Corporation Common Stock (as defined below) to Parent as a transfer in
kind (the "Share Exchange"). Subject to Section 6.14, such exchange shall be
effected in accordance with sec.sec. 203, 185 et seq. (including in particular
sec. 187) of the German Stock Corporation Law (Aktiengesetz) by registering the
implementation of the increase of the Parent stated share capital with the
commercial register (Handelsregister) for Parent. At the Effective Time, the
obligation of the parties to effect the Share Exchange shall be unconditional.
SECTION 2.02. Conversion of Company Common Stock and Series A Preferred
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of the Merger Sub, the Company or the holders of any share of Company
Common Stock or of any share of Series A Cumulative Convertible Preferred Stock,
par value $.0001 per share, of the Company (the "Series A Preferred Stock"), the
outstanding Company Common Stock and Series A Preferred Stock shall be converted
as follows:
(a) each share of Company Common Stock held in the treasury of the
Company or owned by Parent or any direct wholly owned subsidiary of Parent
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof, and no payment shall be made with respect
thereto;
(b) each issued and outstanding share of Series A Preferred Stock,
issued and outstanding immediately prior to the Effective Time shall be
converted, subject to Section 2.05, into the right to receive the greater
of (the "Series A Preferred Stock Exchange Ratio") (i) that number of
Parent American Depositary Shares ("Parent ADSs"), each representing one
ordinary share, without par value, of Parent (the "Parent Ordinary
Shares"), equal to $10.00 divided by the Parent Average Closing Price (as
defined below) and (ii) that number of Parent ADSs equal to a fraction (x)
the numerator of which is the sum of (A) 0.84 plus (B) 1.20 multiplied by
the product of (1) 1.92 and (2) the average closing price per share of
Company Common Stock as reported on the NASDAQ National Market System
("NASDAQ") during the period commencing on the 17th trading day prior to
the Company Stockholders' Meeting and ending on the third trading day prior
to the Company Stockholders' Meeting (the "Determination Period"), and (y)
the denominator of which is the Parent Average Closing Price. For purposes
of this Section 2.02, the "Parent Average Closing Price" shall be the
average closing price per Parent Ordinary Share as reported on the Neuer
Markt segment of the Frankfurt Stock Exchange (the "Neuer Markt") during
the Determination Period converted into U.S. dollars at the average noon
buying rate in New York City for cable transfers in Euros as certified for
customs purposes by the Federal Reserve Bank of New York during the
Determination Period;
(c) each issued and outstanding share of Company Common Stock issued
and outstanding immediately prior to the Effective Time shall be converted,
subject to Section 2.05, into the right to receive that number of Parent
ADSs (the "Common Stock Exchange Ratio") equal to a fraction (i) the
numerator of which is 1,330,000 less the aggregate number of Parent ADSs
issuable pursuant to paragraph (b) of this Section 2.02 and paragraphs
(a)(iii) and (b) of Section 2.04 and (ii) the denominator of which is the
number of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time;
(d) each share of Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
as one validly issued, fully paid and nonassessable
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share of common stock, par value $.0001 per share, of the Surviving
Corporation ("Surviving Corporation Common Stock");
(e) to the extent that any person would otherwise be entitled to
receive a fraction of a Parent ADS pursuant to this Section 2.02, such
fraction shall be treated in accordance with Section 2.06; and
(f) in no event shall the number of Parent ADSs issuable in
connection with the Transactions exceed 1,330,000.
SECTION 2.03. Exchange of Shares of Company Common Stock and Series A
Preferred Stock.
(a) Exchange Fund. The aggregate Merger Consideration transferred by
Parent to the Exchange Agent pursuant to Section 2.01, together with any
dividends or other distributions with respect to Parent ADSs to be made
pursuant to Section 2.03(c), is referred to herein as the "Exchange Fund".
(b) Exchange Procedures. Promptly after the Effective Time, the
Exchange Agent will mail to each former record holder of shares of Company
Common Stock and each former record holder of shares of Series A Preferred
Stock entitled to receive Merger Consideration pursuant to Section 2.02, a
form of letter of transmittal which shall specify that the delivery shall
be effected, and risk of loss and title shall pass, only upon proper
delivery of a certificate or certificates formerly evidencing shares of
Company Common Stock or shares of Series A Preferred Stock (together, the
"Old Company Certificates") to the Exchange Agent and instructions for use
in effecting the surrender to the Exchange Agent of Old Company
Certificates in exchange for Parent ADSs. The letter of transmittal shall
contain such other terms and conditions as Parent and the Company shall
reasonably specify. Upon surrender of an Old Company Certificate to the
Exchange Agent, together with a letter of transmittal duly executed and
completed in accordance with the instructions thereto, and any other
documents reasonably required by the Exchange Agent or Parent and the
Company, (i) the holder of such Old Company Certificate shall be entitled
to receive in exchange therefor (x) an American Depositary Receipt ("ADR")
registered in the name of such holder evidencing the number of whole Parent
ADSs and a check for cash in lieu of any fractional Parent ADS into which
the shares of Company Common Stock or Series A Preferred Stock previously
evidenced by such Old Company Certificate shall have been converted at the
Effective Time and (y) if applicable, a check payable to such holder
representing the payment of any dividends and distributions pursuant to
Section 2.03(c), and (ii) such Old Company Certificate shall forthwith be
canceled. If any cash is to be paid to, or any ADR evidencing Parent ADSs
is to be issued in the name of, a person other than the person in whose
name the Old Company Certificate so surrendered in exchange therefor is
registered, it shall be a condition of the payment or issuance that the Old
Company Certificate so surrendered shall be properly endorsed or otherwise
in proper form for transfer and that the person requesting such exchange
shall pay any transfer or other taxes required by reason of the payment of
cash to, or the issuance of an ADR evidencing Parent ADSs in the name of, a
person other than the registered holder of the Old Company Certificate so
surrendered or shall establish to the satisfaction of the Exchange Agent
and Parent that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.03, each
Old Company Certificate shall, at and after the Effective Time, represent
for all purposes only the right to receive Parent ADSs, cash in lieu of any
fractional Parent ADS and any dividends and distributions as provided in
Section 2.03(c), if any.
(c) Dividends; Distributions. No dividends or other distributions
declared after the Effective Time on Parent ADSs and payable to the holders
of record thereof after the Effective Time shall be paid to the holder of
any unsurrendered Old Company Certificates with respect to which the Parent
ADSs shall have been issued in the Merger. All such dividends or other
distributions shall be paid to the Exchange Agent (on behalf of holders of
unsurrendered Old Company Certificates) and shall be included in the
Exchange Fund, in each case until such Old Company Certificates shall be
surrendered as provided herein, but (i) upon such surrender there shall be
paid to the person in whose name the ADRs evidencing such Parent ADSs shall
be issued and registered the amount of
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dividends theretofore paid with respect to such Parent ADSs as of any date
subsequent to the Effective Time, and (ii) at the appropriate payment date
or as soon as practicable thereafter, there shall be paid to such person
the amount of dividends with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such Parent ADSs, subject in any case to any applicable
abandoned property, escheat and similar laws. No interest shall be payable
with respect to the payment of such dividends on the surrender of any
outstanding Old Company Certificates.
(d) No Further Rights in Company Common Stock and Series A Preferred
Stock. All Parent ADSs issued upon conversion of the Company Common Stock
and the Series A Preferred Stock in accordance with the terms hereof
(including any cash paid pursuant to Sections 2.03(b) and 2.03(c)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
the Company Common Stock and the Series A Preferred Stock.
(e) Transfer Books. After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of shares of Company Common Stock and shares of
Series A Preferred Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Old Company Certificates are
presented to the Surviving Corporation, they shall be canceled and
exchanged for ADRs evidencing Parent ADSs or cash, or both, in accordance
with the procedures set forth in this Article II.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the holders of the Old Company Certificates
one year after the Effective Time shall be delivered by the Exchange Agent
to a depositary bank designated by Parent, upon demand, whereupon such
depositary bank shall hold the Exchange Fund on behalf of holders of
unsurrendered Old Company Certificates, and any holders of the Old Company
Certificates who have not theretofore complied with this Section 2.03 shall
thereafter look only to Parent or such depositary bank for payment of their
claim for Merger Consideration and any dividends or distributions with
respect to Parent ADSs and Parent shall cause the depositary bank to
satisfy such claim. Such depositary bank shall maintain an office in the
City of New York where holders of Old Company Certificates may comply with
this Article II. No interest shall be paid in respect of any property or
amounts held in the Exchange Fund.
(g) Withholding Taxes. Each of the Exchange Agent and Parent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Old Company Certificates such
property or amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state,
local or non-U.S. tax law. To the extent that any property or amounts are
so withheld by the Exchange Agent or Parent, as the case may be, such
withholdings shall be treated for all purposes of this Agreement as having
been paid to the holder of the Old Company Certificate in respect of which
such deduction and withholding was made by the Exchange Agent or Parent, as
the case may be.
(h) No Liability. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any Parent ADSs,
any dividends or distributions with respect to Parent ADSs or any cash from
the Exchange Fund, in each case properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(i) Lost, Stolen Or Destroyed Certificates. If any Old Company
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming such Old Company
Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such
reasonable amount as such entity may direct as indemnity against any claim
that may be made against it with respect to such Old Company Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Old Company Certificate the appropriate number of Parent ADSs,
determined pursuant to Section 2.02, cash in lieu of any fractional Parent
ADS and, if applicable, any unpaid dividends and distributions on Parent
ADSs deliverable in respect thereof, in each case pursuant to this
Agreement.
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SECTION 2.04. Treatment of the Company Stock Plans and the Company
Warrants. (a) Subject to the consummation of the Merger, not later than
immediately prior to the Effective Time (i) the Company shall terminate the
Company Stock Plans (as defined below) and any other plan, program or
arrangement providing for the issuance, grant or purchase of any other interest
in respect of the capital stock of the Company without prejudice to the Company
Optionholders (as defined below); (ii) the Company shall cause all amounts
currently held as cash in participant accounts under the Company's Employee
Stock Purchase Plan to be returned to the applicable participants and all
previously purchased shares of Company Common Stock held in such accounts to be
distributed to the applicable participants; and (iii) the Parent and the Company
shall take all actions necessary to provide that each holder (a "Company
Optionholder") of an employee stock option (each a "Company Stock Option") that
is outstanding immediately prior to the Effective Time will be given the right
to receive, in exchange for each such Company Stock Option (whether or not then
vested and exercisable), that fraction of a Parent ADS equal to the "fair value"
of such Company Stock Option (calculated as generally accepted using the
"Black-Scholes" methodology, and as agreed to in good faith by
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") and Ernst & Young LLC
("Ernst & Young")), calculated as of the last day of the Determination Period,
divided by the Parent Average Closing Price (the "Option Exchange").
(b) Subject to the consummation of the Merger, not later than immediately
prior to the Effective Time, the Parent and the Company shall take all actions
necessary to provide that each holder (a "Company Warrantholder") of a warrant
to acquire Company Common Stock (each a "Warrant") that is outstanding
immediately prior to the Effective Time will be given the right to receive, in
exchange for each such Warrant (whether or not then exercisable), that fraction
of a Parent ADS equal to the "fair value" of such Warrant (calculated as
generally accepted using the "Black-Scholes" methodology, and as agreed to in
good faith by PricewaterhouseCoopers and Ernst & Young), calculated as of the
last day of the Determination Period, divided by the Parent Average Closing
Price (the "Warrant Exchange" and, together with the Option Exchange, the
"Option and Warrant Exchange").
(c) To the extent that any person would otherwise be entitled to receive a
fraction of a Parent ADS pursuant to this Section 2.04, such fraction shall be
treated in accordance with Section 2.06.
SECTION 2.05. Antidilution Protection For Exchange Ratio. If, between the
date of this Agreement and the Effective Time, the outstanding Parent Ordinary
Shares or shares of Company Common Stock or Series A Preferred Stock shall have
been changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, stock split, combination or exchange of
shares or a stock dividend or dividend payable in any other securities shall be
declared with a record date within such period, or any similar event shall have
occurred, the Common Stock Exchange Ratio and the Series A Preferred Stock
Exchange Ratio, as the case may be, shall be appropriately adjusted to provide
to the holders of Company Common Stock and Series A Preferred Stock the same
economic effect as contemplated by this Agreement prior to such event.
SECTION 2.06. Treatment of Fractional Shares. (a) As promptly as
practicable following the Effective Time, the Exchange Agent will determine the
excess of (x) the aggregate number of Parent ADSs delivered to the Exchange
Agent over (y) the aggregate number of whole Parent ADSs to be distributed in
connection with the Merger (such excess being referred to herein as the "Excess
Shares"). Following the Effective Time the Exchange Agent will, on behalf of the
former stockholders of the Company, sell the Excess Shares at then-prevailing
prices on NASDAQ in the manner provided in Section 2.06(b).
(b) The sale of the Excess Shares by the Exchange Agent will be executed
on NASDAQ through one or more member firms and will be executed in round lots to
the extent practicable. The Exchange Agent will use reasonable efforts to
complete the sale of the Excess Shares as promptly following the Effective Time
as, in its sole judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market conditions. Until the net
proceeds of such sale or sales have been distributed to the former stockholders
of the Company, the Exchange Agent will hold such proceeds in trust for such
holders (the "Company Shares Trust"). All commissions, transfer taxes and other
out-of-
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pocket transaction costs incurred in connection with such sale of Excess Shares
shall be deducted from the proceeds of such sale. The Exchange Agent will
determine the portion of the Company Shares Trust to which each holder of
Company Common Stock or Series A Preferred Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of Company Common Stock or Series
A Preferred Stock is entitled (after taking into account all such shares held at
the Effective Time by such holder) and the denominator of which is the aggregate
amount of fractional share interests to which all holders of Company Common
Stock or Series A Preferred Stock are entitled pursuant to the Merger.
(c) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock and Series A Preferred
Stock with respect to fractional share interests, the Exchange Agent will make
available such amounts to such holders. The parties acknowledge that the payment
of cash in lieu of the issuance of fractional Parent ADSs is not separately
bargained for consideration but merely represents a mechanical rounding off to
avoid the administrative and accounting issues that may be caused by the
issuance of fractional Parent ADSs.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent that:
SECTION 3.01. Organization and Qualification; Subsidiaries. (a) The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Company Material Adverse Effect. The Company is duly qualified or licensed as a
foreign corporation to do business, and is in good standing in each jurisdiction
where the character of the properties owned, leased or operated by it or the
nature of its business makes such qualification or licensing necessary, except
for such failures to be so qualified or licensed and in good standing that would
not, individually or in the aggregate, have a Company Material Adverse Effect.
The term "Company Material Adverse Effect" means any change in or effect on the
business conducted by the Company that, individually or in the aggregate with
any other changes in or effects on the business conducted by the Company is
materially adverse to the business, operations, properties, financial condition,
assets or liabilities (including, without limitation, contingent liabilities) or
prospects of the Company.
(b) As of the date of this Agreement, the Company has no subsidiaries.
Except as set forth in Section 3.01(a) of the Disclosure Schedule delivered by
the Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule"), the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation, limited
liability company, partnership, joint venture or other business association or
entity.
SECTION 3.02. Certificate of Incorporation and Bylaws. The copy of the
Company's Restated Certificate of Incorporation and the copy of the Company's
Bylaws, each as amended to date, that are both incorporated by reference as
exhibits to the Company's Form 10-K for the period ending December 31, 1998 are
complete and correct copies thereof. Such Restated Certificate of Incorporation
and Bylaws are in full force and effect. The Company is not in violation of any
of the provisions of its Restated Certificate of Incorporation or Bylaws.
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 20,000,000 shares of
preferred stock, par value $.0001 per share (the "Company Preferred Stock"). As
of the date hereof, (i) 14,017,001 shares of Company Common Stock are issued and
outstanding, all of which were validly issued, fully paid and nonassessable,
(ii) no
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shares of Company Common Stock are held in the treasury of the Company, (iii)
1,750,000 shares of Series A Preferred Stock are authorized of which 1,605,025
shares are issued and outstanding, all of which were validly issued, fully paid
and nonassessable, (iv) 4,000 shares of Series M Preferred Stock and 1,000
shares of Series M1 Preferred Stock are authorized, all of which are issued and
outstanding and were validly issued, fully paid and nonassessable, (v) 1,222,452
shares of Company Common Stock were reserved for future issuance pursuant to the
terms of the Warrants and (vi) 3,111,317 shares of Company Common Stock were
reserved for issuance pursuant to Company Stock Options granted pursuant to the
benefit plans set forth on Section 3.03(a) of the Company Disclosure Schedule
(the "Company Stock Plans"). Except for the Company Stock Options granted
pursuant to the Company Stock Plans and shares of Company Common Stock issuable
pursuant to the Company Stock Plans, the issuance of shares of Company Common
Stock upon the conversion of the Company's Series A Preferred Stock and the
issuance of shares of Company Common Stock upon the exercise of the Company's
Warrants, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company is a party or
by which the Company is bound relating to the issued or unissued capital stock
of the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. All shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except as
set forth in Section 3.03(b) of the Company Disclosure Schedule, there are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in any person. Section 3.03(c) of the Company Disclosure Schedule contains a
true and complete list of all Warrants of the Company currently outstanding and
exercisable, setting forth the name of the current holder of such Warrant, the
number of shares for which such Warrant is exercisable, the exercise price and
the expiration date. There are no registration rights that are currently
exercisable relating to any Warrants or to any shares of Company Common Stock
underlying the Warrants and following the Effective Time, no such registration
rights will be exercisable.
SECTION 3.04. Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the adoption of this
Agreement by the affirmative vote of a majority of the outstanding shares of
Company Common Stock entitled to vote with respect thereto at the Company
Stockholders' Meeting and the filing and recordation of the Certificate of
Merger as required by the DGCL). This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations hereunder and the consummation of the Transactions
will not, (i) conflict with or violate any provision of the Restated Certificate
of Incorporation or Bylaws of the Company, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 3.05(b) have been
obtained and all filings and notifications described in Section 3.05(b) have
been made, conflict with or violate any United States (federal, state or local)
or foreign statute, law, ordinance, regulation, rule, code, executive order,
injunction, judgment, decree or other order ("Law") applicable to the Company or
by which any property or asset of the Company is bound or affected or (iii)
except as set forth in Section 3.05(a) of the Company Disclosure Schedule,
result in any breach of or constitute a default (or an event which with the
giving of notice or
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lapse of time or both would become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, Company Permit (as defined below), franchise or other instrument or
obligation, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would
neither, individually or in the aggregate, (A) have a Company Material Adverse
Effect nor (B) prevent or materially delay the performance by the Company of its
obligations under this Agreement or the consummation of the Transactions.
(b) The execution and delivery of this Agreement by the Company do not,
and the performance by the Company of its obligations hereunder and the
consummation of the Transactions will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any United States
federal, state or local or any supranational or foreign governmental, regulatory
or administrative authority, agency or commission or any court, tribunal or
arbitral body (a "Governmental Entity"), except (i) applicable requirements of
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), the Securities Act of
1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), state securities or "blue sky" laws ("Blue
Sky Laws"), the rules and regulations of NASDAQ, the rules and regulations of
the Neuer Markt, state takeover laws, the premerger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act"), the filing and recordation of
the Certificate of Merger as required by the DGCL and as set forth in Section
3.05(b) of the Company Disclosure Schedule, and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) prevent or materially delay the performance by the
Company of its obligations under this Agreement or the consummation of the
Transactions or (B) individually or in the aggregate have a Company Material
Adverse Effect.
SECTION 3.06. Permits; Compliance with Laws. (a) The Company has in effect
of all franchises, grants, authorizations, licenses, permits, easements,
variances, exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for the Company to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"Company Permits"), and all the Company Permits are valid and in full force and
effect, except where the failure to have, or the suspension or cancellation of,
any of the Company Permits, or the failure of any of such Company Permits to be
valid and in effect would not, individually or in the aggregate, (i) have a
Company Material Adverse Effect, or (ii) except as described in Section 3.06(a)
of the Company Disclosure Schedule, prevent or materially delay the performance
by the Company of its obligations under this Agreement or the consummation of
the Transactions, and, as of the date of this Agreement, no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Company Permits would not, individually or in the
aggregate, (i) have a Company Material Adverse Effect or (ii) prevent or
materially delay the performance by the Company of its obligations under this
Agreement or the consummation of the Transactions.
(b) Except as disclosed in Section 3.06(b) of the Company Disclosure
Schedule, the Company is not in conflict with, or in default or violation of,
(i) any Law applicable to the Company or by which any property or asset of the
Company is bound or affected, (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any
property or asset of the Company is bound or affected or (iii) any Company
Permits, except in the case of each of clauses (i), (ii) or (iii) for any such
conflicts, defaults or violations that would neither individually nor in the
aggregate, (A) have a Company Material Adverse Effect nor (B) prevent or
materially delay the performance by the Company of its obligations under this
Agreement or the consummation of the Transactions.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1996 through the date of this
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Agreement (collectively, the "Company Reports"). The Company Reports were
prepared, and all forms, reports and documents filed with the SEC after the date
of this Agreement and prior to the Effective Time will be prepared, in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and contained or will contain all exhibits required to be filed
pursuant to the Securities Act or the Exchange Act, as the case may be, and none
of the Company Reports contained, at the time it was filed, or, if amended, as
of the date of such amendment, nor will any forms, reports and documents filed
with the SEC after the date of this Agreement and prior to the Effective Time
contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company Reports and in any form,
report or document filed after the date of this Agreement and prior to the
Effective Time was, or will be, as the case may be, prepared in accordance with
U.S. GAAP, except in the case of unaudited statements as permitted by Form 10-Q
under the Exchange Act, applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and each fairly
presents, or will fairly present, in all material respects, the consolidated
financial position of the Company and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
their consolidated cash flows for the respective periods indicated therein,
except as otherwise noted therein (subject, in the case of unaudited statements,
to normal and recurring year-end adjustments which were not, and are not
expected, individually or in the aggregate, to have a Company Material Adverse
Effect). The books and records of the Company have been and are being maintained
in accordance with U.S. GAAP and any other applicable legal and accounting
requirements.
(c) Except as and to the extent set forth on the audited balance sheet of
the Company at December 31, 1998, including the notes thereto, as included in
the Company's Form 10-K for the year ended December 31, 1998 (the "1998 Company
Balance Sheet"), the Company does not have any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) which would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with U.S. GAAP, except for liabilities and obligations incurred
since December 31, 1998, which would not have a Company Material Adverse Effect.
(d) The Company has heretofore furnished to Parent complete and correct
copies of all amendments and modifications that have not been filed by the
Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
SECTION 3.08. Absence of Certain Changes or Events. Since December 31,
1998, except as set forth in Section 3.08 of the Company Disclosure Schedule, or
as expressly contemplated by this Agreement, or specifically disclosed in any
Company Report filed since December 31, 1998 and prior to the date of this
Agreement, (a) the Company has conducted its business only in the ordinary
course and in a manner consistent with past practice, (b) there has not been any
Company Material Adverse Effect, and (c) the Company has not taken any action
that, if taken after the date of this Agreement, would constitute a breach of
any of the covenants set forth in Section 5.01.
SECTION 3.09. Absence of Litigation. Except as set forth in Section 3.09 of
the Company Disclosure Schedule or as disclosed in the Company Reports filed
with the SEC prior to the date of this Agreement, there is no litigation, suit,
claim, action, arbitration or proceeding, or inquiry or investigation of which
the Company has received notice, pending or, to the knowledge of the Company,
threatened against the Company or any property or asset of the Company, by or
before any court, arbitrator or Governmental Entity, domestic or foreign, which
(i) if determined in a manner adverse to the Company, would, individually or in
the aggregate, have a Company Material Adverse Effect, or (ii) seeks to delay or
prevent the consummation of any Transaction. Neither the Company nor any
property or asset of the
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Company is subject to any order, writ, judgment, injunction, decree,
determination or award having, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. (a) Section 3.10(a) of the Company
Disclosure Schedule contains a true and complete list of (i) each employee
benefit plan (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and each other bonus, stock
option, stock purchase, restricted stock, incentive, deferred compensation,
retiree medical or life insurance, supplemental retirement, severance or other
material benefit plans, programs or arrangements, and all employment,
termination, severance or other contracts or agreements to which the Company is
a party, with respect to which the Company has any obligation or which are
maintained, contributed to or sponsored by the Company for the benefit of any
current or former employee, officer or director of the Company, (ii) each
employee benefit plan which is subject to Title IV of ERISA or Section 302 of
the Code or the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and which is maintained, contributed to or to which there is
an obligation to contribute by Company or any affiliate, (iii) any plan in
respect of which the Company could incur liability under Section 4212(c) of
ERISA and (iv) any material contracts, arrangements or understanding between the
Company or any of its affiliates and any employee of the Company, including,
without limitation, any contracts, arrangements or understandings relating to
the sale of the Company (collectively, the "Plans"). Each Plan is in writing and
the Company has previously furnished Parent with a true and complete copy of
each Plan and a true and complete copy of each material document prepared in
connection with each such Plan, or if such Plan is not set forth in a written
document, the Company has previously furnished Parent with a written summary of
such Plan, including, without limitation, (i) a copy of each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the Internal Revenue Service ("IRS") Form 5500, filed with
respect to the three most recent plan years (iv) the most recently received IRS
determination letter for each such Plan, and (v) the actuarial report and
financial statement prepared in connection with each such Plan with respect to
the three most recent plan years. Other than as specifically disclosed in
Section 3.10(a) of the Company Disclosure Schedule, there are no other material
employee benefit plans, programs, arrangements or agreements, whether formal or
informal, whether in writing or not, to which the Company is a party, with
respect to which the Company has any obligation or which are maintained,
contributed to or sponsored by the Company, for the benefit of any current or
former independent contractor of the Company or any current or former employee,
officer or director of the Company. None of the Company or any affiliate has any
express or implied commitment (i) to create, incur liability with respect to or
cause to exist any other employee benefit plan, program or arrangement, (ii) to
enter into any contract or agreement to provide compensation or benefits to any
individual or (iii) to modify, change or terminate any Plan, other than with
respect to a modification, change or termination required by ERISA or the Code
or as specifically required by the terms of this Agreement.
(b) Other than as specifically disclosed in Section 3.10(b) of the Company
Disclosure Schedule, none of the Plans (i) is a multiemployer plan, within the
meaning of Sections 3(37) or 4001(a)(3) of ERISA (a "Multiemployer Plan"), or a
single employer pension plan, within the meaning of Section 4001(a)(15) of
ERISA, for which the Company could incur liability under Sections 4063 or 4064
of ERISA (a "Multiple Employer Plan"); (ii) provides for the payment of
separation, severance, termination or similar-type benefits to any person; (iii)
obligates the Company to pay separation, severance, termination or other
benefits as a result of any Transaction; (iv) obligates the Company to make any
payment or provide any benefit that could likely be subject to a tax under
Section 4999 of the Code; or (v) provides for or promises post-termination of
employee welfare plan benefits within the meaning of Section 3(3) of ERISA,
including, without limitation, post-retirement medical or life insurance
benefits, to any current or former employee, officer or director of the Company,
except for the continuation of health care benefits under COBRA. With respect to
each Multiemployer Plan and Multiple Employer Plan, Section 3.10(b) of the
Disclosure Schedule sets forth an accurate and current statement of the total
amount of withdrawal liability that the Company would incur in the event of a
complete withdrawal, within the meaning of Title IV of ERISA, from each such
plan. Each of the Plans is subject only to the laws of the United States or a
political subdivision thereof.
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(c) Each Plan which is intended to be qualified under Section 401(a) or
Section 401(k) of the Code has received a favorable determination letter from
the IRS that such Plan is so qualified, and each trust established in connection
with any Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. No fact or event has occurred since the date of any
such determination letter from the IRS that could likely have an adverse affect
on the qualified status of any such Plan or the exempt status of any such trust.
Each trust maintained or contributed to by the Company for the benefit of any
current or former independent contractor of the Company or any current or former
employee, officer or director of the Company which is intended to be qualified
as a voluntary employees' beneficiary association exempt from federal income
taxation under Sections 501(a) and 501(c)(9) of the Code has received a
favorable determination letter from the IRS that it is so qualified and so
exempt, and no fact or event has occurred since the date of such determination
by the IRS that could adversely affect such qualified or exempt status.
(d) There has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. None
of the Company or any affiliate is currently liable or has previously incurred
any liability for any tax or penalty arising under Sections 4971, 4972, 4979,
4980 or 4980B of the Code or Sections 502(c) or 4204, of ERISA, and no fact or
event exists which could give rise to any such liability. None of the Company or
any affiliate has incurred any liability under, arising out of or by operation
of Title IV of ERISA (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course), including, without
limitation, any liability in connection with (i) the termination or
reorganization of any employee pension benefit plan subject to Title IV of ERISA
or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer Plan,
and no fact or event exists which could give rise to any such liability. No
complete or partial termination for purposes of ERISA has occurred within the
five years preceding the date hereof with respect to any Plan that the Company
has maintained, sponsored or contributed to during the six-year period preceding
the Effective Time. No reportable event (within the meaning of Section 4043 of
ERISA) has occurred or is expected to occur with respect to any Plan subject to
Title IV of ERISA. No asset of the Company is the subject of any lien arising
under Section 302(f) of ERISA or Section 412(n) of the Code; the Company has not
been required to post any security under Section 307 of ERISA or Section
401(a)(29) of the Code; and no fact or event exists which could give rise to any
such lien or requirement to post any such security.
(e) Each Plan is now and has always been operated in all material respects
in accordance with the requirements of all applicable Laws, including, without
limitation, ERISA and the Code, and all persons who participate in the operation
of such Plans and all Plan "fiduciaries" (within the meaning of Section 3(21) of
ERISA) have always acted in all material respects in accordance with the
provisions of all applicable Laws, including, without limitation, ERISA and the
Code. The Company has always performed all material obligations required to be
performed by it under, is not in any respect in default under or in violation
of, and has no knowledge of any default or violation by any party to, any Plan.
No legal action, suit or claim is pending or, to the Company's knowledge,
threatened with respect to any Plan (other than claims for benefits in the
ordinary course) and no fact or event exists that could likely give rise to any
such action, suit or claim. No Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived. All contributions, premiums or payments required
to be made with respect to any Plan are fully deductible for income tax purposes
to the extent permitted by applicable Law, and no such deduction previously
claimed has been challenged by any Governmental Entity. The unaudited balance
sheet of the Company as at September 30, 1999, including the notes thereto, as
included in the Company's Form 10-Q (the "Third Quarter 1999 Company Balance
Sheet") reflects an accrual of all amounts of employer contributions and
premiums accrued but unpaid with respect to the Plans. With respect to each Plan
subject to Title IV of ERISA, the projected benefit obligations ("PBO") of each
such Plan (determined in accordance with the assumptions utilized by the Pension
Benefit Guaranty Corporation on a termination basis) does not exceed the fair
market value of the assets of such Plan (determined as of the date of the most
recent actuarial valuation) attributable to such obligations.
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(f) Other than as specifically disclosed in Section 3.10(f) of the Company
Disclosure Schedule, the Company is in compliance with the requirements of the
Americans with Disabilities Act.
(g) The Company has not incurred any liability under, and has complied in
all respects with, the Worker Adjustment Retraining Notification Act and the
regulations promulgated thereunder and all similar state and local
"plant-closing" laws ("WARN"), and does not reasonably expect to incur any such
liability as a result of actions taken or not taken prior to the Effective Time.
Section 3.10(g) of the Company Disclosure Schedule lists (i) all the employees
terminated or laid off by the Company during the 90 days prior to the date
hereof and (ii) all the employees of the Company who have experienced a
reduction in hours of work of more than 50% during any month during the 90 days
prior to the date hereof and describes all notices given by the Company in
connection with WARN. The Company will, by written notice to Parent, update
Section 3.10(g) of the Company Disclosure Schedule to include any such
terminations, layoffs and reductions in hours from the date hereof through the
Effective Time and will provide Parent with any related information which they
may reasonably request.
(h) The Company has made available to Parent true and complete copies of,
and where not written, written summaries of (i) all employment and consulting
agreements or other arrangements with executive officers of the Company and with
each other officer of the Company providing for annual compensation in excess of
$60,000, (ii) all severance plans, agreements, programs and policies of the
Company with or relating to its employees, (iii) all bonus plans, agreements,
programs and policies of the Company with or relating to its employees whether
written or unwritten, and (iv) all plans, programs, agreements and other
arrangements of the Company with or relating to its employees which contain
"change of control" provisions or provide for the acceleration of vesting or the
payment of benefits.
(i) Other than as specifically disclosed in Section 3.10(i) of the Company
Disclosure Schedule, no amount paid or payable by the Company in connection with
the Transactions either solely as a result thereof or as a result of such
Transactions in conjunction with any other events will be an "excess parachute
payment" within the meaning of Section 280G of the Code and there are no
agreements or arrangements in place that would result, individually or in the
aggregate, in the actual or deemed payment by the Company of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(j) Except as provided in Section 3.10(j) of the Company Disclosure
Schedule or as otherwise required by Law, no Company Benefit Plan provides
retiree medical or retiree life insurance benefits to any person, except for any
continuation of health care benefits under COBRA.
SECTION 3.11. Labor Matters. (a) Except as set forth in Section 3.11(a) of
the Company Disclosure Schedule, (i) there are no controversies pending or, to
the knowledge of the Company, threatened between the Company and any of its
employees, other than routine proceedings for unemployment or worker's
compensation benefits; (ii) the Company is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company, nor are there any activities or proceedings of any
labor union to organize any such employees; (iii) the Company has not breached
or otherwise failed to comply with any provision of any collective bargaining
agreement or union contract, and there are no grievances outstanding against the
Company under any such agreement or contract; (iv) there are no unfair labor
practice complaints pending against the Company before the National Labor
Relations Board or any current union representation questions involving
employees of the Company; (v) there is no strike, slowdown, work stoppage or
lockout, or, to the knowledge of the Company, threat thereof, by or with respect
to any employees of the Company; (vi) the Company is in material compliance with
all applicable Laws relating to the employment of labor, including, but not
limited to, those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by the appropriate
Governmental Entity and the Company has withheld and paid to the appropriate
Governmental Entity or is holding for payment not yet due to such Governmental
Entity all amounts required to be withheld from employees of the Company and is
not liable for any arrears of wages, taxes, penalties or other sums for failure
to comply with any of the foregoing; (vii) the Company has paid in full to all
its employees or adequately accrued for in accordance with U.S. GAAP all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
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behalf of such employees; and (viii) there is no charge of discrimination in
employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or threatened before the United States
Equal Employment Opportunity Commission, or any other Governmental Entity in any
jurisdiction in which the Company has employed or currently employs any Person.
(b) Section 3.11(b) of the Company Disclosure Schedule lists the name,
accrued vacation, the place of employment, the current annual salary rates,
bonuses, deferred or contingent compensation, pension, "golden parachute" and
other like benefits paid or payable (in cash or otherwise) in the fiscal year
ended December 31, 1999 and which the Company has an obligation or is required
to pay, or which are scheduled for payment, in the fiscal year ending December
31, 2000, the date of employment and a description of the position and job
function of each current salaried employee whose total annual compensation
exceeds $90,000, officer and director of the Company and of each consultant or
agent of the Company whose total annual compensation for services provided
exceeds $90,000 who is employed or otherwise engaged in the Company.
SECTION 3.12. Real Property and Leases. (a) Section 3.12(a) of the Company
Disclosure Schedule lists: (i) the street address of each parcel of real
property leased by the Company, as tenant, (ii) the identity of the lessor,
lessee and current occupant (if different from lessee) of each such parcel of
leased real property and (iii) the current use of each such parcel of leased
real property.
(b) The Company has delivered to the Parent true and complete copies of
all leases and subleases listed in Section 3.12(a) of the Company Disclosure
Schedule and any and all material ancillary documents pertaining thereto
(including, but not limited to, all amendments, consents for alterations and
documents recording variations and evidence of commencement dates and expiration
dates).
(c) The Company has sufficient title or leasehold interests to all its
properties and assets to conduct its business as currently conducted or as
contemplated to be conducted.
(d) All leases of real property leased for the use or benefit of the
Company to which the Company is a party requiring rental payments in excess of
$100,000 during the period of the lease, and all amendments and modifications
thereto, are in full force and effect and have not been modified or amended, and
there exists no default under any such lease by the Company, nor any event
which, with notice or lapse of time or both, would constitute a default
thereunder by the Company, which would permit any such lease to be terminated by
the other party thereto.
(e) To the knowledge of the Company, there are no contractual or legal
restrictions that preclude or restrict the ability to use any real property
leased by the Company for the purposes for which it is currently being used. To
the knowledge of the Company, there are no material latent defects or material
adverse physical conditions affecting the real property, and improvements
thereon, leased by the Company other than those which would not, individually or
in the aggregate, have a Company Material Adverse Effect.
SECTION 3.13. Intellectual Property.
(a) "Intellectual Property" shall mean: trademarks, service marks, trade
names, URLs and Internet domain names, designs and slogans (collectively,
"Trademarks"); patents (including any registrations, continuations,
continuations in part, renewals and applications for any of the foregoing);
copyrights (including any registrations and applications therefor); computer
software; databases; technology, trade secrets, confidential information,
know-how, proprietary processes, proprietary formulae, proprietary algorithms,
proprietary models, customer lists, inventions, source codes and object codes
(collectively, "Trade Secrets").
(b) Section 3.13(b) of the Company Disclosure Schedule sets forth, for the
Intellectual Property owned by the Company, a complete and accurate list of all
United States and foreign (i) patents and patent applications; (ii) Trademark
registrations (including material Internet domain registrations) and
applications and material unregistered Trademarks; and (iii) copyright
registrations and applications,
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indicating for each, the applicable jurisdiction, registration number (or
application number), and date issued (or date filed).
(c) Section 3.13(c) of the Company Disclosure Schedule sets forth a
complete and accurate list of all material license agreements granting to the
Company any right to use or practice any rights under any Intellectual Property
other than Intellectual Property which is used for infrastructural purposes and
is commercially available on reasonable terms, (collectively, the "License
Agreements"), indicating for each the title and the parties thereto;
(d) Except as disclosed in Section 3.13(d) of the Company Disclosure
Schedule or as would not have a Company Material Adverse Effect:
(i) the Company owns, free and clear of any mortgage, pledge,
security interest, attachment, encumbrance, lien or charge of any kind,
judgment, order or decree of any court or Government Entity and arbitration
awards, all Intellectual Property used in the Company's business, and has a
valid and enforceable right to use all of the Intellectual Property
licensed to the Company and used in the Company's business;
(ii) the conduct of the Company's business as currently conducted
does not infringe upon any Intellectual Property rights of any third party;
(iii) there is no suit, action, arbitration, cause of action, claim,
complaint, criminal prosecution, investigation, demand letter, governmental
or other administrative proceeding, whether at law or at equity, before or
by any court or Governmental Entity or before any arbitrator pending or, to
the Company's knowledge, threatened, or any written claim from any person
(A) alleging that the Company's activities or the conduct of its businesses
infringes upon, violates, or constitutes the unauthorized use of the
Intellectual Property rights of any third party or (B) challenging the
ownership, use, validity or enforceability of any Intellectual Property
owned by the Company or, to the knowledge of the Company, licensed to the
Company;
(iv) to the knowledge of the Company, no third party is
misappropriating, infringing, diluting, or violating any Intellectual
Property owned by the Company and no such claims have been brought against
any third party by the Company; and
(v) the execution, delivery and performance by the Company of this
Agreement, and the consummation of the Transactions will not result in the
loss or impairment of, or give rise to any right of any third party to
terminate, any of the Company's rights to own any of its Intellectual
Property or its rights under the License Agreements, nor require the
consent of any Governmental Entity or third party in respect of any such
Intellectual Property.
(vi) The Software owned or purported to be owned by the Company was
either (A) developed by employees of Company within the scope of their
employment; (B) developed by independent contractors who have assigned
their rights to the Company pursuant to written agreements; or (C)
otherwise acquired by the Company from a third party. For purposes of this
Section 3.13(d)(vi), "Software" means any and all (v) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (w) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (x) descriptions, flow-charts and other work
product used to design, plan, organize or develop any of the foregoing, (y)
the technology supporting any Internet site(s) operated by or on behalf of
the Company and (z) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(e) All material Trademarks registered in the United States or any foreign
jurisdiction have been in continuous use by the Company. To the knowledge of the
Company, there has been no prior use of such Trademarks by any third party which
would confer upon such third party superior rights in such Trademarks; and the
material Trademarks registered in the United States or any foreign jurisdiction
have
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been continuously used in the form appearing in, and in connection with the
goods and services listed in, their respective registration certificates.
(f) Except as would not have a Company Material Adverse Effect, the
Company has taken reasonable steps in accordance with normal industry practice
to protect the Company's rights in confidential information and Trade Secrets of
the Company. Without limiting the foregoing and except as would not have a
Company Material Adverse Effect, since June 17, 1996 the Company has enforced a
policy of requiring each relevant employee, consultant and contractor to execute
proprietary information, confidentiality and assignment agreements substantially
in the Company's standard forms, and, except under confidentiality obligations,
to the knowledge of the Company there has been no disclosure by the Company, any
of its agents, employees, consultants, contractors or other third party of
material confidential information or Trade Secrets.
SECTION 3.14. Year 2000 Compliance. The Company has (i) undertaken an
assessment of those Company Systems that could be adversely affected by a
failure to be Year 2000 Compliant, (ii) developed a plan and time line for
rendering such Company Systems Year 2000 Compliant, and (iii) to date,
implemented such plan in accordance with such timetable in all material
respects. Based on such inventory, review and assessment, all Company Systems
are Year 2000 Compliant or will be Year 2000 Compliant as required to avoid
having a Company Material Adverse Effect. The Company estimates that, as of June
30, 1999, the total remaining cost of rendering the Company Systems Year 2000
Compliant was $90,000. "Company Systems" means all computer, hardware, Software,
Software systems and equipment (including embedded microcontrollers in
non-computer equipment) embedded within or required to operate the products of
the Company (including existing products and technology and products and
technology currently under development), and/or material to or necessary for the
Company to carry on its business as currently conducted. "Year 2000 Compliant"
means that the Company Systems provide uninterrupted millennium functionality in
that the Company Systems will record, store, process and present calendar dates
falling on or after January 1, 2000, in the same manner and with the same
functionality as the Company Systems record, store, process and present calendar
dates falling on or before December 31, 1999.
SECTION 3.15. Taxes. (a) For purposes of this Agreement, "Tax" or "Taxes"
means any and all taxes, fees, levies, duties, tariffs, imposts, and other
charges of any kind (together with any and all interest, penalties, additions to
tax and additional amounts imposed with respect thereto or with respect to the
failure to file any Return in a timely manner) imposed by any governmental or
taxing authority including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges.
(b) (i) All returns and reports in respect of Taxes ("Returns") required
to be filed by or with respect to the Company or any of its former subsidiaries
or any consolidated, combined or unitary group of which the Company is or was a
member since December 31, 1995 have been timely filed; (ii) all Returns required
to be filed by or with respect to the Company or any of its former subsidiaries
or any consolidated, combined or unitary group of which the Company is or was a
member prior to January 1, 1996 have been filed; (iii) all Taxes required on
such Returns have been timely paid or accrued for on the books of accounts of
the Company; (iv) all such Returns are true, correct and complete in all
material respects; (v) no adjustment in excess of $5,000 relating to such
Returns has been proposed formally or informally by any taxing authority; (vi)
there are no pending or, to the best knowledge of the Company, threatened
actions or proceedings for the assessment or collection of Taxes or in respect
of any liability for Taxes against the Company; (vii) no consent under Section
341(f) of the Code has been filed with respect to the Company; (viii) there are
no tax liens on any assets of the Company; (ix) no acceleration of the vesting
schedule, payment or delivery for any (A) property that is substantially
nonvested within the meaning of the regulations under Section 83 of the Code, or
(B) any form of incentive award (excluding the Company Stock Options) will occur
in connection with the transactions contemplated by this
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Agreement; (x) the Company has not been a member of any partnership or joint
venture or the holder of a beneficial interest in any trust (other than a trust
described in Section 3.10) during any period for which the statute of
limitations for any Tax has not expired; (xi) the Company has not 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; (xii) the Company is not subject to any accumulated earnings tax
penalty or personal holding company tax; and (xiii) all Taxes required by law to
be withheld or collected by the Company have been so withheld or collected, and
have been properly remitted to the appropriate government or taxing authority
when due.
(c) (i) There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax to which the
Company may be subject or liable; (ii) the Company (A) has not had and is not
projected to have any amount includible in income for the current taxable year
under Sections 551 or 951 of the Code, (B) does not have unrecaptured overall
foreign losses within the meaning of Section 904(f) of the Code and (C) has not
participated in or cooperated with an international boycott within the meaning
of Section 999 of the Code; (iii) the Company does not have any (A) income
reportable for a period ending after the Effective Time but attributable to a
transaction (e.g., an installment sale) occurring in or a change in accounting
method made for a period ending on or prior to the Effective Time that resulted
in a deferred reporting of income from such transaction or from such change in
accounting method (other than a deferred intercompany transaction), or (B)
deferred gain or loss arising out of any deferred intercompany transaction; (iv)
there are no requests for information currently outstanding that could affect
the Taxes of the Company; (v) there are no proposed reassessments of any
property (other than real property) owned by the Company or other proposals that
could increase the amount of any Tax to which the Company would be subject; (vi)
the Company is not obligated under any agreement with respect to industrial
development bonds or other obligations with respect to which the excludibility
from gross income of the holder for U.S. federal income tax purposes could be
affected by the transactions contemplated hereunder; and (vii) no power of
attorney that is currently in force has been granted with respect to any matter
relating to Taxes that could affect the Company.
(d) Reserves and allowances have been provided for on the 1998 Company
Balance Sheet and on the Third Quarter 1999 Company Balance Sheet in an amount
adequate to satisfy all liabilities for Taxes relating to the Company through
such periods consistent with U.S. GAAP.
(e) Section 3.15(e) of the Company Disclosure Schedule sets forth the
amount of the Company's federal net operating loss carryforwards as of January
1, 1999.
SECTION 3.16. Environmental Matters. (a) For purposes of this Agreement,
the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) those substances defined in or regulated under the
following U.S. federal statutes and their state or foreign counterparts 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 Toxic Substances
Control Act and the Clean Air Act; (B) petroleum and petroleum products
including crude oil and any fractions thereof; (C) natural gas, synthetic gas,
and any mixtures thereof; (D) radon; (E) asbestos; and (F) any substance with
respect to which any federal, state or local agency with jurisdiction over such
matter requires environmental investigation, monitoring, reporting or
remediation; and (ii) "Environmental Laws" means any applicable U.S. federal,
state or local or foreign Law relating to (A) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances; (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or (C)
otherwise relating to pollution of the environment or the protection of human
health.
(b) Except as described in Section 3.16 of the Company Disclosure Schedule
or as would not, individually or in the aggregate, have a Company Material
Adverse Effect: (i) the Company has not violated and is not in violation of any
Environmental Law; (ii) there has been no contamination, disposal, spilling,
dumping, incineration, discharge, storage, treatment or handling of any
Hazardous Substance, on or from any of the properties currently or, to the
knowledge of the Company, formerly leased or operated
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by the Company or any former subsidiary of the Company (including, without
limitation, soils and surface and ground waters); (iii) the Company is not
actually, or to the knowledge of the Company, potentially or allegedly liable
for any off-site contamination by Hazardous Substances; (iv) the Company is not
actually, or to the knowledge of the Company, potentially or allegedly liable
under any Environmental Law (including, without limitation, pending or
threatened liens); (v) the Company has all permits, licenses and other
authorizations required under any Environmental Law ("Environmental Permits");
(vi) the Company has always been and is in compliance with its Environmental
Permits; (vii) there are no pending, or, to the knowledge of the Company,
threatened claims against the Company relating to any Environmental Law or
Hazardous Substance; and (viii) neither the execution of this Agreement nor the
consummation of the Transactions will require any investigation, remediation or
other action with respect to Hazardous Substances, or any notice to or consent
of Governmental Entities or third parties, pursuant to any applicable
Environmental Law or Environmental Permit.
SECTION 3.17. Material Contracts. (a) Section 3.17 of the Company
Disclosure Schedule contains a list of all contracts and agreements (including,
without limitation, oral and informal arrangements) to which the Company is a
party and that are material to the business, operations, properties, condition
(financial or otherwise), assets or liabilities (including, without limitation,
contingent liabilities) of the Company (such contracts, agreements and
arrangements as are required to be set forth in Section 3.17(a) of the Company
Disclosure Schedule together with all contracts for employment and all contracts
and agreements providing for benefits under any Plan required to be listed in
Section 3.10 of the Company Disclosure Schedule being referred to herein
collectively as the "Material Contracts"). Material Contracts shall include,
without limitation, the following, and shall be categorized in the Company
Disclosure Schedule as follows:
(i) each contract and agreement which (A) is likely to involve
consideration of more than $100,000, in the aggregate, during the calendar
year ending December 31, 1999, (B) is likely to involve consideration of
more than $100,000, in the aggregate, over the remaining term of such
contract, and which, in either case, cannot be canceled by the Company
without penalty or further payment and without more than 90 days' notice;
(ii) all broker, distributor, dealer, manufacturer's representative,
franchise, agency, sales promotion, market research, marketing consulting
and advertising contracts and agreements to which the Company is a party
which involve or are likely to involve consideration of $100,000 or more
individually or $500,000 or more in the aggregate;
(iii) all management contracts (excluding contracts for employment)
and contracts with other consultants, including any contracts involving the
payment of royalties or other amounts calculated based upon the revenues or
income of the Company or income or revenues related to any product of the
Company to which the Company is a party which involve or are likely to
involve consideration of $100,000 or more individually or $500,000 or more
in the aggregate;
(iv) all contracts and agreements under which the Company has
created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness or under which the Company has imposed (or may
impose) a security interest or lien on any of its assets, whether tangible
or intangible, to secure indebtedness which involve or are likely to
involve consideration of $50,000 or more individually or $250,000 or more
in the aggregate;
(v) all contracts and agreements with any Governmental Entity to
which the Company is a party which involve or are likely to involve
consideration of $100,000 or more individually or $500,000 or more in the
aggregate;
(vi) all contracts and agreements that limit the ability of the
Company to compete in any line of business or with any person or entity or
in any geographic area or during any period of time;
(vii) all contracts and agreements between or among the Company and
any affiliate of the Company; and
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(viii) all other contracts and agreements, whether or not made in the
ordinary course of business, which are material to the Company or the
conduct of its business, or the absence of which would, individually or in
the aggregate, have a Company Material Adverse Effect.
(b) Except as would not, individually or in the aggregate, have a Company
Material Adverse Effect, each Material Contract is a legal, valid and binding
agreement, and none of the Material Contracts is in default by its terms or has
been canceled by the other party; the Company is not in receipt of any claim of
default under any such agreement; and the Company does not anticipate any
termination of, or change to, or receipt of a proposal with respect to, any
Material Contract as a result of the Transactions or otherwise. The Company has
furnished or made available to Parent true and complete copies of all Material
Contracts, including all amendments thereto.
SECTION 3.18. Insurance. (a) Section 3.18(a) of the Company Disclosure
Schedule sets forth, with respect to each insurance policy under which the
Company has been an insured, a named insured or otherwise the principal
beneficiary of coverage at any time within the past three years, (i) the names
of the insurer, the principal insured and each named insured, (ii) the policy
number, (iii) the period, type, scope and amount of coverage and (iv) the
premium charged.
(b) With respect to each such insurance policy: (i) the policy is legal,
valid, binding and enforceable in accordance with its terms and, except for
policies that have expired under their terms in the ordinary course, is in full
force and effect; (ii) the Company is not in material breach or default
(including any such breach or default with respect to the payment of premiums or
the giving of notice), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination or
modification, under the policy; (iii) no party to the policy has repudiated in
writing, or given notice of an intent to repudiate, any provision thereof; and
(iv) to the knowledge of the Company, no insurer on the policy has been declared
insolvent or placed in receivership, conservatorship or liquidation.
(c) At no time subsequent to January 1, 1997 has the Company (i) been
denied any insurance or indemnity bond coverage which it has requested, (ii)
made any material reduction in the scope or amount of its insurance coverage, or
(iii) received notice from any of its insurance carriers that any insurance
premiums will be subject to increase in an amount materially disproportionate to
the amount of the increases with respect thereto (or with respect to similar
insurance) in prior years or that any insurance coverage listed in Section
3.18(a) of the Company Disclosure Schedule will not be available in the future
substantially on the same terms as are now in effect.
(d) Section 3.18(d) of the Company Disclosure Schedule sets forth all
risks against which the Company is self-insured or which are covered under any
risk retention program in which the Company participates, together with details
of the Company's loss experience during the last five years with respect to
product liability risks and during the last three years with respect to all
other covered risks.
(e) Except as may result from any facts or circumstances relating solely
to Parent or any of its affiliates, no insurance policy listed in Section
3.18(a) of the Company Disclosure Schedule will cease to be legal, valid,
binding, enforceable in accordance with its terms and in full force and effect
on terms identical to those in effect as of the date hereof as a result of the
consummation of the Transactions.
SECTION 3.19. Receivables. Section 3.19 of the Company Disclosure Schedule
sets forth an aged list of the Receivables of the Company as of the date of the
Third Quarter 1999 Company Balance Sheet showing separately those Receivables
that as of such date had been outstanding (i) 29 days or less, (ii) 30 to 59
days, (iii) 60 to 89 days, (iv) 90 to 119 days and (v) more than 119 days.
Except to the extent, if any, reserved for on the Third Quarter 1999 Company
Balance Sheet, all Receivables reflected on the Third Quarter 1999 Company
Balance Sheet arose from, and the Receivables existing on the date of Closing
will have arisen from, the sale of inventory or services to Persons not
affiliated with the Company and in the ordinary course of business consistent
with past practice and, except as reserved against on the Third Quarter 1999
Company Balance Sheet, constitute or will constitute, as the case may be, only
valid, undisputed claims of the Company not subject to valid claims of set-off
or other defenses or counterclaims
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other than normal cash discounts accrued in the ordinary course of business
consistent with past practice. All Receivables reflected on the Third Quarter
1999 Company Balance Sheet or arising from the date thereof until the Closing
(subject to the reserve for bad debts, if any, reflected on the Third Quarter
1999 Company Balance Sheet), to the knowledge of the Company, are or will be
good and have been collected or are or will be collectible, without resort to
litigation or extraordinary collection activity, within 120 days of the Closing
(or if the terms of any such Receivable permit payment within a longer period of
time, within such period of time). "Receivables" means any and all accounts
receivable, notes and other amounts receivable by the Company from third
parties, including, without limitation, customers, arising from the conduct of
the business of the Company or otherwise before the date of Closing, whether or
not in the ordinary course, together with all unpaid financing charges accrued
thereon.
SECTION 3.20. Brokers. No broker, finder or investment banker (other than
Banc of America Securities LLC ("Banc of America")) is entitled to any
brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and Banc of America pursuant to which such firm
would be entitled to any payment relating to this Agreement or the Transactions.
SECTION 3.21. Tax Matters. Except as disclosed in the Company Reports or in
Section 3.21 of the Company Disclosure Schedule, neither the Company nor, to the
knowledge of the Company, any of its affiliates has taken or agreed to take any
action (other than actions contemplated by this Agreement) that would prevent
the Transactions from constituting a reorganization within the meaning of
Section 368(a) of the Code. The Company is not aware of any agreement, plan or
other circumstance that would prevent the Transactions from so qualifying under
Section 368(a) of the Code.
SECTION 3.22. Affiliates. Section 3.22 of the Company Disclosure Schedule
sets forth the names and addresses of those persons who are, in the Company's
reasonable judgment, "affiliates" within the meaning of Rule 145 of the rules
and regulations promulgated under the Securities Act of the Company.
SECTION 3.23. Vote Required. The only vote of the holders of any class or
series of capital stock of the Company necessary to approve this Agreement and
the Transactions is the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock in favor of the adoption of this
Agreement (the "Company Stockholder Approval").
SECTION 3.24. State Takeover Statutes. The Board of Directors of the
Company has approved the Merger and this Agreement and such approval is
sufficient to render inapplicable to the Merger and this Agreement the
provisions of Section 203 of the DGCL to the extent, if any, such Section is
applicable to the Merger and this Agreement. To the knowledge of the Company, no
other state takeover statute or similar statute or regulation applies to or
purports to apply to the Merger or this Agreement.
SECTION 3.25. Opinion of Financial Advisor. The Company has received the
written opinion of Banc of America, dated a date reasonably proximate to the
date hereof, to the effect that, as of such date, the consideration to be
received in the Merger by the Company's security holders is fair to the Company
from a financial point of view, a copy of which opinion shall promptly, after
the date of this Agreement, be delivered to Parent for informational purposes
only. Banc of America has authorized the inclusion of its opinion in full in the
Proxy Statement (as defined below).
SECTION 3.26. Board Approval. The Board of Directors of the Company has, as
of the date of this Agreement, (i) determined that the Transactions are fair to,
and in the best interests of the Company and its stockholders, (ii) approved,
and declared the advisability of, this Agreement and the Transactions and (iii)
recommended that the stockholders of the Company adopt this Agreement and
approve the Transactions.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of the
Parent and each subsidiary of Parent (the "Parent Subsidiaries") has been duly
organized and is validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Parent Material Adverse Effect. Each of Parent and each
Parent Subsidiary is duly qualified or licensed to do business, and is in good
standing (to the extent applicable), in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" means any change in or effect on the business conducted by
Parent that, individually or in the aggregate with any other changes in or
effects on the business conducted by Parent is materially adverse to the
business, operations, properties, financial condition, assets or liabilities
(including, without limitation, contingent liabilities) or prospects of Parent
and the Parent Subsidiaries taken as a whole. Section 4.01(a) of the Disclosure
Schedule delivered by Parent to the Company prior to the execution of this
Agreement (the "Parent Disclosure Schedule") sets forth a complete and correct
list of all the Parent Subsidiaries. Except as set forth in Section 4.01(b) of
the Parent Disclosure Schedule, neither Parent nor any Parent Subsidiary owns
directly or indirectly any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or similar
interest in, any corporation, limited liability company, partnership, joint
venture or other business association or entity.
SECTION 4.02. Organizational Documents. Parent heretofore has furnished to
the Company a complete and correct copy of its Articles of Association (Satzung)
and Management Board (Vorstand) Rules of Procedure (Geschaftsordnung).
SECTION 4.03. Capitalization. As of the date hereof, (i) the stated capital
of Parent is E 3,857,145, (ii) the authorized capital of Parent is
E 1,928,572.50 and (iii) Parent has conditional capital of E 328,680 for
issuance pursuant to stock options to be granted pursuant to the benefit plan
referred to in Section 4.03(a) of the Parent Disclosure Schedule (the "Parent
Stock Plan"). Except as set forth in Section 4.03(b) of the Parent Disclosure
Schedule and except for Parent Ordinary Shares issuable pursuant to the Parent
Stock Plan, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which either Parent or any
Parent Subsidiary is a party or by which either Parent or any Parent Subsidiary
is bound relating to the issued or unissued capital stock of either Parent or
any Parent Subsidiary or obligating either Parent or any Parent Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in,
either Parent or any Parent Subsidiary. Except as set forth in Section 4.03(c)
of the Parent Disclosure Schedule, there are no outstanding contractual
obligations of Parent or any Parent Subsidiary to repurchase, redeem or
otherwise acquire any Parent Ordinary Shares or any capital stock of any Parent
Subsidiary. Except as disclosed in Section 4.03(d) of the Parent Disclosure
Schedule, each outstanding share of capital stock of each Parent Subsidiary is
duly authorized, validly issued, fully paid and nonassessable and each such
share owned by Parent or another Parent Subsidiary is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on Parent's or such other Parent Subsidiary's voting
rights, charges and other encumbrances of any nature whatsoever, except where
the failure to own such shares free and clear would not, individually or in the
aggregate, have a Parent Material Adverse Effect. Except as set forth in Section
4.03(e) of the Parent Disclosure Schedule there are no material outstanding
contractual obligations of Parent or any Parent Subsidiary to provide funds to,
or make any material investment (in
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the form of a loan, capital contribution or otherwise) in, any Parent Subsidiary
which is not wholly owned by Parent or in any other person.
SECTION 4.04. Authority Relative to this Agreement. Parent has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Parent and the consummation by
Parent of the Transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Parent are necessary to authorize this Agreement or to consummate
the Transactions (other than the approval of the Supervisory Board
(Aufsichtsrat) of Parent and the filing of the approval of the capital increase
by the Management Board (Vorstand) and the Supervisory Board (Aufsichtsrat) of
Parent with the commercial register (Handelsregister) for Parent). This
Agreement has been duly executed and delivered by Parent and, assuming the due
authorization, execution and delivery by the other parties hereto and subject to
Section 6.14, constitutes the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, subject to the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights generally and subject, as
to enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or law).
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Parent do not, and the performance by Parent
of its obligations hereunder and thereunder and the consummation of the
Transactions will not, (i) conflict with or violate any provision of the
Articles of Association (Satzung) or Management Board (Vorstand) Rules of
Procedure (Geschaftsordnung) of Parent, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 4.05(b) have been
obtained and all filings and notifications described in Section 4.05(b) have
been made, conflict with or violate any Law applicable to Parent or by which any
property or asset of Parent is bound or affected or (iii) except as set forth in
Section 4.05(a) of the Parent Disclosure Schedule, result in any breach of or
constitute a default (or an event which with the giving of notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (i), (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would neither, individually or in
the aggregate, (A) have a Parent Material Adverse Effect nor (B) prevent or
materially delay the performance by Parent of its obligations pursuant to this
Agreement or the consummation of the Transactions.
(b) The execution and delivery of this Agreement by Parent do not, and the
performance by Parent of its obligations hereunder and the consummation of the
Transactions by Parent will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(i) applicable requirements of the Exchange Act, the Securities Act, Blue Sky
Laws, the rules and regulations of NASDAQ, the rules and regulations of the
Neuer Markt, state takeover laws, the premerger notification requirements of the
HSR Act, the filing and recordation of the Certificate of Merger as required by
the DGCL, compliance with the German Stock Corporation Law (Aktiengesetz), the
filing of the approval of the capital increase by the Management Board
(Vorstand) and the Supervisory Board (Aufsichtsrat) of Parent with the
commercial register (Handelsregister) for Parent and as set forth in Section
4.05(b) of the Parent Disclosure Schedule, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) prevent or materially delay the performance by
Parent of its obligations pursuant to this Agreement or the consummation of the
Transactions or (B) individually or in the aggregate have a Parent Material
Adverse Effect.
SECTION 4.06. Financial Information, Books and Records. (a) True and
complete copies of (i) the audited consolidated balance sheet of Parent for each
of the two fiscal years ended as of December 31, 1997 and December 31, 1998, and
the related audited consolidated statements of income and cashflows of
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Parent, together with all related notes and schedules thereto, accompanied by
the reports thereon of the Parent's accountants (collectively referred to herein
as the "Parent Financial Statements") and (ii) the unaudited consolidated
balance sheet of Parent as of June 30, 1999, and the related consolidated
statements of income and cash flows of Parent, together with all related notes
and schedules thereto (collectively referred to herein as the "Parent Interim
Financial Statements"), have been made available to the Company by Parent. The
Parent Financial Statements and, to the knowledge of Parent, the Parent Interim
Financial Statements (i) were prepared in accordance with the books of account
and other financial records of Parent, (ii) present fairly, in all material
respects, the consolidated financial condition and results of operations of
Parent and the Parent Subsidiaries as of the dates thereof or for the periods
covered thereby, subject, in the case of the Parent Interim Financial
Statements, to normal year-end audit adjustments, (iii) have been prepared in
accordance with the accounting principles of the International Accounting
Standards Committee ("IAS GAAP") applied on a basis consistent with the past
practices of Parent (except as may be indicated therein or in the notes or
schedules thereto) and (iv) include all adjustments (consisting only of normal
recurring accruals) that are necessary in accordance with IAS GAAP for a fair
presentation of the consolidated financial condition of Parent and the Parent
Subsidiaries and the results of the operations of Parent and the Parent
Subsidiaries as of the dates thereof or for the periods covered thereby.
(b) Except as and to the extent set forth on the consolidated balance sheet
of Parent as at December 31, 1998, including the notes thereto (the "1998 Parent
Balance Sheet"), neither Parent nor any Parent Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with IAS GAAP, except for liabilities and
obligations incurred since December 31, 1998 which would not have a Parent
Material Adverse Effect.
(c) The (i) draft unaudited consolidated balance sheets of Parent for each
of the two fiscal years ended as of December 31, 1997 and December 31, 1998, and
the related draft unaudited consolidated statements of income and cash flows of
Parent, together with all related draft notes and schedules thereto and (ii)
draft unaudited consolidated balance sheets of Parent as of June 30, 1998 and as
of June 30, 1999, and the related draft unaudited consolidated statements of
income and cash flows of Parent, together with all related draft notes and
schedules thereto (collectively, the "Draft Financial Statements") previously
made available to the Company by Parent are set forth in Section 4.06(c) of the
Parent Disclosure Schedule. To the knowledge of Parent, the Draft Financial
Statements have been prepared in all material respects in accordance with U.S.
GAAP (except as indicated therein or in the notes thereto or as set forth in
Section 4.06(c) of the Parent Disclosure Schedule).
SECTION 4.07. Absence of Certain Changes or Events. Since December 31,
1998, except as set forth in Section 4.07 of the Parent Disclosure Schedule, or
as expressly contemplated by this Agreement, and prior to the date of this
Agreement, (a) Parent and the Parent Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice, and (b) there has not been (i) any Parent Material Adverse Effect,
(ii) any declaration, setting aside or payment of any dividend or distribution
in respect of any capital stock of Parent or any redemption, purchase or other
acquisition of any of its securities, (iii) any change by Parent in its
accounting methods, principles or practices, (iv) any revaluation by Parent of
any material asset (including, without limitation, any writing down of the value
of inventory or writing off of notes or accounts receivable), other than in the
ordinary course of business consistent in all material respects with past
practice, or (v) as of the date hereof, any entry by Parent or any Parent
Subsidiary into any commitment or transaction material to Parent and the Parent
Subsidiary taken as a whole, except in the ordinary course of business and
consistent in all material respects with past practice.
SECTION 4.08. Absence of Litigation. Except as set forth in Section 4.08 of
the Parent Disclosure Schedule, there is no suit, action or proceeding pending,
and no person has threatened in a writing delivered to Parent since January 1,
1998 to commence any suit action or proceeding, against Parent or any property
or asset of Parent that would, individually or in the aggregate, have a Parent
Material Adverse Effect. Neither Parent nor any property or asset of Parent is
subject to any order, writ, judgment,
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injunction, decree, determination or award having, individually or in the
aggregate, a Parent Material Adverse Effect.
SECTION 4.09. Intellectual Property. Parent owns, or is validly licensed or
otherwise has the right to use all Intellectual Property that is material to the
conduct of the business of Parent and the Parent Subsidiaries, taken as a whole.
As of the date of this Agreement, no suits, actions or proceedings are pending,
and no person has threatened in a writing delivered to Parent since January 1,
1998 to commence any suit, action or proceeding, alleging that Parent or any
Parent Subsidiaries are infringing the rights of any person with regard to any
Intellectual Property, except for suits, actions or proceedings that,
individually or in the aggregate, would not have a Parent Material Adverse
Effect. To the knowledge of Parent, no person is infringing the Intellectual
Property rights of Parent or any Parent Subsidiary, except for infringements
which, individually or in the aggregate, would not have a Parent Material
Adverse Effect.
SECTION 4.10. Parent Ordinary Shares. Subject to Section 6.14, the Parent
Ordinary Shares that underlie the Parent ADSs to be delivered in connection with
the Merger have been duly authorized by all necessary corporate action, and when
issued in accordance with this Agreement, will be validly issued, fully paid and
non-assessable and not subject to preemptive rights.
SECTION 4.11. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or similar fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Parent.
SECTION 4.12. Tax Matters. Except as disclosed in Section 4.12 of the
Parent Disclosure Schedule, neither Parent nor any Parent Subsidiary nor, to the
knowledge of Parent, any of their affiliates has taken or agreed to take any
action (other than actions contemplated by this Agreement) that would prevent
the Transactions from constituting a reorganization within the meaning of
Section 368(a) of the Code. Parent is not aware of any agreement, plan or other
circumstance that would prevent the Transactions from so qualifying under
Section 368(a) of the Code.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Closing. The
Company agrees that, between the date of this Agreement and the Effective Time,
unless Parent shall otherwise agree in writing, the business of the Company
shall be conducted only in, and the Company shall not take any action except in,
the ordinary course of business and in a manner consistent with past practice;
and the Company shall use all reasonable efforts to preserve substantially
intact the business organization of the Company, to keep available the services
of the current officers, employees and consultants of the Company and to
preserve the current relationships of the Company with the customers, suppliers
and other persons with which the Company has significant business relations. By
way of amplification and not limitation, except as set forth in Section 5.01 of
the Company Disclosure Schedule or as expressly contemplated by any other
provision of this Agreement, the Company shall not, between the date of this
Agreement and the Effective Time, directly or indirectly, do, or propose to do,
any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Restated Certificate of
Incorporation or Bylaws;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of, (i) any
shares of any class of capital stock of the Company, or securities
convertible into or exchangeable or exercisable for any shares of such
capital stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company
(except for (A) the issuance of Company Stock Options to employees of the
Company in the ordinary course of business and in a manner consistent with
past practice and (B) the issuance of shares of Company Common Stock
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issuable (v) pursuant to the Company Stock Options; (w) pursuant to the
Company's Employee Stock Purchase Plan in accordance with the current terms
thereof; (x) as dividends paid to holders of Series A Preferred Stock in
accordance with the current terms thereof; (y) upon the exercise of
conversion rights of the Company Preferred Stock outstanding on the date of
this Agreement; or (z) upon the exercise of Warrants outstanding on the
date of this Agreement), or (ii) any property or assets of the Company,
except in the ordinary course of business and in a manner consistent with
past practice;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any interest in any corporation, partnership, other business
organization or person or any division thereof or any assets, other than
acquisitions of assets (excluding the acquisition of a business or
substantially all of the stock or assets thereof) in the ordinary course of
business and in a manner consistent with past practice; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for, the obligations of any person for borrowed money, or make any loans or
advances, except for (A) indebtedness for borrowed money incurred in the
ordinary course of business, consistent with past practice and incurred to
refinance outstanding indebtedness for borrowed money existing on the date
of this Agreement, or (B) indebtedness for borrowed money under the Loan
and Security Agreement with Greyrock Capital, up to the limit provided for
in such agreement as of the date of this Agreement; (iii) enter into any
contract or agreement material to the business, results of operations or
financial condition of the Company, in either case other than in the
ordinary course of business, consistent with past practice; (iv) enter into
any contract (other than license agreements with end users entered into in
the ordinary course of business consistent with past practice) with a value
exceeding $500,000 without first submitting it to Parent for review and
prior approval; (v) enter into any contract for the license of Software by
or to the Company, including, without limitation, any prepaid sale of
licenses, other than in the ordinary course of business, consistent with
past practice; (vi) enter into any contract with any affiliate or any
relative of any of its directors, officers or employees (other than
employment agreements); or (vii) make or authorize any capital expenditure,
other than capital expenditures in the ordinary course of business
consistent with past practice and which are not, in the aggregate, in
excess of $250,000 for the period between the date of this Agreement and
December 31, 1999 and not, in the aggregate, in excess of $500,000 for the
quarter ending March 31, 2000;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except for dividends paid to holders of Series
A Preferred Stock in accordance with the current terms thereof;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(f) except in the ordinary course of business and in a manner
consistent with past practice, increase the compensation payable or to
become payable or the benefits provided to its directors, officers or
employees, or grant any rights to severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or
other employee of the Company, or establish, adopt, enter into or amend any
bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any current or former director, officer or employee of the
Company;
(g) take any action with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) other than
reasonable and usual actions in the ordinary course of business and
consistent with past practice, as required by U.S. GAAP or as may be
required by the SEC;
(h) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
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(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than in the ordinary course of business and consistent with past practice;
(j) amend, modify or consent to the termination of any Material
Contract, or amend, waive, modify or consent to the termination of the
Company's rights thereunder, other than in the ordinary course of business
and consistent with past practice;
(k) commence or settle any material litigation, suit, claim, action,
proceeding or investigation; or
(l) announce an intention, authorize or enter into any formal or
informal agreement or otherwise make any commitment to do any of the
foregoing.
SECTION 5.02. Conduct of Business by Parent Pending the Closing. Parent
agrees that, between the date of this Agreement to the Effective Time, and
except (i) to the extent the Company shall otherwise consent in writing (which
consent will not be unreasonably withheld), (ii) as set forth in Section 5.02 of
the Parent Disclosure Schedule or (iii) as contemplated or permitted by or not
inconsistent with this Agreement, Parent shall conduct its business in the
ordinary course and in a manner consistent with past practice and, to the extent
consistent therewith, use reasonable efforts to preserve substantially intact
its current business organization, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and other persons with which Parent has significant business relations.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Access to Information; Confidentiality. (a) Except as
prohibited by any confidentiality agreement or similar agreement or arrangement
to which Parent or the Company or any of the Parent Subsidiaries is a party or
by applicable Law or the regulations or requirements of any stock exchange or
other regulatory organization with whose rules a party hereto is required to
comply, from the date of this Agreement to the Effective Time, the Company and
Parent shall (and Parent shall cause the Parent Subsidiaries to): (i) provide to
each other (and each other's officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively,
"Representatives")) access at reasonable times upon prior notice to their
officers, employees, agents, properties, offices and other facilities and to the
books and records thereof, and (ii) furnish promptly such information concerning
their business, properties, contracts, assets, liabilities and personnel as the
other parties or their Representatives may reasonably request.
(b) The parties hereto shall comply with their respective obligations
under the Confidentiality Agreement dated July 16, 1999 (the "Confidentiality
Agreement") between Parent and the Company with respect to the information
disclosed pursuant to this Agreement.
(c) No investigation pursuant to this Section 6.01 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.02. No Solicitation of Transactions. From the date hereof to the
earlier to occur of the termination of this Agreement and the Effective Time,
none of the Company nor any of its affiliates, officers, directors, partners,
controlling persons, representatives or agents will (a) solicit, initiate,
consider, encourage or accept any other proposals or offers from any person,
other than Parent, (i) relating to any acquisition or purchase of all or any
portion of the assets or capital stock of the Company (other than sales of
inventory in the ordinary course of business consistent with past practice),
(ii) to enter into any business combination with the Company, or (iii) to enter
into any other extraordinary business transaction involving or otherwise
relating to the Company (each a "Competing Transaction"), or (b) participate in
any discussions, conversations, negotiations or other communications regarding,
or furnish to any person, other than Parent, any information with respect to, or
otherwise cooperate in any way, assist or participate
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in, facilitate or encourage any effort or attempt by any such other Person, to
seek to do any of the foregoing; provided, however, that nothing contained in
this Section 6.02 shall prohibit the Board of Directors of the Company from
furnishing information to, or entering into discussions or negotiations with,
any person in connection with an unsolicited (from the date of this Agreement)
proposal by such person to acquire the Company pursuant to a merger,
consolidation, share exchange, tender offer, exchange offer, business
combination or other similar transaction or to acquire all or substantially all
of the assets of the Company, if, and only to the extent that, (i) the Board of
Directors of the Company, after consultation with outside legal counsel (which
may include its regularly engaged outside legal counsel), determines in good
faith that such action is required for such Board of Directors to comply with
its fiduciary duties to the Company's stockholders under applicable Law and (ii)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person, the Company obtains from such person an executed
confidentiality agreement on terms no less favorable to the Company than those
contained in the Confidentiality Agreement. The Company immediately shall cease
and cause to be terminated all existing discussions, conversations, negotiations
and other communications with all persons other than Parent conducted heretofore
with respect to any of the foregoing. The Company shall notify Parent promptly
if any such proposal or offer, or any inquiry or contact with any person with
respect thereto, is made and shall, in any such notice to Parent, indicate in
reasonable detail the identity of the person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer, inquiry
or contact, including, without limitation, a description of any financial terms
of such proposal, offer, inquiry or contact, if applicable. The Company hereby
agrees not to, without the prior written consent of Parent, release any person
from, or waive any provision of, any confidentiality or standstill agreement to
which the Company is a party.
SECTION 6.03. Registration Statement and Proxy Statement. (a) As promptly
as practicable after the execution of this Agreement, (i) the Company shall
prepare and file with the SEC a proxy statement and any amendment or supplement
thereto (the "Proxy Statement") to be sent to the stockholders of the Company in
connection with the meeting of the Company's stockholders to consider the
Transactions (the "Company Stockholders' Meeting") and (ii) Parent shall prepare
and file with the SEC the registration statement on Form F-4 and any amendment
and supplement thereto pursuant to which the Parent ADSs to be issued in the
Transactions (including in connection with the Option and Warrant Exchange) will
be registered with the SEC (including any amendments or supplements, the "F-4
Registration Statement"), in which the Proxy Statement shall be included as a
prospectus. Copies of the Proxy Statement shall be provided to NASDAQ in
accordance with its rules. Each of the parties hereto shall use all reasonable
efforts to cause the F-4 Registration Statement to become effective as promptly
as practicable. Parent shall use all reasonable efforts to cause the F-4
Registration Statement to remain effective until the closing of the Option and
Warrant Exchange. To the extent that presenting this Agreement and the Merger to
the Company's stockholders would not violate applicable Law, the Company shall
use all reasonable efforts to cause the Proxy Statement to be delivered to the
Company's stockholders as promptly as practicable after the F-4 Registration
Statement shall have been declared effective under the Securities Act. Parent
shall also take any action reasonably required to be taken under any applicable
Blue Sky Laws in connection with the issuance of Parent ADSs in the Transactions
(including the Option and Warrant Exchange), and the Company shall furnish all
information concerning the Company and the holders of Company Common Stock, the
Company Optionholders and the Company Warrantholders as may be reasonably
requested in connection with any such action. Parent or the Company, as the case
may be, shall furnish all information concerning Parent or the Company as the
other party may reasonably request in connection with such actions and the
preparation of the F-4 Registration Statement and Proxy Statement. The Company
shall cause the Proxy Statement to comply as to form and substance in all
material respects with the applicable requirements of (i) the Exchange Act, (ii)
NASDAQ, (iii) the Securities Act and (iv) the DGCL.
(b) The Proxy Statement shall include the approval and the declaration of
advisability of this Agreement and the Transactions and the recommendation of
the Board of Directors of the Company to the Company's stockholders that they
vote in favor of the adoption of this Agreement; provided, however, that the
Board of Directors of the Company may, at any time prior to the Effective Time,
withdraw, modify or change any such recommendation to the extent that the Board
of Directors of the Company
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determines in good faith, after consultation with outside legal counsel (who may
be the Company's regularly engaged outside legal counsel), that such withdrawal,
modification or change of its recommendation is required by its fiduciary duties
to the Company's stockholders under applicable Law. In addition, the Proxy
Statement shall include the opinion of Banc of America referred to in Section
3.25.
(c) No amendment or supplement to the Proxy Statement or the F-4
Registration Statement shall be made without the prior review of Parent and the
Company, and any comments of Parent or the Company provided in a timely manner
shall be considered prior to filing such amendment or supplement, to the extent
practicable. Each of the parties hereto shall advise the other party hereto,
promptly after it receives notice thereof, of the time when the F-4 Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order, of the suspension of the qualification of Parent
ADSs issuable in connection with the Transactions (including the Option and
Warrant Exchange) for offering or sale in any jurisdiction, or of any request by
the SEC or NASDAQ for amendment of the Proxy Statement or the F-4 Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
(d) The information supplied by the Company for inclusion in the F-4
Registration Statement and the Proxy Statement shall not, at (i) the time the
F-4 Registration Statement is filed with the SEC, (ii) the time the F-4
Registration Statement is declared effective, (iii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of the Company, (iv) the time of the Company Stockholders' Meeting,
(v) the closing of the Option and Warrant Exchange and (vi) the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, not misleading. If at any time prior to the Effective Time or the
closing of the Option and Warrant Exchange, any event or circumstance relating
to the Company or its officers or directors, should be discovered by the Company
that should be set forth in an amendment or a supplement to the F-4 Registration
Statement or the Proxy Statement, the Company shall promptly inform Parent. All
documents that the Company is responsible for filing with the SEC in connection
with the Transactions shall comply as to form in all material respects with the
applicable requirements of NASDAQ, the DGCL, the Securities Act and the Exchange
Act.
(e) The information supplied by Parent for inclusion in the F-4
Registration Statement and the Proxy Statement shall not, at (i) the time the
F-4 Registration Statement is filed with the SEC, (ii) the time the F-4
Registration Statement is declared effective, (iii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of the Company, (iv) the time of the Company Stockholders' Meeting,
(v) the closing of the Option and Warrant Exchange and (vi) the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, not misleading. If, at any time prior to the Effective Time or the
closing of the Option and Warrant Exchange, any event or circumstance relating
to Parent or any Parent Subsidiary, or their respective officers or directors,
should be discovered by Parent that should be set forth in an amendment or a
supplement to the F-4 Registration Statement or the Proxy Statement, Parent
shall promptly inform the Company. All documents that Parent are responsible for
filing with the SEC in connection with the Transactions shall comply as to form
in all material respects with the applicable requirements of NASDAQ, the DGCL,
the Securities Act and the Exchange Act.
(f) Parent shall cause the Option and Warrant Exchange to be commenced
promptly after the F-4 Registration Statement has been declared effective by the
SEC and shall use all reasonable efforts to cause the Option and Warrant
Exchange to be consummated not later than the Effective Time. Parent shall cause
the Option and Warrant Exchange to be commenced by causing the Proxy Statement
and related documents to be mailed to each Company Optionholder and Company
Warrantholder, and the Proxy Statement shall state, in addition to such other
disclosures as are required by applicable Law: (i) that all Company Stock
Options and Warrants validly tendered will be accepted for exchange; (ii) the
dates of acceptance for exchange (which shall be a period of at least 20
business days from the date the Proxy Statement is mailed) (the "Offer Period");
and (iii) that any Company Stock Option or Warrant not
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tendered will remain outstanding or otherwise be treated in accordance with its
terms. As soon as practicable after the expiration of the Offer Period, Parent
shall (i) cause to be accepted for exchange all Company Stock Options or
Warrants tendered and not validly withdrawn pursuant to the Exchange Offer and
(ii) cause to be canceled all Company Stock Options or Warrants so accepted for
exchange by Parent. No fractional Parent ADSs shall be issued in connection with
the Option and Warrant Exchange. Each Company Optionholder or Company
Warrantholder who would otherwise be entitled to receive a fraction of a Parent
ADS shall be paid an amount in cash (without interest) equal to the product
obtained by multiplying (i) the fractional Parent ADS interest to which such
Company Optionholder or Company Warrantholder (after taking into account all
fractional Parent ADS interests then held by such holder) would otherwise be
entitled by (ii) the Parent Average Closing Price. The Option and Warrant
Exchange shall not be subject to any conditions other than the occurrence of the
Effective Time.
SECTION 6.04. Stockholders' Meeting. (a) To the extent that convening and
holding a meeting would not violate applicable law, the Company shall call and
hold the Company Stockholders' Meeting as promptly as practicable, for the
purpose of voting upon the adoption of this Agreement and the Merger
contemplated hereby. The Company shall use all reasonable efforts to solicit
from its stockholders proxies in favor of the adoption of this Agreement
pursuant to the Proxy Statement and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required by the DGCL or
applicable stock exchange requirements to obtain such approval, except to the
extent that the Board of Directors of the Company determines in good faith after
consultation with outside legal counsel (who may be the Company's regularly
engaged outside legal counsel) that the withdrawal, modification or change of
its recommendation is required by its fiduciary duties to the Company's
stockholders under applicable Law.
(b) The Company, subject to the exercise of its fiduciary duties to its
stockholders, as described in this Section 6.04, shall take all other action
necessary or, in the opinion of the other parties hereto, advisable to promptly
and expeditiously secure any vote or consent of stockholders required by
applicable Law and the Company's Certificate of Incorporation and Bylaws to
consummate and make effective the Transactions.
SECTION 6.05. Further Action; Consents; Filings. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use all
reasonable efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the Transactions,
(ii) use all reasonable efforts to obtain from Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent or the Company or any of their
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Transactions, (iii) make all
necessary filings, and thereafter make any other required or appropriate
submissions, with respect to this Agreement and the Transactions required under
(A) the rules and regulations of the NASDAQ, (B) the rules and regulations of
the Neuer Markt, (C) the Securities Act, the Exchange Act and any other
applicable federal or state securities Laws, (D) the HSR Act and (E) any other
applicable Law. The parties hereto shall cooperate with each other in connection
with the making of all such filings, including by providing copies of all such
documents to the nonfiling party and its advisors prior to filing and, if
requested, by accepting all reasonable additions, deletions or changes suggested
in connection therewith. Notwithstanding the foregoing or anything else to the
contrary contained in this Agreement, Parent shall not be required to sell,
license, waive any rights in or to, or otherwise dispose of or hold separate or
in trust any part of the assets or business of the Company or any part of the
assets or business of Parent or any of its affiliates or otherwise enter into
any type of agreement or arrangement, including, without limitation, a consent
decree, with any Governmental Entity.
(b) Parent and the Company shall file as promptly as practicable after the
date of this Agreement notifications under the HSR Act and shall respond as
promptly as practicable to all inquiries or requests received from the Federal
Trade Commission or the Antitrust Division of the Department of Justice for
additional information or documentation and shall respond as promptly as
practicable to all inquiries and requests received from any state attorney
general or other Governmental Entity in connection with antitrust matters. The
parties shall cooperate with each other in connection with the making of all
such
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filings or responses, including providing copies of all such documents to the
other party and its advisors prior to filing or responding.
(c) To the extent requested by Parent, the Company shall cooperate with
Parent to identify any "Encumbrances" that may adversely affect the Company's
right to sublicense any Intellectual Property rights owned or licensed by the
Company (including the right to further sublicense such rights) in the Company's
client or server software (including without limitation development tools, tests
and other development components) which will exist as of the Effective Time, and
any maintenance upgrades and new releases of such software, if any, which will
be already in progress at the Company as of the Effective Time, and/or any
components of the foregoing (collectively, the "Software Products"). Such
cooperation shall include, upon Parent's request, granting Parent full access,
subject to existing or other reasonable confidentiality restrictions, to the
Company's technology licenses, acquisition agreements and Intellectual Property
claims relating to the Software Products. "Encumbrance" means any restriction or
limitation that would prevent or materially limit or restrict the Company's
ability to sublicense any Intellectual Property right owned or licensed by the
Company (including the right to further sublicense such rights) with respect to
the Software Products, including, without limitation, limitations on source code
access and sublicensing rights, as well as prohibitions or required consents to
assignment of rights from the Company to the Parent upon the Effective Time
which rights, if not available, would constitute an Encumbrance. The Company
shall use all reasonable efforts in consultation with Parent to remove, limit or
diminish such Encumbrances in a reasonable priority order designated by the
Parent, with the goal of removing or minimizing as soon as practicable all such
Encumbrances and having no ongoing financial obligations in connection
therewith.
SECTION 6.06. Notices of Certain Events. (a) Each of Parent and the Company
shall give prompt notice to the other of (i) any notice or other communication
from any person alleging that the consent of such person is or may be required
in connection with the Transactions; (ii) any notice or other communication from
any Governmental Entity in connection with the Transactions; (iii) any actions,
suits, claims, investigations or proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting the Company,
Parent or the Parent Subsidiaries that could delay or otherwise affect the
consummation of the Transactions; (iv) the occurrence of a default or event
that, with the giving of notice or lapse of time or both, would become a default
under any Material Contract of the Company; (v) any change or event that is
reasonably likely to result in a Company Material Adverse Effect or a Parent
Material Adverse Effect or is reasonably likely to delay or impede the ability
of either the Company or Parent to perform its respective obligations pursuant
to this Agreement or to consummate the Transactions; (vi) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which would
be likely to cause (x) any representation or warranty of such party contained in
this Agreement to be untrue or inaccurate or (y) any covenant, condition or
agreement of such party contained in this Agreement not to be complied with or
satisfied; and (vii) any failure of Parent or the Company, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.06 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
(b) The Company shall give prompt notice to Parent of the exercise by any
holder of the Company's Series A Preferred Stock of any right or benefit (a
"Change of Control Right") of such holder of Series A Preferred Stock as a
"Series A Holder" (as defined in the Certificate of Amendment to Certificate of
Designations of Series A Cumulative Convertible Preferred Stock of Network
Imaging Corporation, the previous name of the Company (the "Series A Certificate
of Designations")) as a result of a "Change of Control" (as defined in the
Series A Certificate of Designations).
SECTION 6.07. Letters of Accountants. Parent shall use all reasonable
efforts to cause to be delivered to the Company a "comfort" letter of
PricewaterhouseCoopers dated and delivered as of the date the F-4 Registration
Statement shall have become effective and a "bring-down comfort" letter of
PricewaterhouseCoopers dated and delivered as of the Effective Time. The Company
shall use all reasonable efforts to cause to be delivered to Parent a "comfort"
letter of Ernst & Young dated and delivered as of the date the F-4 Registration
Statement shall have become effective and a "bring-down
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comfort" letter of Ernst & Young dated and delivered as of the Effective Time.
Each such letter shall be addressed to Parent and the Company, and shall be in
form and substance reasonably satisfactory to the recipient thereof and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with mergers such as the one contemplated by
this Agreement.
SECTION 6.08. Plan of Reorganization. (a) This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date hereof and until the earlier to occur of the termination of this Agreement
or the Effective Time, each party hereto shall use all reasonable efforts to
cause the Transactions to qualify, and will not knowingly take any actions or
cause or permit any actions to be taken, which could prevent the Transactions
from qualifying, as a reorganization within the meaning of Section 368(a) of the
Code. Following the Effective Time, neither the Surviving Corporation, the
Parent nor any of their affiliates shall knowingly take any action or knowingly
cause or permit any action to be taken which would cause the Transactions to
fail to qualify as a reorganization within the meaning of Section 368(a) of the
Code.
(b) The Company, on the one hand, and Parent and Merger Sub, on the other
hand, shall execute and deliver to Cooley Godward LLP, counsel to the Company,
and to PricewaterhouseCoopers, tax advisor to Parent, certificates substantially
in the form attached hereto as Exhibits C and D, respectively, at such time or
times as reasonably requested by such firms in connection with their delivery of
opinions with respect to the Transactions. Prior to the Effective Time, none of
the Company, Parent or Merger Sub shall take or cause to be taken any action
which could cause to be untrue (or fail to take or cause not to be taken any
action which could cause to be untrue) any of the representations in Exhibits C
and D, respectively.
SECTION 6.09. Continuation of Benefits. (a) For a period of one year
following the Effective Time, Parent and the Company shall continue and maintain
the employee benefit plans and programs of the Company for the employees of the
Company as in effect immediately prior to the Effective Time (subject to
applicable Law); provided, however, that Parent and the Company shall not
continue to maintain the Company Stock Plans. From and after the Effective Time,
Parent shall honor, and shall cause the Company to honor, in accordance with
their terms, all contracts, arrangements, policies, plans and commitments of the
Company in accordance with such terms that are applicable to any employees of
the Company that have been disclosed or made available to Parent pursuant to the
provisions of Section 3.10 of this Agreement.
(b) To the extent that service is relevant for purposes of eligibility,
participation or vesting under any employee benefit plan, program or arrangement
established or maintained by the Company, employees of the Company shall be
credited with service accrued prior to the Effective Time with the Company to
the extent such service was recognized by the Company under such plans.
SECTION 6.10. Company Affiliate Letters. Not less than 30 days prior to the
Effective Time, the Company shall deliver to Parent a list of names and
addresses of those persons who, in the Company's reasonable judgment, at the
record date for the Company Stockholders' Meeting, may be deemed affiliates of
the Company under Rule 145 of the Securities Act, including, without limitation,
all directors and officers of the Company, and the Company shall advise the
persons identified in such letter of the resale restrictions imposed by
applicable securities laws. The Company shall use all reasonable efforts to
deliver or cause to be delivered to Parent, prior to the Effective Time, an
affiliate letter in the form attached hereto as Exhibit E (the "Company
Affiliate Letter"), executed by each of the affiliates of the Company identified
in the above-referenced list. The Company shall also use all reasonable efforts
to obtain a Company Affiliate Letter as promptly as practicable from any person
who may be deemed to have become an affiliate of the Company under Rule 145 of
the Securities Act after the Company's delivery of the above-referenced list and
prior to the Effective Time. The foregoing notwithstanding, Parent shall be
entitled to place legends as specified in the Company Affiliate Letter on the
certificates evidencing any of Parent ADSs to be received by (i) any affiliate
of the Company or (ii) any person Parent reasonably identifies (by written
notice to the Company) as being a person who may be deemed an affiliate of the
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Company, pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the depositary for the Parent ADSs, consistent with the
terms of the Company Affiliate Letter, regardless of whether such person has
executed the Company Affiliate Letter and regardless of whether such person's
name and address appear in Section 3.22 of the Company Disclosure Schedule.
SECTION 6.11. Indemnification of Directors and Officers. (a) Parent agrees
that the indemnification obligations set forth in the Company's Restated
Certificate of Incorporation and Bylaws, in each case as of the date of this
Agreement, shall survive the Transactions and shall not, except to the extent
required by applicable Law, be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of the individuals who on or prior to the Effective
Time were directors, officers, employees or agents of the Company.
(b) The Company shall, to the fullest extent permitted under applicable
Law and regardless of whether the Transactions become effective, indemnify and
hold harmless, and, after the Effective Time, Parent shall, to the fullest
extent permitted under applicable Law, indemnify and hold harmless, each present
and former director or officer of the Company and each such person who served at
the request of the Company as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise (collectively, the
"Indemnified Parties") against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer or director, in each case
occurring before the Effective Time (including the transactions contemplated by
this Agreement). Without limiting the foregoing, in the event of any such claim,
action, suit, proceeding or investigation, the Company or Parent, as the case
may be, shall pay the fees and expenses of counsel selected by any Indemnified
Party, which counsel shall be reasonably satisfactory to the Company or Parent,
as the case may be, promptly after statements therefor are received (unless
Parent shall elect to defend such action) and (ii) the Company and Parent shall
cooperate in the defense of any such matter, provided, however, that none of the
Company or Parent shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld or delayed).
(c) For six years from the Effective Time, Parent shall provide (to the
extent available in the market) to the Company's current directors and officers
liability insurance protection of the same kind and scope as that provided by
the Company's directors' and officers' liability insurance policies (copies of
which have been made available to Parent); provided, however, that in no event
shall Parent be required to expend more than 175% of the current amount expended
by the Company (the "Insurance Amount") to maintain or procure insurance
coverage pursuant hereto and further provided that if Parent is unable to
maintain or obtain the insurance called for by this Section 6.11(c), it shall
use all reasonable efforts to obtain as much comparable insurance as is
available for the Insurance Amount.
(d) The rights of an Indemnified Party to indemnification and advancement
of expenses under this Section 6.11 shall not be deemed exclusive of any other
rights which the Indemnified Party may at any time be entitled to under
applicable Law, any charter or bylaw provision, any agreement, vote of
stockholders, resolution of disinterested directors or otherwise.
SECTION 6.12. Public Announcements. The initial press release concerning
the Transactions shall be a joint press release and, thereafter, Parent and the
Company shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or the
Transactions and shall not issue any such press release or make any such public
statement without the prior written approval of the other, except to the extent
required by applicable Law or the requirements of NASDAQ or the Neuer Markt, in
which case the issuing party shall use all reasonable efforts to consult with
the other party before issuing any such release or making any such public
statement.
SECTION 6.13. Stock Exchange Listings. (a) Each of the parties hereto shall
use all reasonable efforts to obtain, prior to the Effective Time, the approval
for listing on NASDAQ, effective upon official
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notice of issuance, of the Parent ADSs representing the Parent Ordinary Shares
issuable to the Company's stockholders, the Company Optionholders and the
Company Warrantholders in the Transactions as promptly as practicable after the
date hereof, and in any event prior to the Effective Time.
(b) Each of the parties hereto shall use all reasonable efforts to obtain
the approval for listing on the Neuer Markt and all other stock exchanges on
which the Parent Ordinary Shares are listed of the Parent Ordinary Shares
underlying the Parent ADSs issuable to the Company's stockholders in the
Transactions as promptly as practicable after the Effective Time.
SECTION 6.14. Certain Obligations of Parent. Certain Obligations of Parent.
Certain obligations of Parent set forth in this Agreement, including those
obligations designed to survive the consummation of the Share Exchange require
additional corporate actions by or with respect to Parent specified in the
German Stock Corporation Law (Aktiengesetz) including sec.sec.203, 185 et seq.
of the German Stock Corporation Law (Aktiengesetz) be taken. Parent shall
recommend to its Supervisory Board (Aufsichtsrat) that such action be taken. As
required by law, certain of such obligations of Parent shall be incorporated in
agreements in connection with the contributions in kind to Parent, which
agreements shall be entered into by Parent and the Exchange Agent in the context
of the Share Exchange pursuant to sec.183 et seq. of the German Stock
Corporation Law (Aktiengesetz).
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to the Obligations of Each Party to
Close. Conditions to the Obligations of Each Party to Close. The obligations of
the parties hereto to consummate the Transactions, or to permit the consummation
of the Transactions, are subject to the satisfaction or, if permitted by
applicable Law, waiver of the following conditions:
(a) the F-4 Registration Statement shall have been declared effective
by the SEC under the Securities Act and no stop order suspending the
effectiveness of the F-4 Registration Statement shall have been issued by
the SEC and no proceeding for that purpose shall have been initiated by the
SEC and not concluded or withdrawn;
(b) this Agreement shall have been adopted by the requisite vote of
stockholders of the Company in accordance with the DGCL and the Company's
Restated Certificate of Incorporation, which adoption shall not have been
amended in any respect, withdrawn or otherwise rescinded;
(c) no court of competent jurisdiction shall have issued or entered
any order, writ, injunction or decree, and no other Governmental Entity
shall have issued any order, which is then in effect and has the effect of
making any of the Transactions illegal or otherwise prohibiting the
consummation of any of them;
(d) any waiting period (and any extension thereof) applicable to the
consummation of the Transactions under the HSR Act shall have expired or
been terminated;
(e) each of Ernst & Young and PricewaterhouseCoopers, as the
independent public accountants of the Company and Parent, respectively,
shall have issued the "comfort" letters referred to in Section 6.07; and
(f) the Parent ADSs issuable to the Company's stockholders, the
Company Optionholders and the Company Warrantholders in the Transactions
shall have been approved for listing on NASDAQ, subject to official notice
of issuance.
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SECTION 7.02. Conditions to the Obligations of Parent. The obligations of
Parent to consummate the Transactions, or to permit the consummation of the
Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) each of the representations and warranties of the Company
contained in this Agreement that is qualified by materiality shall be true
and correct at and as of the Effective Time as if made at and as of the
Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true and correct as of
such certain date) and each of the representations and warranties that is
not so qualified shall be true and correct in all material respects at and
as of the Effective Time as if made at and as of the Effective Time (other
than representations and warranties which address matters only as of a
certain date which shall be true and correct in all material respects as of
such certain date), in each case except as contemplated or permitted by
this Agreement, and Parent shall have received a certificate of the
Chairman or President and Executive Vice President of Finance and
Administration of the Company to such effect;
(b) the Company shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Effective Time and
Parent shall have received a certificate of the Chairman or President and
Executive Vice President of Finance and Administration of the Company to
that effect;
(c) except as set forth in Section 3.08 of the Company Disclosure
Schedule, no event or events shall have occurred or be reasonably likely to
occur which, individually or in the aggregate, shall have had, or could
reasonably be expected to have, a Company Material Adverse Effect;
(d) Parent shall have received a written opinion of
PricewaterhouseCoopers, tax advisor to Parent, based on representations of
the Company, on the one hand, and Parent and Merger Sub, on the other hand,
in the forms attached as Exhibits C and D, respectively, and normal
assumptions (including, without limitation, that all steps necessary to
effectuate the Share Exchange following the Effective Time will be required
by the terms of this Agreement and will be substantially certain to occur
and will be ministerial in nature), to the effect that the Transactions
will be treated for federal income tax purposes as a reorganization within
the meaning of section 368(a) of the Code, dated the Effective Time, which
opinion shall not have been withdrawn or modified in any material respect;
(e) Thomas A. Wilson, Brian H. Hajost, Mark Paiewonsky and Mike Guido
shall have executed employment agreements with Parent in form and substance
satisfactory to Parent;
(f) none of the holders of the Company's Series A Preferred Stock
shall have exercised a Change of Control Right of such holder of Series A
Preferred Stock as a "Series A Holder" (as defined in the Series A
Certificate of Designations as a result of a "Change of Control" (as
defined in the Series A Certificate of Designations);
(g) the holders of the warrants issued in connection with the private
placement of the Series K Convertible Preferred Stock of the Company shall
have agreed to terminate the Registration Rights Agreement dated July 28,
1997 and the Company shall have terminated the registration statement
pursuant to Rule 415 under the Securities Act that was filed with the SEC
in satisfaction of the obligations of the Company pursuant to said
Registration Rights Agreement;
(h) the holders of the warrants issued in connection with the private
placement of the Series L Convertible Preferred Stock of the Company shall
have agreed to terminate the Registration Rights Agreement dated December
8, 1997 and the Company shall have terminated the registration statement
pursuant to Rule 415 under the Securities Act that was filed with the SEC
in satisfaction of the obligations of the Company pursuant to said
Registration Rights Agreement;
(i) the estate of Fred Kassner and Susan Kaufman shall have agreed to
terminate the Registration Rights Agreement dated December 31, 1996; and
(j) the Company shall have filed with the Secretary of State of the
State of Delaware a certificate of elimination with respect to the
Company's Series D Preferred Stock, Series E Preferred
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Stock, Series G Preferred Stock, Series H Preferred Stock, Series I
Preferred Stock, Series J Preferred Stock, Series K Preferred Stock and
Series L Preferred Stock.
SECTION 7.03. Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Transactions, or to permit the consummation of
the Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent contained in
this Agreement that is qualified by materiality shall be true and correct
at and as of the Effective Time as if made at and as of the Effective Time
(other than representations and warranties which address matters only as of
a certain date which shall be true and correct as of such certain date) and
each of the representations and warranties that is not so qualified shall
be true and correct in all material respects at and as of the Effective
Time as if made at and as of the Effective Time (other than representations
and warranties which address matters only as of a certain date which shall
be true and correct in all material respects as of such certain date), in
each case except as contemplated or permitted by this Agreement, and the
Company shall have received a certificate of two Management Board Members
(Vorstandsmitglieder) of Parent to such effect;
(b) Parent shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Effective Time and the
Company shall have received a certificate of two Management Board Members
(Vorstandsmitglieder) of Parent to that effect;
(c) except as set forth in Section 4.07 of the Parent Disclosure
Schedule, no event or events shall have occurred or be reasonably likely to
occur which, individually or in the aggregate, shall have had, or could
reasonably be expected to have, a Parent Material Adverse Effect; and
(d) the Company shall have received a written opinion of Cooley
Godward, LLP, counsel to the Company, based on representations of the
Company, on the one hand, and Parent and Merger Sub, on the other hand, in
the forms attached as Exhibits C and D, respectively, and normal
assumptions (including, without limitation, that all steps necessary to
effectuate the Share Exchange following the Effective Time will be required
by the terms of this Agreement and will be substantially certain to occur
and will be ministerial in nature), to the effect that the Transactions
will be treated for federal income tax purposes as a reorganization within
the meaning of section 368(a) of the Code, dated the date of the Effective
Time, which opinion shall not have been withdrawn or modified in any
material respect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of this Agreement and the
Transactions, as follows:
(a) by mutual written consent duly authorized by the Board of
Directors of the Company and the Management Board (Vorstand) of the Parent;
(b) by either Parent or the Company, if the Effective Time shall not
have occurred on or before October 31, 2000; provided, however, that the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have caused, or resulted in, the failure of the Effective
Time to occur on or before such date;
(c) by either Parent or the Company, if any Governmental Order, writ,
injunction or decree preventing the consummation of the Transactions shall
have been entered by any court of competent jurisdiction and shall have
become final and nonappealable;
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(d) by Parent, if (i) in accordance with the proviso to Section
6.03(b), the Board of Directors of the Company withdraws, modifies or
changes its recommendation of this Agreement and the Transactions in a
manner adverse to Parent or its stockholders or shall have resolved to do
so, or if the Board of Directors of the Company shall have refused to
reaffirm its recommendation of this Agreement and the Transactions as
promptly as practicable (but in any event within three business days) after
receipt of any request by Parent to do so, (ii) the Board of Directors of
the Company shall have recommended to the stockholders of the Company a
Competing Transaction or shall have resolved to do so or (iii) a tender
offer or exchange offer for 25 percent or more of the outstanding shares of
any class or series of the capital stock of the Company is commenced and
the Board of Directors of the Company fails to recommend against acceptance
of such tender offer or exchange offer by stockholders of the Company
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by the Company's stockholders);
(e) by Parent or the Company, if this Agreement shall fail to receive
the requisite votes for adoption at the Company Stockholders' Meeting or
any adjournment or postponement thereof;
(f) by Parent if any holder of the Company's Series A Preferred Stock
has exercised a Change of Control Right of such holder of Series A
Preferred Stock as a "Series A Holder" (as defined in the Series A
Certificate of Designations) as a result of a "Change of Control" (as
defined in the Series A Certificate of Designations) and the exercise of
such Change of Control Right is not withdrawn within 10 business days of
its exercise;
(g) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 7.02 would not be
satisfied (a "Terminating Company Breach"); provided, however, that, if
such Terminating Company Breach is curable by the Company through the
exercise of all reasonable efforts and for so long as the Company continues
to exercise such reasonable efforts, Parent may not terminate this
Agreement under this Section 8.01(g); and provided further that the
preceding proviso shall not in any event be deemed to extend any date set
forth in clause (b) of this Section 8.01;
(h) by Parent, upon the breach of the Voting Agreement by any
stockholder of the Company who is a party thereto;
(i) by the Company, upon breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 7.03 would not be
satisfied (a "Terminating Parent Breach"); provided, however, that, if such
Terminating Parent Breach is curable by Parent through the exercise of all
reasonable efforts and for so long as Parent continues to exercise such
reasonable efforts, the Company may not terminate this Agreement under this
Section 8.01(i); and provided further that the preceding proviso shall not
in any event be deemed to extend any date set forth in clause (b) of this
Section 8.01;
(j) by the Company, if the Board of Directors of the Company shall,
following receipt of advice of outside legal counsel (who may be the
Company's regularly engaged outside legal counsel) that failure to so
terminate would be inconsistent with its fiduciary duties to the
stockholders of the Company under applicable Law, in good faith have
withdrawn, modified or changed its recommendation of the adoption of this
Agreement and the Transactions in a manner adverse to Parent and, on or
prior to such date, any person (other than Parent) shall have made a public
announcement or otherwise communicated to the Company and its stockholders
with respect to a Competing Transaction that, as determined by the Board of
Directors of the Company in good faith after consultation with its outside
legal counsel (who may be its regularly engaged outside legal counsel) and
financial advisors, contains terms more favorable to the stockholders of
the Company than those provided for in the Transactions; provided, however,
that the Company may not terminate this Agreement pursuant to this Section
8.01(j) until three business days have elapsed following delivery to Parent
of written notice of such determination of the Board of Directors of the
Company (which
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written notice shall inform Parent of the material terms and conditions of
the Competing Transaction); provided further, that such termination under
this Section 8.01(j) shall not be effective until the Company has made
payment to Parent of the amounts required to be paid pursuant to Section
8.05(b);
(k) by either Parent or the Company, if this Agreement shall not have
been approved by the Supervisory Board (Aufsichtsrat) of Parent on or prior
to May 31, 2000; or
(l) by Parent, if the Merger Consideration shall exceed 1,330,000
Parent ADSs.
SECTION 8.02. Effect of Termination. Except as provided in Section 9.01, in
the event of termination of this Agreement pursuant to Section 8.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of Parent or the Company or any of their respective
officers or directors, and all rights and obligations of each party hereto shall
cease, subject to the remedies of the parties hereto set forth in Section 8.05;
provided, however, that nothing herein shall relieve any party hereto from
liability for the willful or intentional breach of any of its representations
and warranties or the willful or intentional breach of any of its covenants or
agreements set forth in this Agreement; provided further, that the
Confidentiality Agreement shall survive any termination of this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of the Board of Directors of the Company
and the Management Board (Vorstand) of Parent at any time prior to the Effective
Time; provided, however, that, after the adoption of this Agreement by the
stockholders of the Company, no amendment may be made, except such amendments as
have received the requisite stockholder approval and such amendments as are
permitted to be made without stockholder approval under the DGCL. This Agreement
may not be amended except by an instrument in writing signed by both Parent and
the Company.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
SECTION 8.05. Fees and Expenses. (a) Except as set forth in this Section
8.05, all expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such Expenses, whether or not
the Transactions are consummated.
(b) The Company agrees that, if:
(i) the Company shall terminate this Agreement pursuant to Section
8.01(j) and Parent shall not have materially breached this Agreement,
(ii) Parent shall terminate this Agreement pursuant to Section 8.01(d)
and Parent shall not have materially breached this Agreement, or
(iii) (A) Parent shall terminate this Agreement pursuant to Section
8.01(e), (B) at the time of such failure to so approve this Agreement,
there shall exist or have been proposed a Competing Transaction that has
been publicly announced or otherwise communicated to the Company and its
stockholders with respect to the Company, (C) within 15 months thereafter,
the Company shall enter into a definitive agreement with respect to any
Competing Transaction or any Competing Transaction shall be consummated and
(D) Parent shall not have materially breached this Agreement,
then, in the case of (i), prior to such termination, in the case of (ii),
promptly after such termination, or, in the case of (iii), promptly after the
consummation of the Competing Transaction referred to in clause (C), the Company
shall pay to Parent an amount equal to $2,685,000 (the "Termination Fee") and
all of Parent's Expenses (as defined below); provided, however, that the Company
shall not be liable to reimburse Parent pursuant to this Section 8.05(b) for any
Expenses in excess of $1.2 million in the aggregate.
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(c) (i) The Company agrees that, if Parent terminates this Agreement
pursuant to Section 8.01(g), the Company shall reimburse Parent for Parent's
Expenses incurred in connection with pursuing the Transactions and (ii) Parent
agrees that, if the Company terminates this Agreement pursuant to Section
8.01(i), Parent shall reimburse the Company for the Company's Expenses incurred
in connection with pursuing the Transactions; provided, however, that neither
the Company nor the Parent shall be liable to reimburse the other pursuant to
this Section 8.05(c) for any amounts in excess of $1.2 million in the aggregate.
"Expenses", as used in this Agreement, shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Transactions, the preparation, printing, filing and mailing of the
Registration Statement and the Proxy Statement, the solicitation of stockholder
approvals, the filing of the HSR Act notice and all other matters related to the
closing of the Transactions.
(d) Any payment required to be made pursuant to Section 8.05(a), (b) or (c)
shall be made to the party entitled to receive such payment not later than two
business days after delivery to the other party of notice of demand for payment
and shall be made by wire transfer of immediately available funds to an account
designated by the party entitled to receive payment in the notice of demand for
payment delivered pursuant to this Section 8.05(d).
(e) In the event that the Company shall fail to pay the Termination Fee,
the amount of any such Termination Fee shall be increased to include the costs
and expenses actually incurred by Parent (including, without limitation, fees
and expenses of counsel) in connection with the collection under and enforcement
of this Section 8.05, together with interest on such unpaid Termination Fee,
commencing on the date that such Termination Fee became due, at a rate equal to
the rate of interest publicly announced by Citibank, N.A., from time to time, in
The City of New York, from time to time, as such bank's base rate plus 5.00%.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations and Warranties. Non-Survival
of Representations and Warranties. The representations and warranties of the
Company and Parent contained in this Agreement shall not survive the Effective
Time. The agreements and the covenants of the Company and Parent will survive
the Effective Time indefinitely and the agreements and covenants set forth in
Sections 8.02 and 8.05 and this Article IX shall survive termination of this
Agreement pursuant to Section 8.01 indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by an internationally recognized courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 9.02):
(a) if to the Company:
TREEV, Inc.
13900 Lincoln Park Drive
3rd Floor
Herndon, Virginia 20171
USA
Attention: Julia A. Bowen, Esq.
Telecopier: +1 703 708-1558
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with a copy to:
Cooley Godward, LLP
One Freedom Square -- Reston Town Center
11951 Freedom Drive
Reston, Virginia 20190
USA
Attention: Joe W. Conroy
Telecopier: +1 703 456-8100
(b) if to Parent:
CE Computer Equipment AG
Herforder StraSSe 155A
33609 Bielefeld
Germany
Attention: Thomas Wenzke
Telecopier: +49 521 931 8111
with a copy to:
Shearman & Sterling
Broadgate West
9 Appold Street
London EC2A 2AP
United Kingdom
Attention: W. Jeffrey Lawrence
Telecopier: +44 20 7655 5500
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
following terms have the following meanings:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares of capital stock
means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or subject only to
the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom
such person or any of its affiliates or associates or person with whom such
person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of any such shares;
(c) "business day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized to close in the City of
New York, New York, USA or Frankfurt am Main, Germany;
(d) "$" means United States Dollars;
(e) "Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Entity;
(f) "person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3)
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of the Exchange Act), trust, association, entity or government or political
subdivision, agency or instrumentality of a government; and
(g) "subsidiary" or "subsidiaries" of any person means any
corporation, limited liability company, partnership, joint venture or other
legal entity of which such person (either alone or through or together with
any other subsidiary of such person) owns, directly or indirectly, more
than fifty percent of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
(h) "trading day" means a day on which the Neuer Markt or NASDAQ is
open for trading.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner to
the fullest extent permitted by applicable Law in order that the Transactions
may be consummated as originally contemplated to the fullest extent possible.
SECTION 9.05. Entire Agreement; Assignment. This Agreement and the
Confidentiality Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect thereto. This Agreement shall not be assigned by any of the parties
hereto (whether by operation of Law or otherwise), except that Parent may assign
all or any of its rights and obligations hereunder to any affiliate of Parent;
provided that no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be binding upon and
shall inure solely to the benefit of, and be enforceable by, the parties hereto
and their respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Article II (the "Third Party Provisions"), nothing in this Agreement, express or
implied, is intended to or shall confer upon any person, other than the parties
hereto or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities of any nature whatsoever under or by reason
of this Agreement. The Third Party Provisions are intended to be for the benefit
of the beneficiaries thereof and may be enforced by such beneficiaries.
SECTION 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 9.08. Governing Law. The capital contribution in kind included in
the Share Exchange shall be governed by and effected in accordance with German
law. In all other respects, this Agreement shall be governed by, and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
SECTION 9.09. Consent to Jurisdiction; Venue (a) Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of the state courts of
Delaware and to the jurisdiction of the United States District Court for
Delaware for the purpose of any action or proceeding arising out of or relating
to this Agreement, and each of the parties hereto irrevocably agrees that all
claims in respect to such action or proceeding may be heard and determined
exclusively in any Delaware state or federal court sitting in Delaware. Each of
the parties hereto agrees that a final judgment in any action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law.
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(b) Each of the parties hereto irrevocably consents to the service of any
summons and complaint and any other process in any other action or proceeding
relating to the Transactions, on behalf of itself or its property, by the
personal delivery of copies of such process to such party. Nothing in this
Section 9.09 shall affect the right of any party hereto to serve legal process
in any other manner permitted by Law.
SECTION 9.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
TREEV, INC.
By: /s/ THOMAS A. WILSON
------------------------------------
Name: Thomas A. Wilson
Title: President and Chief
Executive Officer
By: /s/ BRIAN H. HAJOST
------------------------------------
Name: Brian H. Hajost
Title: Executive Vice President
CE COMPUTER EQUIPMENT AG
By: /s/ HANS-JURGEN BRINTRUP
------------------------------------
Name: Hans-Jurgen Brintrup
Title: Member of the Board of
Management
By: /s/ THOMAS WENZKE
------------------------------------
Name: Thomas Wenzke
Title: Member of the Board of
Management
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EXHIBIT A
LIST OF OFFICERS OF SURVIVING CORPORATION
Julia A. Bowen, Vice President & General Counsel
Thomas Giampa, Vice President, Development
Michael Guido, Executive Vice President, Sales
Brian H. Hajost, Executive Vice President, Finance & Corporate Development
Richard McMahon, Senior Vice President, Professional Services
Mark A. Paiewonsky, Vice President of Finance
Thomas Wenzke, Chief Administrative Officer
Thomas A. Wilson, President & Chief Executive Officer
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EXHIBIT B
LIST OF DIRECTORS OF SURVIVING CORPORATION
Jurgen Brintrup
Thomas Wenzke
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EXHIBIT C
FORM OF COMPANY TAX REPRESENTATION LETTER
[Company Letterhead]
As of [Closing Date], 2000
<TABLE>
<S> <C>
PricewaterhouseCoopers LLP Cooley Godward LLP
1177 Avenue of the Americas One Maritime Plaza
New York, NY 10036 San Francisco, CA 94111-3699
</TABLE>
Ladies and Gentlemen:
In order to enable you to deliver an opinion in connection with the
proposed merger (the "Merger") of [Merger Sub] ("Merger Sub"), a Delaware
corporation, with and into TREEV, Inc., a Delaware corporation (the "Company"),
and related transactions, pursuant to which the Company will become a
wholly-owned subsidiary of CE Computer Equipment AG, a German corporation
("Parent"), as described in the Amended and Restated Agreement and Plan of
Merger between Parent and the Company, dated as of November 19, 1999 and amended
and restated as of May 8, 2000 (the "Merger Agreement"), the undersigned officer
of the Company hereby represents on behalf of the Company that, to the best
knowledge and belief of such officer, after due inquiry and investigation, the
following statements are true now and will continue to be true as of the
Effective Time (as defined in the Merger Agreement):
1. The fair market value of the Parent ordinary shares represented by American
Depositary Shares ("Parent ADSs") received by each Company shareholder in
the transactions described in the Merger Agreement (the "Transactions"),
will be approximately equal to the fair market value of the shares of the
Company Common Stock and Series A Preferred Stock (collectively, the
"Company Stock") surrendered in exchange therefor. The formulas set forth
in the Merger Agreement for the exchange of Parent ADSs for Company Stock,
and the other terms of the Merger Agreement, are the result of arm's-length
bargaining.
2. Prior to and in connection with the Merger, (i) the Company has not
redeemed (and will not redeem) any Company Stock and has not made (and will
not make) any extraordinary distributions (as described in Treasury
Regulation Section 1.368-1T(e)) with respect thereto and (ii) persons that
are related to the Company within the meaning of Treasury Regulation
Section 1.368-1(e)(3) (determined without regard to Treasury Regulation
Section 1.368-1(e)(3)(i)(A)) have not acquired (and will not acquire)
Company Stock from any holder thereof except as set forth in the Merger
Agreement.
3. The Company does not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire stock (or other equity interest) in the Company or vote (or
restrict or otherwise control the vote of) Company Stock that, if exercised
or converted, would affect Parent's acquisition or retention of Control of
the Company. For purposes of this letter, "Control" means the direct
ownership of stock in the Company possessing at least 80% of the total
combined voting power of all classes of stock of the Company entitled to
vote and at least 80% of the total number of shares of each other class of
stock of the Company. For purposes of determining Control, a person will
not be considered to own shares of voting stock if rights to vote such
shares (or to restrict or otherwise control the voting of such shares) are
held by a third party (including a voting trust) other than an agent of
such person.
4. The Company has no plan or intention to issue additional shares of its
stock, or take any other action, that would result in Parent losing Control
of the Company.
5. The Company and its shareholders will pay separately their respective
expenses, if any, incurred in connection with the Transactions.
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6. The Company is not an investment company as defined in sections
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code").
7. The fair market value of the assets of the Company exceed the sum of its
liabilities plus the amount of liabilities, if any, to which the assets are
subject.
8. The Company is not under the jurisdiction of a court in a case under Title
11 of the United States Bankruptcy Code, or in a receivership, foreclosure
or similar proceeding in a Federal or state court within the meaning of
section 368(a)(3)(A) of the Code.
9. In connection with the Transactions, 100% of the total combined voting
power of all classes of stock of the Company entitled to vote and 100% of
the total number of shares of each other class of stock of the Company will
be exchanged solely for Parent ADSs which are entitled to vote. For
purposes of this representation, no cash or other property has been
furnished directly or indirectly by Merger Sub or Parent (or anyone related
to either of them within the meaning of Treasury Regulation Section
1.368-1(e)(3), or anyone acting on behalf of any of them as an agent, in
each case a "Related Party") in connection with redemptions or purchases of
Company Stock by the Company or distributions by the Company to Company
shareholders. In addition, no liabilities of the Company shareholders will
be assumed by Parent or Merger Sub (or any Related Party), nor will any of
the Company Stock be subject to any liabilities.
10. Pursuant to the Merger, Merger Sub will merge with and into the Company,
and the Company will acquire all of the assets and liabilities of Merger
Sub. Following the Transactions, the Company will continue to hold at least
90% of the fair market value of its net assets and at least 70% of the fair
market value of its gross assets held immediately prior to the Merger, and
at least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets of Merger Sub held immediately
prior to the Merger. For purposes of this representation, any amounts paid
by the Company to dissenting Company shareholders or to Company
shareholders who receive cash or other property in the Merger, amounts used
by the Company to pay reorganization expenses, and all redemptions and
distributions or other payments in respect of Company Stock (except for
regular, normal dividends) made by the Company in contemplation of the
Merger will be included as assets of the Company or Merger Sub,
respectively, immediately prior to the Merger.
11. Other than in the ordinary course of business, the Company has not disposed
of any of its assets (including any distributions of assets with respect
to, or in redemption of, stock) since January 1, 1998.
12. Other than shares of Company Stock or options to acquire Company Stock
issued as compensation to present or former service providers (including,
without limitation, employees or directors of the Company) in the ordinary
course of business, if any, no issuances of Company Stock or rights to
acquire Company Stock have occurred since July 1, 1999 other than pursuant
to options, warrants or agreements outstanding prior to July 1, 1999.
13. The liabilities of the Company have been incurred by the Company in the
ordinary course of business.
14. There is no intercorporate indebtedness existing between Parent and the
Company or between Merger Sub and the Company that was issued, acquired or
will be settled at a discount.
15. The documents listed in the attached Exhibit 1 represent the full and
complete agreement among Parent, Merger Sub and the Company regarding the
Transactions, and there are no other written or oral agreements regarding
the Transactions.
16. The Transactions will be consummated solely in compliance with the material
terms of the Merger Agreement. None of the material terms and/or conditions
therein has been waived or modified, and there is no plan or intention to
waive or to modify any such material term or condition.
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17. The payment of cash in lieu of fractional shares of Parent ADSs is solely
for the purpose of avoiding the expense and inconvenience of issuing
fractional shares and does not represent separately bargained for
consideration. The fractional share interests of each holder of Parent ADSs
will be aggregated, and no such holder will receive cash in an amount equal
to or greater than the value of one full share of Parent ADSs. The total
cash consideration that will be paid to Company shareholders in lieu of
fractional shares will not exceed 1% of the total consideration that will
be issued to the Company shareholders in exchange for their shares. None of
the cash to be paid in lieu of fractional shares will be provided, directly
or indirectly, by Parent, Merger Sub or the Company.
18. The Company has no plan to sell or otherwise dispose of any of its assets
or of any of the assets acquired from Merger Sub, except for dispositions
made in the ordinary course of business or transfers described in Treasury
Regulation Section 1.368-1(d) and Treasury Regulation Section 1.368-2(k) or
section 368(a)(2)(C) of the Code (in which case the foregoing
representation shall be deemed to apply to any transferee).
19. Following the Merger, the Company will continue a significant line of its
historic business or use a significant portion of its historic business
assets in a business.
20. None of the Parent ADSs received by any shareholder-employee of the Company
in the Transactions will be separate consideration for, or allocable to,
past or future services. None of the compensation received by any
shareholder-employee of the Company is separate consideration for, or
allocable to, such shareholder-employee's shares of Company Stock
surrendered in the Transactions, and the compensation paid to such
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
21. The Company's principal reasons for participating in the Transactions are
bona fide business purposes not related to taxes.
22. The undesigned officer is authorized to make the certifications contained
in this letter on behalf of the Company.
It is understood that (i) your opinion will be based on the representations set
forth herein and on the statements contained in the Merger Agreement (including
all schedules and exhibits thereto) and documents related thereto and (ii) your
opinions will be subject to certain limitations and qualifications including
that they may not be relied upon if any such representations are not accurate in
all material respects.
Very truly yours,
TREEV, Inc.
By:
------------------------------------
Title:
-----------------------------------
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EXHIBIT 1
MERGER AGREEMENT DOCUMENTS
1. Amended and Restated Agreement and Plan of Merger between CE Computer
Equipment AG and TREEV, Inc., dated as of November 19, 1999 and amended
and restated as of May 8, 2000.
2. Voting and Registration Rights Agreement, originally dated as of November
19, 1999 and amended as of May 8, 2000.
3. Series A Preferred Stock Agreement, dated as of [--], 2000.
4. Exchange Agent Agreement between CE Computer Equipment AG and [Exchange
Agent], as agent, dated as of [--], 2000.
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EXHIBIT D
FORM OF PARENT AND MERGER SUB TAX REPRESENTATION LETTER
[PARENT LETTERHEAD]
<TABLE>
<S> <C>
As of [Closing Date], 2000
PricewaterhouseCoopers LLP Cooley Godward LLP
1177 Avenue of the Americas One Maritime Plaza
New York, NY 10036 San Francisco, CA 94111-3699
</TABLE>
Ladies and Gentlemen:
In order to enable you to deliver an opinion in connection with the
proposed merger (the "Merger") of [Merger Sub] ("Merger Sub"), a Delaware
corporation, with and into TREEV, Inc., a Delaware corporation (the "Company"),
and related transactions, pursuant to which the Company will become a
wholly-owned subsidiary of CE Computer Equipment AG, a German corporation
("Parent"), as described in the Amended and Restated Agreement and Plan of
Merger between Parent and the Company, dated as of November 19, 1999 and amended
and restated as of May 8, 2000 (the "Merger Agreement"), the undersigned
officers of Parent and Merger Sub hereby represent on behalf of Parent and
Merger Sub that, to the best knowledge and belief of such officers, after due
inquiry and investigation, the following statements are true now and will
continue to be true as of the Effective Time (as defined in the Merger
Agreement):
1. The fair market value of the Parent ordinary shares represented by American
Depositary Shares ("Parent ADSs") received by each Company shareholder in
the transactions, described in the Merger Agreement (the "Transactions"),
will be approximately equal to the fair market value of the shares of the
Company Common Stock and Series A Preferred Stock (collectively, the
"Company Stock") surrendered in exchange therefor. The formulas set forth
in the Merger Agreement for the exchange of Parent ADSs for Company Stock,
and the other terms of the Merger Agreement, are the result of arm's-length
bargaining.
2. In connection with the Transactions, 100% of the total combined voting
power of all classes of stock of the Company entitled to vote and 100% of
the total number of shares of each other class of stock of the Company will
be exchanged solely for Parent ADSs which are entitled to vote. For
purposes of this representation, no cash or other property has been
furnished directly or indirectly by Merger Sub or Parent (or anyone related
to either of them within the meaning of Treasury Regulation Section
1.368-1(e)(3), or anyone acting on behalf of any of them as an agent, in
each case a "Related Party") in connection with redemptions or purchases of
Company Stock by the Company or distributions by the Company to Company
shareholders. In addition, no liabilities of the Company shareholders will
be assumed by Parent or Merger Sub (or any Related Party), nor will any of
the Company Stock be subject to any liabilities.
3. Pursuant to the Merger, Merger Sub will merge with and into the Company,
and the Company will acquire all of the assets and liabilities of Merger
Sub. Following the Transactions, Parent intends to cause the Company to
hold at least 90% of the fair market value of its net assets and at least
70% of the fair market value of its gross assets held immediately prior to
the Merger, and at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets of Merger Sub
held immediately prior to the Merger. For purposes of this representation,
any amounts paid by the Company or Merger Sub to dissenters, amounts paid
by the Company or Merger Sub to Company shareholders who receive cash or
other property, amounts used by the Company or Merger Sub to pay
reorganization expenses, and all redemptions and distributions or other
payments in respect of Company Stock (except for regular, normal dividends)
made by the Company in
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contemplation of the Merger will be included as assets of the Company or
Merger Sub, respectively, immediately prior to the transaction.
4. Following the Transactions, members of Parent's "qualified group" (as
defined in Treasury Regulation Section 1.368-1(d)(4)) will continue a
significant line of the historic business of the Company or use a
significant portion of the Company's historic business assets in a
business.
5. Following the Transactions, Parent has no plan or intention to liquidate
the Company; to merge the Company with or into another corporation; to
cause the Company to sell or otherwise dispose of any of its assets or of
any of the assets acquired from Merger Sub, except for dispositions made in
the ordinary course of business or transfers described in Treasury
Regulation Section 1.368-1(d) and Treasury Regulation Section 1.368-2(k)
(in which case the foregoing representation shall be deemed to apply to any
transferee); to sell or otherwise dispose of any Company Stock; or to
contribute Company Stock to any other entity, except for transfers
described in section 368(a)(2)(C) of the Internal Revenue Code of 1986, as
amended (the "Code") or Treasury Regulation Section 1.368-2(k) (in which
case the foregoing representations shall be deemed to apply to any
transferee).
6. Parent has no plan or intention to reacquire any of its stock issued in the
Transactions. To the best of the knowledge of the management of Parent, no
person related to Parent within the meaning of Treasury Regulation Section
1.368-1(e)(3) and no person acting as an intermediary for Parent or such a
related person has a plan or intention to acquire any of the Parent ADSs
issued in the Transactions.
7. Parent has no plan or intention to cause the Company to issue additional
shares of Company Stock that would result in Parent losing Control of the
Company. For purposes of this letter, "Control" means the direct ownership
of stock in the Company possessing at least 80% of the total combined
voting power of all classes of stock of the Company entitled to vote and at
least 80% of the total number of shares of each other class of stock of the
Company. For purposes of determining Control, a person will not be
considered to own shares of voting stock if rights to vote such shares (or
to restrict or otherwise control the voting of such shares) are held by a
third party (including a voting trust) other than an agent of such person.
8. The Exchange Agent (as defined in the Merger Agreement) has formed Merger
Sub on behalf of and as the agent of Parent and will participate in the
Transactions and otherwise effectuate the exchange of Parent ADSs for
Company Stock solely to facilitate Parent's compliance with German
corporate law regarding the issuance of shares.
9. Merger Sub was formed solely for the purpose of merging into the Company,
has not and does not own any assets, and has not been and is not subject to
any liabilities.
10. Prior to the Merger, the Exchange Agent will hold all of Merger Sub's
issued and outstanding common stock on behalf of and as the agent of
Parent.
11. No shares of Merger Sub will be used in consideration in the Merger or
otherwise issued to shareholders of the Company.
12. The exchange by the Exchange Agent of the Company Stock for Parent ADSs
will occur as soon as possible after the Merger.
13. Parent and Merger Sub will pay separately their respective expenses, if
any, incurred in connection with the Transactions.
14. None of Parent, Merger Sub, or any other direct or indirect subsidiary of
Parent beneficially owns, nor has owned during the past five years, any
shares of Company Stock.
15. With respect to each instance, if any, in which shares of Company Stock
have been purchased (a "Stock Purchase") by any person during the period
since January 1, 1999: (i) the Stock Purchase was not made by such person
as a representative of Parent; (ii) the purchase price paid by such
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person pursuant to the Stock Purchase was not advanced, and will not be
reimbursed, either directly or indirectly, by Parent; (iii) at no time was
such person or any other party required or obligated to surrender to Parent
the Company Stock acquired in the Stock Purchase, and neither such person
nor any other party will be required to surrender to Parent the Parent ADSs
for which such shares of stock of the Company will be exchanged in the
Merger; and (iv) the Stock Purchase was not a formal or informal condition
to consummation of the Merger.
16. Neither Parent nor Merger Sub is an investment company as defined in
sections 368(a)(2)(F)(iii) and (iv) of the Code.
17. None of the Parent ADSs received by any shareholder-employee of the Company
in the Transactions will be separate consideration for, or allocable to,
past or future services. None of the compensation received by any
shareholder-employee of the Company is separate consideration for, or
allocable to, such shareholder-employee's shares of Company Stock
surrendered in the Transactions, and the compensation paid to such
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
18. The documents listed in the attached Exhibit 1 represent the full and
complete agreement among Parent, Merger Sub and the Company regarding the
Transactions, and there are no other written or oral agreements regarding
the Transactions.
19. The Transactions will be consummated solely in compliance with the material
terms of the Merger Agreement; as of the date hereof, none of the material
terms and/or conditions therein has been waived or modified, and there is
no plan or intention to waive or to modify any such material term or
condition.
20. There is no intercorporate indebtedness existing between Parent and the
Company or between Merger Sub and the Company that was issued, acquired or
will be settled at a discount.
21. The payment of cash in lieu of fractional shares of Parent ADSs is solely
for the purposes of avoiding the expense and inconvenience of issuing
fractional shares and does not represent separately bargained for
consideration. The fractional share interests of each holder of Parent ADSs
will be aggregated, and no such holder will receive cash in an amount equal
to or greater than the value of one full share of Parent ADSs. The total
cash consideration that will be paid to Company shareholders in lieu of
fractional shares will not exceed 1% of the total consideration that will
be issued to the Company shareholders in exchange for their shares. None of
the cash to be paid in lieu of fractional shares will be provided, directly
or indirectly, by Parent, Merger Sub or the Company.
22. Parent's principal reasons for participating in the Transactions are bona
fide business purposes not related to taxes.
23. The undersigned officers are authorized to make the certifications
contained in this letter on behalf of Parent and Merger Sub, respectively.
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It is understood that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the Merger
Agreement (including all schedules and exhibits thereto) and documents related
thereto and (ii) your opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects.
Very truly yours,
CE Computer Equipment AG
By:
--------------------------------------
Title:
--------------------------------------
Merger Sub
By:
--------------------------------------
Title:
--------------------------------------
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EXHIBIT 1
MERGER AGREEMENT DOCUMENTS
1. Amended and Restated Agreement and Plan of Merger between CE Computer
Equipment AG and TREEV, Inc., dated as of November 19, 1999 and amended and
restated as of May 8, 2000.
2. Voting and Registration Rights Agreement, dated as of November 19, 1999 and
amended as of May 8, 2000.
3. Series A Preferred Stock Agreement, dated as of [--], 2000.
4. Exchange Agent Agreement between CE Computer Equipment AG and [Exchange
Agent], as agent, dated as of [--], 2000.
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EXHIBIT E
FORM OF COMPANY AFFILIATE LETTER
TREEV, Inc.
13900 Lincoln Park Drive
3rd Floor
Herndon, Virginia 20171
USA
CE Computer Equipment AG
Herforder StraSSe 155A
33609 Bielefeld
Germany
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of TREEV, Inc., a Delaware corporation ("Company"), as the
term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145
of the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). Pursuant to the terms of the Amended and Restated Agreement
and Plan of Merger, dated as of November 19, 1999 and amended and restated as of
May 8, 2000 (the "Agreement"), between CE Computer Equipment AG, an
Aktiengesellschaft organized and existing under the laws of the Federal Republic
of Germany ("Parent"), and the Company, [--], a Delaware corporation, shall be
merged with and into the Company (the "Merger"), and the stockholders of the
Company shall receive American Depositary Shares ("Parent ADSs") representing
ordinary shares, without par value, of Parent ("Parent Ordinary Shares"), in
exchange for shares of common stock, par value $.0001 per share, of the Company
(the "Company Common Stock").
As a result of the Merger, I may receive Parent ADSs in exchange for shares
(or upon exercise of options for shares or upon the exercise by me of rights
under certain option plans of the Company that become exercisable upon the
consummation of the Merger) owned by me of Company Common Stock or Series A
Preferred Stock, warrants owned by me to acquire Company Common Stock or
employee stock options of the Company as the case may be (the Parent ADSs
together with the Parent Ordinary Shares are hereinafter collectively referred
to as the "Parent Securities").
I represent, warrant and covenant to Parent that in the event I receive any
Parent Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of Parent
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Parent Securities to the
extent I felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Parent Securities to me
pursuant to the Merger shall be registered with the Commission under the
Act on a Registration Statement on Form F-4. However, I have also been
advised that, since (a) at the time the Merger shall be submitted for a
vote of the stockholders of the Company, I may be deemed to be an affiliate
of the Company and (b) the distribution by me of Parent Securities has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of Parent Securities issued to me in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the
Act, (ii) such sale, transfer or other disposition has been registered
under the Act or (iii) in the opinion of counsel reasonably acceptable to
Parent, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
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D. I understand that, except as provided in the Agreement [and in the
Voting Agreement, as amended, to which I am a party], Parent is under no
obligation to register the sale, transfer or other disposition of Parent
Securities by me or on my behalf under the Act or to take any other action
necessary in order to make compliance with an exemption from such
registration available.
E. I also understand that stop transfer instructions will be given to
Parent's transfer agents or the depositary for the Parent ADSs with respect
to Parent Securities issued to me and that there will be placed on the
certificates for Parent Securities issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
BETWEEN THE REGISTERED HOLDER HEREOF AND CE COMPUTER
EQUIPMENT AG, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF CE COMPUTER EQUIPMENT AG."
F. I also understand that, unless the sale or transfer by me of
Parent Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Parent reserves the right to
put the following legend on the certificates issued to my transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SECURITIES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR
FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
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Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
--------------------------------------
Name:
Accepted this day of
, 2000, by
CE COMPUTER EQUIPMENT AG
By:
Name:
Title:
TREEV, INC.
By:
Name:
Title:
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<PAGE> 311
EXECUTION COPY
AMENDMENT NO. 1, DATED
AS OF NOVEMBER 20, 2000,
TO THE AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER BETWEEN
CE COMPUTER EQUIPMENT AG AND TREEV, INC.,
DATED AS OF NOVEMBER 19, 1999 AND
AMENDED AND RESTATED AS OF MAY 8, 2000
Amendment No. 1, dated as of November 20, 2000 (this "Amendment"), to the
Amended and Restated Agreement and Plan of Merger between CE Computer Equipment
AG ("Parent") and TREEV, Inc. (the "Company"), dated as of November 19, 1999 and
amended and restated as of May 8, 2000 (the "Merger Agreement").
PRELIMINARY STATEMENTS
Parent and the Company are parties to the Merger Agreement. Capitalized
terms not otherwise defined herein have the same meanings as specified in the
Merger Agreement.
Parent and the Company desire to amend the Merger Agreement as described
herein.
In consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, Parent and the
Company hereby agree as follows:
1. Contribution Agent; Formation of Merger Sub. From and after the
date hereof, Section 1.01 of the Merger Agreement shall be amended in full
to read as follows:
"Parent shall appoint a contribution agent in connection with the Share
Exchange (as defined below) and the delivery of the Parent Ordinary
Shares (as defined below) to former stockholders, optionholders and
warrantholders of the Company (the "Contribution Agent"). Parent shall
enter into a Contribution Agent Agreement with the Contribution Agent in
form and substance reasonably satisfactory to Parent and the Company,
which agreement shall set forth the duties, responsibilities and
obligations of the Contribution Agent consistent with the terms of this
Agreement. Following the execution of such Contribution Agent Agreement,
the Contribution Agent shall cause to be incorporated pursuant to the
DGCL a corporation which shall be a constituent company in the Merger
(the "Merger Sub") and which shall not transact any business other than
participating in the Merger as described herein. Solely to accommodate
the transactions described in this Article I and Article II, the
Contribution Agent shall hold, as the agent of Parent, all the issued
and outstanding shares of common stock, par value $.01 per share, of the
Merger Sub (the "Merger Sub Common Stock")."
2. Effective Time; Closing. From and after the date hereof, the first
sentence of Section 1.03 of the Merger Agreement shall be amended in full
to read as follows:
"As soon as possible after the expiration of the Option and Warrant
Exchange, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in such form as is required
by, and executed in accordance with, the relevant provisions of the
DGCL; provided, however, that the Merger shall not be consummated and
the Certificate of Merger shall not be filed prior to January 1, 2001."
3. Officers. From and after the date hereof, Exhibit A of the Merger
Agreement shall be amended in full to read as set forth in Annex 1 hereto.
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4. Share Exchange; Conversion of Securities; Exchange of
Certificates. From and after the date hereof, Article II of the Merger
Agreement shall be amended in full to read as follows:
"ARTICLE II
SHARE EXCHANGE; CONVERSION OF SECURITIES; EXCHANGE OF
CERTIFICATES
SECTION 2.01. The Share Exchange. Consistent with the terms of this
Agreement, as soon as possible after the Effective Time, the Contribution Agent
shall contribute, for the account of the former stockholders of the Company all
of the issued and outstanding shares of Surviving Corporation Common Stock (as
defined below) to Parent as a transfer-in-kind, and Parent shall issue the
Parent Ordinary Shares (as defined below) to be issued in connection with the
Merger and the Option and Warrant Exchange (the "Merger Consideration") and
shall cause the Merger Consideration to be delivered to the Exchange Agent (as
defined below) for the account of the Contribution Agent and for the benefit of
the former stockholders of the Company and the former Company Optionholders and
Company Warrantholders who validly accept the Option and Warrant Exchange (the
"Share Exchange"). Subject to Section 6.14, the Share Exchange shall be effected
in accordance with sec.sec. 203, 185 et seq. (including in particular sec. 187)
of the German Stock Corporation Law (Aktiengesetz) by registering the
implementation of the increase of the stated share capital of Parent with the
commercial register (Handelsregister) for Parent. At the Effective Time, the
obligation of the parties to effect the Share Exchange shall be unconditional
(it being understood that Parent's obligation to effect the aforementioned
capital increase shall be conditioned on the completion of the Contribution
Agent's transfer-in-kind of the shares of Surviving Corporation Common Stock).
SECTION 2.02. Conversion of Company Common Stock and Series A Preferred
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of the Merger Sub, the Company or the holders of any share of Company
Common Stock or of any share of Series A Cumulative Convertible Preferred Stock,
par value $.0001 per share, of the Company (the "Series A Preferred Stock"), the
outstanding Company Common Stock and Series A Preferred Stock shall be converted
as follows:
(a) each share of Company Common Stock held in the treasury of the
Company or owned by Parent or any direct wholly owned subsidiary of Parent
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof, and no payment shall be made with respect
thereto;
(b) each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time shall be converted, subject to
Section 2.05, into the right to receive the greater of (the "Series A
Preferred Stock Exchange Ratio") (i) that number of Parent American
Depositary Shares ("Parent ADSs"), each representing one ordinary share,
without par value, of Parent (the "Parent Ordinary Shares"), equal to
$10.00 divided by the Parent Average Closing Price (as defined below) and
(ii) that number of Parent ADSs equal to a fraction (x) the numerator of
which is the sum of (A) 0.84 plus (B) 1.20 multiplied by the product of (1)
1.92 and (2) the average closing price per share of Company Common Stock as
reported on the NASDAQ National Market System ("NASDAQ") during the period
commencing on the 17th trading day prior to the Company Stockholders'
Meeting and ending on the third trading day prior to the Company
Stockholders' Meeting (the "Determination Period"), and (y) the denominator
of which is the Parent Average Closing Price (it being understood and
agreed that any share of Series A Preferred Stock held by a person who is
an affiliate (as defined under the Securities Act) of the Company at the
record date for the Company Stockholders' Meeting or who is an affiliate
(as defined under the Securities Act) of Parent will not be converted into
the right to receive Parent ADSs, but will instead be converted into the
right to receive an equal number of Parent Ordinary Shares). For purposes
of this Section 2.02 and Section 2.04, the "Parent Average Closing Price"
shall be the average closing price per Parent Ordinary Share as reported on
the Neuer Markt segment of the Frankfurt Stock Exchange (the
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"Neuer Markt") during the Determination Period converted into U.S. dollars
at the average noon buying rate in New York City for cable transfers in
Euros as certified for customs purposes by the Federal Reserve Bank of New
York during the Determination Period;
(c) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted, subject to
Section 2.05, into the right to receive that number of Parent ADSs (the
"Common Stock Exchange Ratio") equal to a fraction (i) the numerator of
which is 6,650,000 (which number takes into account Parent's one-to-five
stock split approved on August 2, 2000) less the maximum aggregate number
of Parent Ordinary Shares and Parent ADSs issuable pursuant to paragraph
(b) of this Section 2.02 and paragraphs (a)(ii) and (b) of Section 2.04 and
(ii) the denominator of which is the number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time (it
being understood and agreed that any share of Company Common Stock held by
a person who is an affiliate (as defined under the Securities Act) of the
Company at the record date for the Company Stockholders' Meeting or who is
an affiliate (as defined under the Securities Act) of Parent will not be
converted into the right to receive Parent ADSs, but will instead be
converted into the right to receive an equal number of Parent Ordinary
Shares);
(d) each share of Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation
("Surviving Corporation Common Stock");
(e) to the extent that any person would otherwise be entitled to
receive a fraction of a Parent Ordinary Share or Parent ADS pursuant to
this Section 2.02, such fraction shall be treated in accordance with
Section 2.06; and
(f) in no event shall the aggregate number of Parent Ordinary Shares
and Parent ADSs issuable in connection with the Merger, the Share Exchange
and the Option and Warrant Exchange exceed 6,650,000.
SECTION 2.03. Exchange of Shares of Company Common Stock and Series A
Preferred Stock.
(a) Exchange Fund. Parent shall, for the account of the Contribution Agent,
deposit with a bank or trust company designated by Parent (the "Exchange
Agent"), for the benefit of the former stockholders of the Company and the
former Company Optionholders and Company Warrantholders who have validly
accepted the Option and Warrant Exchange, for exchange in accordance with this
Article II, certificates representing the Merger Consideration to which the
Contribution Agent shall have become entitled pursuant to the Share Exchange.
The Contribution Agent shall direct the Exchange Agent to distribute to each
such former Company Optionholder and Company Warrantholder the Merger
Consideration allocable to such holder pursuant to the Option and Warrant
Exchange. The aggregate Merger Consideration issued by Parent in connection with
the Merger and transferred to the Exchange Agent for the account of the
Contribution Agent, pursuant to Section 2.01 and this Section 2.03 (excluding
the Merger Consideration referred to in the preceding sentence), together with
any dividends or other distributions with respect to Parent Ordinary Shares to
be made pursuant to Section 2.03(c), is referred to herein as the "Exchange
Fund".
(b) Exchange Procedures. Promptly after the Effective Time, the Exchange
Agent will mail to each record holder of shares of Company Common Stock and each
record holder of shares of Series A Preferred Stock immediately prior to the
Effective Time, a form of letter of transmittal which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of a certificate or certificates formerly evidencing shares of
Company Common Stock or shares of Series A Preferred Stock (together, the "Old
Company Certificates") to the Exchange Agent and instructions for use in
effecting the surrender to the Exchange Agent of Old Company Certificates in
exchange for Parent ADSs or Parent Ordinary Shares. The letter of transmittal
shall contain such other terms and conditions as Parent and the Company shall
reasonably specify. Upon surrender of an Old Company Certificate to the
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Exchange Agent, together with a letter of transmittal duly executed and
completed in accordance with the instructions thereto, and any other documents
reasonably required by the Exchange Agent or Parent and the Company, (i) the
holder of such Old Company Certificate shall be entitled to receive in exchange
therefor (x) (A) if such holder was an affiliate of the Company at the record
date for the Company Stockholders' Meeting or will be an affiliate of Parent
immediately after the Effective Time, a certificate evidencing the number of
whole Parent Ordinary Shares and a check for cash in lieu of any fractional
Parent Ordinary Shares into which the shares of Company Common Stock or Series A
Preferred Stock previously evidenced by such Old Company Certificate shall have
been converted into the right to receive at the Effective Time or (B) if such
holder neither was an affiliate of the Company at the record date for the
Company Stockholders' Meeting nor will be an affiliate of Parent immediately
after the Effective Time, an American Depositary Receipt ("ADR") registered in
the name of such holder evidencing the number of whole Parent ADSs and a check
for cash in lieu of any fractional Parent ADS into which the shares of Company
Common Stock or Series A Preferred Stock previously evidenced by such Old
Company Certificate shall have been converted into the right to receive at the
Effective Time and (y) if applicable, a check payable to such holder
representing the payment of any dividends and distributions pursuant to Section
2.03(c), and (ii) such Old Company Certificate shall forthwith be cancelled. If
any cash is to be paid to, or any certificate evidencing Parent Ordinary Shares
or any ADR evidencing Parent ADSs is to be issued in the name of, a person other
than the person in whose name the Old Company Certificate so surrendered in
exchange therefor is registered, it shall be a condition of the payment or
issuance that the Old Company Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such exchange shall pay any transfer or other taxes required by reason of the
payment of cash to, or the issuance of a certificate evidencing Parent Ordinary
Shares or an ADR evidencing Parent ADSs in the name of, a person other than the
registered holder of the Old Company Certificate so surrendered or shall
establish to the satisfaction of the Exchange Agent and Parent that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.03, each Old Company Certificate shall, at and
after the Effective Time, represent for all purposes only the right to receive
Parent Ordinary Shares or Parent ADSs, cash in lieu of any fractional Parent
Ordinary Share or Parent ADS and any dividends and distributions as provided in
Section 2.03(c), if any.
(c) Dividends; Distributions. No dividends or other distributions declared
after the Effective Time on Parent Ordinary Shares or Parent ADSs and payable to
the holders of record thereof after the Effective Time shall be paid to the
holder of any unsurrendered Old Company Certificates with respect to which the
Parent Ordinary Shares or Parent ADSs shall have been issued in the Merger. All
such dividends or other distributions shall be paid to the Exchange Agent (on
behalf of holders of unsurrendered Old Company Certificates) and shall be
included in the Exchange Fund, in each case until such Old Company Certificates
shall be surrendered as provided herein, but (i) upon such surrender there shall
be paid to the person in whose name the certificates evidencing such Parent
Ordinary Shares, or ADRs evidencing such Parent ADSs, shall be issued and
registered the amount of dividends theretofore paid with respect to such Parent
Ordinary Shares or Parent ADSs as of any date subsequent to the Effective Time,
and (ii) at the appropriate payment date or as soon as practicable thereafter,
there shall be paid to such person the amount of dividends with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Parent Ordinary Shares or Parent ADSs,
subject in any case to any applicable abandoned property, escheat and similar
laws. No interest shall be payable with respect to the payment of such dividends
on the surrender of any outstanding Old Company Certificates.
(d) No Further Rights in Company Common Stock and Series A Preferred
Stock. All Parent Ordinary Shares (including those evidenced by Parent ADSs)
issued upon conversion of the Company Common Stock and the Series A Preferred
Stock in accordance with the terms hereof (including any cash paid pursuant to
Sections 2.03(b) and 2.03(c)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the Company Common Stock and the Series
A Preferred Stock.
(e) Transfer Books. After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Company Common Stock and shares of
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Series A Preferred Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Old Company Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged for
ADRs evidencing Parent ADSs (or certificates evidencing Parent Ordinary Shares)
or cash, or both, in accordance with the procedures set forth in this Article
II.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Old Company Certificates one year
after the Effective Time shall be delivered by the Exchange Agent to a
depositary bank designated by Parent, upon demand, whereupon such depositary
bank shall hold the Exchange Fund on behalf of holders of unsurrendered Old
Company Certificates, and any holders of the Old Company Certificates who have
not theretofore complied with this Section 2.03 shall thereafter look only to
Parent or such depositary bank for payment of their claim for Merger
Consideration and any dividends or distributions with respect to Parent Ordinary
Shares or Parent ADSs and Parent shall cause the depositary bank to satisfy such
claim. Such depositary bank shall maintain an office in the City of New York
where holders of Old Company Certificates may comply with this Article II. No
interest shall be paid in respect of any property or amounts held in the
Exchange Fund.
(g) Withholding Taxes. Each of the Exchange Agent and Parent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Old Company Certificates, any
Company Optionholder (as defined below) or any Company Warrantholder (as defined
below) such property or amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or non-U.S. tax law. To the extent that any property or amounts are so
withheld by the Exchange Agent or Parent, as the case may be, such withholdings
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Old Company Certificate, the Company Stock Option (as defined
below) or the Warrant (as defined below) in respect of which such deduction and
withholding was made by the Exchange Agent or Parent, as the case may be.
(h) No Liability. None of Parent, the Surviving Corporation, the
Contribution Agent or the Exchange Agent shall be liable to any person in
respect of any Parent Ordinary Shares, Parent ADSs, any dividends or
distributions with respect to Parent Ordinary Shares or Parent ADSs or any cash
from the Exchange Fund, in each case properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(i) Lost, Stolen Or Destroyed Certificates. If any Old Company
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Old Company Certificate to be
lost, stolen or destroyed and, if required by the Surviving Corporation, the
posting by such person of a bond in such reasonable amount as such entity may
direct as indemnity against any claim that may be made against it with respect
to such Old Company Certificate, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed Old Company Certificate the appropriate number of
Parent Ordinary Shares or Parent ADSs, determined pursuant to Section 2.02, cash
in lieu of any fractional Parent Ordinary Share or Parent ADS and, if
applicable, any unpaid dividends and distributions on Parent Ordinary Shares
deliverable in respect thereof, in each case pursuant to this Agreement.
SECTION 2.04. Treatment of the Company Stock Plans and the Warrants. (a)
Subject to the consummation of the Merger, not later than immediately prior to
the Effective Time (i) the Company shall terminate the Company Stock Plans (as
defined below) and any other plan, program or arrangement providing for the
issuance, grant or purchase of any other interest in respect of the capital
stock of the Company without prejudice to the Company Optionholders (as defined
below); and (ii) the Company shall cause all amounts currently held as cash in
participant accounts under the Company's Employee Stock Purchase Plan to be
returned to the applicable participants and all previously purchased shares of
Company Common Stock held in such accounts to be distributed to the applicable
participants. Subject to the satisfaction or waiver, if permitted by applicable
law, of the conditions set forth in Article VII, Parent and the Company shall
take all actions necessary to provide that each holder (a "Company
Optionholder") of an employee stock option (each a "Company Stock Option") that
is outstanding immediately prior to the Effective Time will be given the right
to receive, in exchange for each such
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Company Stock Option (whether or not then vested and exercisable), that fraction
of a Parent ADS (or, in the case of a Company Optionholder who was an affiliate
(as defined under the Securities Act) of the Company at the record date for the
Company Stockholders' Meeting or who will be an affiliate (as defined under the
Securities Act) of Parent immediately after the Effective Time, that fraction of
a Parent Ordinary Share) equal to the "fair value" of such Company Stock Option
(calculated as generally accepted using the "Black-Scholes" methodology, and as
agreed to in good faith by Parent and the Company), calculated as of the record
date for the Company Stockholders' Meeting, divided by the Parent Average
Closing Price (the "Option Exchange").
(b) Subject to the satisfaction or waiver, if permitted by applicable law,
of the conditions set forth in Article VII, Parent and the Company shall take
all actions necessary to provide that each holder (a "Company Warrantholder") of
a warrant to acquire Company Common Stock (each a "Warrant") that is outstanding
immediately prior to the Effective Time will be given the right to receive, in
exchange for each such Warrant (whether or not then exercisable), that fraction
of a Parent ADS (or, in the case of a Company Warrantholder who was an affiliate
(as defined under the Securities Act) of the Company at the record date for the
Company Stockholders' Meeting or who will be an affiliate (as defined under the
Securities Act) of Parent immediately after the Effective Time, that fraction of
a Parent Ordinary Share) equal to the "fair value" of such Warrant (calculated
as generally accepted using the "Black-Scholes" methodology, and as agreed to in
good faith by Parent and the Company), calculated as of the record date for the
Company Stockholders' Meeting, divided by the Parent Average Closing Price (the
"Warrant Exchange" and, together with the Option Exchange, the "Option and
Warrant Exchange").
(c) To the extent that any person would otherwise be entitled to receive a
fraction of a Parent Ordinary Share or a Parent ADS pursuant to this Section
2.04, such fraction shall be treated in accordance with Section 2.06.
SECTION 2.05. Antidilution Protection For Exchange Ratio. If, between the
date of Amendment No. 1 to this Agreement and the Effective Time, the
outstanding Parent Ordinary Shares or shares of Company Common Stock or Series A
Preferred Stock shall have been changed into a different number of shares or a
different class by reason of any reclassification, recapitalization, stock
split, combination or exchange of shares or a stock dividend or dividend payable
in any other securities shall be declared with a record date within such period,
or any similar event shall have occurred, the Common Stock Exchange Ratio and
the Series A Preferred Stock Exchange Ratio, as the case may be, shall be
appropriately adjusted to provide to the holders of Company Common Stock and
Series A Preferred Stock the same economic effect as contemplated by this
Agreement prior to such event.
SECTION 2.06. Treatment of Fractional Shares. (a) As promptly as
practicable following the Effective Time, the Exchange Agent will determine the
excess of (x) the aggregate number of Parent Ordinary Shares delivered to the
Exchange Agent over (y) the aggregate number of whole Parent Ordinary Shares to
be distributed (including those to be represented by Parent ADSs) in connection
with the Merger and the Option and Warrant Exchange (such excess being referred
to herein as the "Excess Shares"). Following the Effective Time the Exchange
Agent will, on behalf of the former Company stockholders, the former Company
Optionholders and the former Company Warrantholders, sell the Excess Shares at
then-prevailing prices on the Neuer Markt in the manner provided in Section
2.06(b).
(b) The sale of the Excess Shares by the Exchange Agent will be executed
on the Neuer Markt through one or more member firms and will be executed in
round lots to the extent practicable. The Exchange Agent will use reasonable
efforts to complete the sale of the Excess Shares as promptly following the
Effective Time as, in its sole judgment, is practicable consistent with
obtaining the best execution of such sales in light of prevailing market
conditions. Until the net proceeds of such sale or sales have been distributed
to the former Company stockholders, the former Company Optionholders and the
former Company Warrantholders, the Exchange Agent will hold such proceeds in
trust for such holders (the "Company Shares Trust"). All commissions, transfer
taxes and other out-of-pocket transaction costs incurred in connection with such
sale of Excess Shares shall be deducted from the proceeds of such sale. The
Exchange Agent will determine the portion of the Company Shares Trust to which
each former
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holder of Company Common Stock or Series A Preferred Stock, each former Company
Optionholder and each former Company Warrantholder is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such former holder of Company Common Stock or
Series A Preferred Stock, such former Company Optionholder or such former
Company Warrantholder is entitled (after taking into account all such shares
held at the Effective Time and all such Company Stock Options and Warrants
surrendered in the Option and Warrant Exchange by such holder) and the
denominator of which is the aggregate amount of fractional share interests to
which all former holders of Company Common Stock or Series A Preferred Stock,
all former Company Optionholders and all former Company Warrantholders are
entitled pursuant to the Merger and the Option and Warrant Exchange.
(c) As soon as practicable after the determination of the amount of cash,
if any, to be paid to former Company stockholders, the former Company
Optionholders and the former Company Warrantholders with respect to fractional
share interests, the Exchange Agent will make available such amounts to such
holders. The parties acknowledge that the payment of cash in lieu of the
issuance of fractional Parent Ordinary Shares and Parent ADSs is not separately
bargained for consideration but merely represents a mechanical rounding off to
avoid the administrative and accounting issues that may be caused by the
issuance of fractional Parent Ordinary Shares and Parent ADSs."
5. Additional Agreements. From and after the date hereof:
(a) Section 6.03(f) of the Merger Agreement shall be amended in full
to read as follows:
"Parent shall cause the Option and Warrant Exchange to be commenced
promptly after the F-4 Registration Statement has been declared
effective by the SEC and shall use all reasonable efforts to cause the
Option and Warrant Exchange to be consummated not later than immediately
prior to the Effective Time; provided, however, that the Effective Time
shall not occur prior to the expiration of the Option and Warrant
Exchange. Parent shall cause the Option and Warrant Exchange to be
commenced by causing the Proxy Statement and related documents to be
mailed to each Company Optionholder and Company Warrantholder, and the
Proxy Statement shall state, in addition to such other disclosures as
are required by applicable Law: (i) that all Company Stock Options and
Warrants validly tendered will be accepted for exchange; (ii) the dates
of acceptance for exchange (which shall be a period of at least 20 U.S.
business days from the date the Option and Warrant Exchange is
commenced) (the "Offer Period"); and (iii) that any Company Stock Option
or Warrant not tendered will remain outstanding or otherwise be treated
in accordance with its terms. As soon as practicable after the
expiration of the Offer Period, Parent shall (i) cause to be accepted
for exchange all Company Stock Options or Warrants tendered and not
validly withdrawn pursuant to the Exchange Offer and (ii) cause to be
canceled all Company Stock Options or Warrants so accepted for exchange
by Parent. No fractional Parent Ordinary Shares or Parent ADSs shall be
issued in connection with the Option and Warrant Exchange. The Option
and Warrant Exchange shall be subject to, and the Offer Period shall not
expire prior to, the satisfaction or, if permitted by applicable Law,
waiver of the conditions set forth in Article VII; provided, however,
that the Offer Period shall not expire prior to January 1, 2001."
(b) Exhibits C, D and E of the Merger Agreement shall be amended in
full to read as set forth in Annexes 2, 3 and 4 hereto, respectively.
(c) The last sentence of Section 6.10 of the Merger Agreement shall be
amended in full to read as follows:
"The foregoing notwithstanding, Parent shall be entitled to place
legends as specified in the Company Affiliate Letter on the certificates
evidencing any of the Parent Ordinary Shares to be received by (i) any
affiliate of the Company or (ii) any person Parent reasonably identifies
(by written notice to the Company) as being a person who may be deemed
an affiliate of the Company, pursuant to the terms of this Agreement,
and to issue appropriate stop transfer
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instructions to the transfer agent for the Parent Ordinary Shares or the
depositary for the Parent ADSs, consistent with the terms of the Company
Affiliate Letter, regardless of whether such person has executed the
Company Affiliate Letter and regardless of whether such person's name
and address appear in Section 3.22 of the Company Disclosure Schedule."
6. Closing Conditions. From and after the date hereof:
(a) Section 7.02(e) of the Merger Agreement shall be amended in full
to read as follows:
"Reserved."
(b) Section 7.02(j) of the Merger Agreement shall be amended in full
to read as follows:
"the Company shall have filed with the Secretary of State of the State
of Delaware a certificate of elimination with respect to the Company's
Series D Preferred Stock, Series E Preferred Stock, Series G Preferred
Stock, Series H Preferred Stock, Series I Preferred Stock, Series J
Preferred Stock, Series K Preferred Stock, Series L Preferred Stock,
Series M Preferred Stock and Series M-1 Preferred Stock."
7. Termination. From and after the date hereof:
(a) Section 8.01(b) of the Merger Agreement shall be amended in full
to read as follows:
"by either Parent or the Company, if the Effective Time shall not have
occurred on or before March 31, 2001; provided, however, that the right
to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement shall have caused, or resulted in, the failure of the
Effective Time to occur on or before such date;"
(b) From and after the date hereof, Section 8.01(l) of the Merger
Agreement shall be amended in full to read as follows:
"by Parent, if Parent shall be required to issue more than 6,650,000
Parent Ordinary Shares in connection with the Merger, the Share Exchange
and the Option and Warrant Exchange."
8. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent that:
(a) The Company has all necessary corporate power and authority to
execute and deliver this Amendment, to perform its obligations hereunder
and under the Merger Agreement and to consummate the Transactions. The
execution and delivery of this Amendment by the Company and the
consummation by the Company of the Transactions have been duly and validly
authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are necessary to authorize this
Amendment or to consummate the Transactions (other than, with respect to
the Merger, the adoption of the Merger Agreement, as amended by this
Amendment, by the affirmative vote of a majority of the outstanding shares
of Company Common Stock entitled to vote with respect thereto at the
Company Stockholders' Meeting and the filing and recordation of the
Certificate of Merger as required by the DGCL). This Amendment has been
duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties hereto,
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors'
rights generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
9. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Company that:
(a) Parent has all necessary corporate power and authority to execute
and deliver this Amendment, to perform its obligations hereunder and under
the Merger Agreement and to
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consummate the Transactions. The execution and delivery of this Amendment
by Parent and the consummation by Parent of the Transactions have been duly
and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Parent are necessary to authorize this
Amendment or to consummate the Transactions (other than the resolutions of
the Management Board (Vorstand) and the Supervisory Board (Aufsichtsrat)
approving the capital increase, the filing of the approval of the capital
increase by the Management Board (Vorstand) and the Supervisory Board
(Aufsichtsrat) of Parent with the commercial register (Handelsregister) for
Parent and any other action related thereto). This Amendment has been duly
executed and delivered by Parent and, assuming the due authorization,
execution and delivery by the other parties hereto, and subject to Section
6.14 of the Merger Agreement, constitutes the legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally and subject, as to enforceability, to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
10. Effect on Agreement. (a) From and after the date hereof, each
reference in the Merger Agreement or any other agreement in connection therewith
to "this Agreement", "hereunder", "hereof" or words of like import referring to
the Merger Agreement, shall mean and be a reference to the Merger Agreement as
amended by this Amendment.
(b) The Merger Agreement as specifically amended hereby and subject to
the conditions herein, is and shall remain in full force and effect and is
in all respects ratified and confirmed.
11. Merger Sub Joinder. Aspen Merger Sub Inc., in its capacity as Merger
Sub, hereby agrees to become a party to and to be bound by the terms and
provisions of the Merger Agreement, as amended hereby.
12. Counterparts. This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
13. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the Laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TREEV, INC.
By: /s/ THOMAS A. WILSON
--------------------------------------
Name: Thomas A. Wilson
Title: President and
Chief Executive Officer
By: /s/ BRIAN H. HAJOST
--------------------------------------
Name: Brian H. Hajost
Title: Executive Vice President
CE COMPUTER EQUIPMENT AG
By: /s/ HANS-JURGEN BRINTRUP
--------------------------------------
Name: Hans-Jurgen Brintrup
Title: Member of the Board of
Management
By: /s/ THOMAS WENZKE
--------------------------------------
Name: Thomas Wenzke
Title: Member of the Board of
Management
ASPEN MERGER SUB INC.
By: /s/ HANS-JURGEN BRINTRUP
--------------------------------------
Name: Hans-Jurgen Brintrup
Title: Chairman and President
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ANNEX 1 TO AMENDMENT NO. 1
EXHIBIT A
LIST OF OFFICERS OF SURVIVING CORPORATION
Julia A. Bowen, Vice President & General Counsel
Thomas Giampa, Vice President, Development
Brian H. Hajost, Executive Vice President, Finance & Corporate Development
Richard McMahon, Senior Vice President, Professional Services
Mark A. Paiewonsky, Vice President of Finance
Thomas Wenzke, Chief Administrative Officer
Thomas A. Wilson, President & Chief Executive Officer
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ANNEX 2 TO AMENDMENT NO. 1
EXHIBIT C
November 21, 2000
<TABLE>
<S> <C>
PricewaterhouseCoopers LLP Cooley Godward LLP
1177 Avenue of the Americas One Maritime Plaza
New York, NY 10036 San Francisco, CA 94111-3699
</TABLE>
Ladies and Gentlemen:
In order to enable you to deliver an opinion in connection with the
proposed merger (the "Merger") of Aspen Merger Sub Inc., a Delaware corporation
("Merger Sub"), with and into TREEV, Inc., a Delaware corporation (the
"Company"), and related transactions, pursuant to which the Company will become
a wholly-owned subsidiary of CE Computer Equipment AG, a German corporation
("Parent"), as described in the Amended and Restated Agreement and Plan of
Merger between Parent and the Company, dated as of November 19, 1999 and amended
and restated as of May 8, 2000, as amended by Amendment No. 1 thereto, dated as
of November 20, 2000 (as so amended, the "Merger Agreement"), the undersigned
officer of the Company hereby represents on behalf of the Company that, to the
best knowledge and belief of such officer, after due inquiry and investigation,
the following statements are true now and will continue to be true as of the
Effective Time (as defined in the Merger Agreement):
1. The fair market value of the Parent ordinary shares, including Parent
ordinary shares represented by American Depositary Shares
(collectively, the "Parent Shares"), received by each Company
shareholder in the transactions described in the Merger Agreement (the
"Transactions"), will be approximately equal to the fair market value
of the shares of the Company Common Stock and Series A Preferred Stock
(collectively, the "Company Stock") surrendered in exchange therefor.
The formulas set forth in the Merger Agreement for the exchange of
Parent Shares for the Company Stock, and the other terms of the Merger
Agreement, are the result of arm's-length bargaining.
2. Prior to and in connection with the Merger, (i) the Company has not
redeemed (and will not redeem) any Company Stock and has not made (and
will not make) any extraordinary distributions (as described in
Treasury Regulation Section 1.368-1T(e)) with respect thereto and (ii)
persons that are related to the Company within the meaning of Treasury
Regulation Section 1.368-1(e)(3) (determined without regard to Treasury
Regulation Section 1.368-1(e)(3)(i)(A)) have not acquired (and will not
acquire) Company Stock from any holder thereof except as set forth in
the Merger Agreement.
3. At the Effective Time, the Company will have no stock or other equity
interests outstanding other than those set forth in Section 3.03 of the
Merger Agreement. The Company does not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to
which any person could acquire stock (or other equity interest) in the
Company or vote (or restrict or otherwise control the vote of) Company
Stock that, if exercised or converted, would affect Parent's
acquisition or retention of Control of the Company. For purposes of
this letter, "Control" means the direct ownership of stock in the
Company possessing at least 80% of the total combined voting power of
all classes of stock of the Company entitled to vote and at least 80%
of the total number of shares of each other class of stock of the
Company. For purposes of determining Control, a person will not be
considered to own shares of voting stock if rights to vote such shares
(or to restrict or otherwise control the voting of such shares) are
held by a third party (including a voting trust) other than an agent of
such person.
4. The Company has no plan or intention to issue additional shares of its
stock, or take any other action, that would result in Parent losing
Control of the Company.
5. The Company and its shareholders will pay separately their respective
expenses, if any, incurred in connection with the Transactions.
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6. The Company is not an investment company as defined in sections
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended (the "Code").
7. The fair market value of the assets of the Company exceed the sum of
its liabilities plus the amount of liabilities, if any, to which the
assets are subject.
8. The Company is not under the jurisdiction of a court in a case under
Title 11 of the United States Bankruptcy Code, or in a receivership,
foreclosure or similar proceeding in a Federal or state court within
the meaning of section 368(a)(3)(A) of the Code.
9. In connection with the Transactions, 100% of the total combined voting
power of all classes of stock of the Company entitled to vote and 100%
of the total number of shares of each other class of stock of the
Company will be exchanged solely for Parent Shares which are entitled
to vote. For purposes of this representation, no cash or other property
has been furnished directly or indirectly by Merger Sub or Parent (or
anyone related to either of them within the meaning of Treasury
Regulation Section 1.368-1(e)(3), or anyone acting on behalf of any of
them as an agent, in each case a "Related Party") in connection with
redemptions or purchases of Company Stock by the Company or
distributions by the Company to Company shareholders. In addition, no
liabilities of the Company shareholders will be assumed by Parent or
Merger Sub (or any Related Party), nor will any of the Company Stock be
subject to any liabilities.
10. Pursuant to the Merger, Merger Sub will merge with and into the
Company, and the Company will acquire all of the assets and
liabilities of Merger Sub. Following the Transactions, the Company
will continue to hold at least 90% of the fair market value of its net
assets and at least 70% of the fair market value of its gross assets
held immediately prior to the Merger, and at least 90% of the fair
market value of the net assets and at least 70% of the fair market
value of the gross assets of Merger Sub held immediately prior to the
Merger. For purposes of this representation, any amounts paid by the
Company to dissenting Company shareholders or to Company shareholders
who receive cash or other property in the Merger, amounts used by the
Company to pay reorganization expenses, and all redemptions and
distributions or other payments in respect of Company Stock or rights
to acquire such stock (except for regular, normal dividends) made by
the Company in contemplation of the Merger will be included as assets
of the Company or Merger Sub, respectively, immediately prior to the
Merger.
11. Other than in the ordinary course of its business, the Company has not
disposed of any of its assets (including any distributions of assets
with respect to, or in redemption of, stock) since January 1, 1998.
12. Other than shares of Company Stock or options to acquire Company Stock
issued as compensation to present or former service providers
(including, without limitation, employees or directors of the Company)
in the ordinary course of business, if any, no issuances of Company
Stock or rights to acquire Company Stock have occurred since July 1,
1999 other than pursuant to options, warrants, or agreements
outstanding prior to July 1, 1999.
13. The liabilities of the Company have been incurred by the Company in
the ordinary course of business.
14. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued,
acquired or will be settled at a discount.
15. The documents listed in the attached Exhibit 1 represent the full and
complete agreement among Parent, Merger Sub and the Company regarding
the Transactions, and there are no other written or oral agreements
regarding the Transactions.
16. The Transactions will be consummated solely in compliance with the
material terms of the Merger Agreement. None of the material terms
and/or conditions therein has been waived or modified, and there is no
plan or intention to waive or to modify any such material term or
condition.
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17. The payment of cash in lieu of fractional shares of Parent Shares is
solely for the purpose of avoiding the expense and inconvenience of
issuing fractional shares and does not represent separately bargained
for consideration. The fractional share interests of each holder of
Parent Shares will be aggregated, and no such holder will receive cash
in an amount equal to or greater than the value of one full share of
Parent Shares. The total cash consideration that will be paid to
Company shareholders in lieu of fractional shares will not exceed 1%
of the total consideration that will be issued to the Company
shareholders in exchange for their shares. None of the cash to be paid
in lieu of fractional shares will be provided, directly or indirectly,
by Parent, Merger Sub or the Company.
18. The Company has no plan to sell or otherwise dispose of any of its
assets or of any of the assets acquired from Merger Sub, except for
dispositions made in the ordinary course of business or transfers
described in Treasury Regulation Section 1.368-1(d) and Treasury
Regulation Section 1.368-2(k) or section 368(a)(2)(C) of the Code (in
which case the foregoing representation shall be deemed to apply to
any transferee).
19. Following the Merger, the Company will continue a significant line of
its historic business or use a significant portion of its historic
business assets in a business.
20. Immediately after the Transactions, not more than fifty percent (50%)
of the total voting power and not more than fifty percent (50%) of the
total value of all outstanding Parent stock will be owned, in the
aggregate (taking into account any attribution or constructive
ownership rules of Treasury Regulation Section 1.367(a)-3(c)), by U.S.
persons that are either officers or directors of the Company or that
will own stock representing at least five percent (5%) or more of the
total voting power or total value of all outstanding Company stock
immediately prior to the Transactions. For purposes of this
representation, any stock of Parent owned by U.S. persons immediately
after the Transactions shall be taken into account, whether or not
received in exchange for stock or securities of the Company.
21. No option (or interest similar to an option) to acquire Company
capital stock has been or will be issued or acquired with a principal
purpose of avoiding the general rule of Section 367(a)(1) of the Code.
22. None of the Parent Shares received by any shareholder-employee or
shareholder-independent contractor of the Company in the Transactions
will be separate consideration for, or allocable to, past or future
services. None of the compensation received by any
shareholder-employee or shareholder-independent contractor of the
Company is separate consideration for, or allocable to, such
shareholder-employee's or shareholder-independent contractor's shares
of Company Stock surrendered in the Transactions, and the compensation
paid to such shareholder-employee or shareholder-independent
contractor will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
23. In each instance in which the Company incurred indebtedness, at the
time such indebtedness was incurred, the Company intended to repay
such indebtedness in accordance with its terms.
24. Neither the Company nor any related person of the Company (as such
term is defined in Treasury Regulation Section 1.368-1(e)(3)) has
treated, or has any plan or intention to treat, any instrument
denominated as indebtedness of the Company as anything other than debt
for tax or any other purpose.
25. In each instance in which Parent or BW
Technologie-Beteiligugsgesellschaft has provided a loan to the
Company, the terms of such loan, including the interest rate and
payment terms, were arm's length and commercially reasonable as
compared to loans of a similar amount and maturity.
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26. The BW Note Agreement between Parent and the Company dated as of
November 21, 2000 will be implemented in accordance with its terms.
27. Following the completion of the transactions described in the BW Note
Agreement, (i) the Company will not be in default with respect to any
outstanding indebtedness of the Company, and (ii) the Company will
have no plan or intention to retire any indebtedness of the Company in
exchange for any consideration other than in accordance with its
terms.
28. The Company has not held discussions with any holder of Company
indebtedness (nor has the Company retained any person to engage in
such discussions whether such discussions are to occur before or after
the Effective Time) regarding the acquisition of or retirement of such
indebtedness for less than the principal amount of the indebtedness.
29. The Company's principal reasons for participating in the Transactions
are bona fide business purposes not related to taxes.
30. The undersigned officer is authorized to make the certifications
contained in this letter on behalf of the Company.
It is understood that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the Merger
Agreement (including all schedules and exhibits thereto) and documents related
thereto, (ii) your opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects or if any of the
covenants or obligations set forth in the Merger Agreement are not satisfied in
all material respects and (iii) your opinions will not address any tax
consequences of the Transactions or any action taken in connection therewith
except as expressly set forth in such opinions.
Notwithstanding anything herein to the contrary, the undersigned makes no
representations regarding any actions or conduct of the Company pursuant to
Parent's exercise of control over the Company after the Merger.
The Company undertakes to inform you immediately should any of the
foregoing statements or representations become untrue, incorrect or incomplete
in any respect on or prior to the Effective Time.
Very truly yours,
TREEV, Inc.
By:
------------------------------------
Title:
-----------------------------------
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EXHIBIT 1
MERGER AGREEMENT DOCUMENTS
1. Amended and Restated Agreement and Plan of Merger Between CE Computer
Equipment AG and TREEV, Inc., dated as of November 19, 1999 and restated
as of May 8, 2000, and Amendment No. 1 thereto, dated as of November 20,
2000.
2. Voting and Registration Rights Agreement, dated as of November 19, 1999
and amended as of May 8, 2000 and Letter Agreement thereto, dated as of
November 20, 2000, from CE Computer Equipment AG to each of the parties
identified on Schedule A thereto.
3. Series A Preferred Stock Agreement, dated as of August 22, 2000 and
Letter Agreement thereto, dated as of November 20, 2000, from CE
Computer Equipment AG to each of the parties identified on Schedule A
thereto.
4. Exchange Agent Agreement between CE Computer Equipment AG and The Bank
of New York, as agent, to be dated as of November 22, 2000.
5. Contribution Agent Agreement between CE Computer Equipment AG and Aspen
Merger Corporation, as agent, dated as of November 17, 2000.
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ANNEX 3 TO AMENDMENT NO. 1
EXHIBIT D
November 21, 2000
<TABLE>
<S> <C>
PricewaterhouseCoopers LLP Cooley Godward LLP
1177 Avenue of the Americas One Maritime Plaza
New York, NY 10036 San Francisco, CA 94111-3699
</TABLE>
Ladies and Gentlemen:
In order to enable you to deliver an opinion in connection with the
proposed merger (the "Merger") of Aspen Merger Sub Inc., a Delaware corporation
("Merger Sub"), with and into TREEV, Inc., a Delaware corporation (the
"Company"), and related transactions, pursuant to which the Company will become
a wholly-owned subsidiary of CE Computer Equipment AG, a German corporation
("Parent"), as described in the Amended and Restated Agreement and Plan of
Merger between Parent and the Company, dated as of November 19, 1999 and amended
and restated as of May 8, 2000, as amended by Amendment No. 1 thereto, dated as
of November 20, 2000 (as so amended, the "Merger Agreement"), the undersigned
officers of Parent and Merger Sub hereby represent on behalf of Parent and
Merger Sub that, to the best knowledge and belief of such officers, after due
inquiry and investigation, the following statements are true now and will
continue to be true as of the Effective Time (as defined in the Merger
Agreement):
1. The fair market value of the Parent ordinary shares, including the
Parent ordinary shares represented by American Depositary Shares
(collectively, the "Parent Shares"), received by each Company shareholder
in the transactions described in the Merger Agreement (the "Transactions"),
will be approximately equal to the fair market value of the shares of the
Company Common Stock and Series A Preferred Stock (collectively, the
"Company Stock") surrendered in exchange therefor. The formulas set forth
in the Merger Agreement for the exchange of Parent Shares for Company
Stock, and the other terms of the Merger Agreement, are the result of
arm's-length bargaining.
2. In connection with the Transactions, 100% of the total combined
voting power of all classes of stock of the Company entitled to vote and
100% of the total number of shares of each other class of stock of the
Company will be exchanged solely for Parent Shares which are entitled to
vote. For purposes of this representation, no cash or other property has
been furnished directly or indirectly by Merger Sub or Parent (or anyone
related to either of them within the meaning of Treasury Regulation Section
1.368-1(e)(3), or anyone acting on behalf of any of them as an agent, in
each case a "Related Party") in connection with redemptions or purchases of
Company Stock by the Company or distributions by the Company to Company
shareholders. In addition, no liabilities of the Company shareholders will
be assumed by Parent or Merger Sub (or any Related Party), nor will any of
the Company Stock be subject to any liabilities.
3. Pursuant to the Merger, Merger Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Merger Sub. Following the Transactions, Parent intends to cause the Company
to hold at least 90% of the fair market value of its net assets and at
least 70% of the fair market value of its gross assets held immediately
prior to the Merger, and at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of
Merger Sub held immediately prior to the Merger. For purposes of this
representation, any amounts paid by the Company or Merger Sub to
dissenters, amounts paid by the Company or Merger Sub to Company
shareholders who receive cash or other property, amounts used by the
Company or Merger Sub to pay reorganization expenses, and all redemptions
and distributions or other payments in respect of Company Stock or rights
to acquire such stock (except for regular, normal dividends) made by the
Company in contemplation of the Merger will be included as assets of the
Company or Merger Sub, respectively, immediately prior to the transaction.
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4. Following the Transactions, members of Parent's "qualified group"
(as defined in Treasury Regulation Section 1.368-1(d)(4)) will continue a
significant line of the historic business of the Company or use a
significant portion of the Company's historic business assets in a
business.
5. Following the Transactions, Parent has no plan or intention to
liquidate the Company; to merge the Company with or into another
corporation; to cause the Company to sell or otherwise dispose of any of
its assets or of any of the assets acquired from Merger Sub, except for
dispositions made in the ordinary course of business or transfers described
in Treasury Regulation Section 1.368-1(d) and Treasury Regulation Section
1.368-2(k) (in which case the foregoing representation shall be deemed to
apply to any transferee); to sell or otherwise dispose of any Company
Stock; or to contribute Company Stock to any other entity, except for
transfers described in section 368(a)(2)(C) of the Internal Revenue Code of
1986, as amended (the "Code") or Treasury Regulation Section 1.368-2(k) (in
which case the foregoing representations shall be deemed to apply to any
transferee).
6. Parent has no plan or intention to reacquire any of its stock
issued in the Transactions. To the best of the knowledge of the management
of Parent, no person related to Parent within the meaning of Treasury
Regulation Section 1.368-1(e)(3) and no person acting as an intermediary
for Parent or such a related person has a plan or intention to acquire any
of the Parent Shares issued in the Transactions. On August 2, 2000, Parent
was authorized but not directed by its shareholders to repurchase up to
2,000,817 shares (representing approximately ten percent) of the capital
stock of Parent at any time prior to December 31, 2001. Although Parent has
no plan or intention to engage in any such stock repurchase, any such
repurchase would be made on the open market through a broker for the
prevailing market price and would not favor participation by former Company
shareholders. Additionally, Parent would not know the identity of the
sellers of the Parent stock and such sellers would not know whether Parent
is the buyer of such stock.
7. Parent has no plan or intention to cause the Company to issue
additional shares of Company Stock that would result in Parent losing
Control of the Company. For purposes of this letter, "Control" means the
direct ownership of stock in the Company possessing at least 80% of the
total combined voting power of all classes of stock of the Company entitled
to vote and at least 80% of the total number of shares of each other class
of stock of the Company. For purposes of determining Control, a person will
not be considered to own shares of voting stock if rights to vote such
shares (or to restrict or otherwise control the voting of such shares) are
held by a third party (including a voting trust) other than an agent of
such person.
8. The Contribution Agent (as defined in the Merger Agreement) has
formed Merger Sub on behalf of and as the agent of Parent and will
participate in the Transactions and otherwise effectuate the exchange of
Parent Shares for Company Stock solely to facilitate Parent's compliance
with German corporate law regarding the issuance of shares.
9. Merger Sub was formed solely for the purpose of merging into the
Company, has not owned and does not own any assets, and has not been and is
not subject to any liabilities.
10. Prior to the Merger, the Contribution Agent will hold all of
Merger Sub's issued and outstanding common stock solely on behalf of and as
the agent of Parent.
11. No shares of Merger Sub will be used as consideration in the
Merger or otherwise issued to shareholders of the Company.
12. The exchange by the Contribution Agent of Company Stock for
Parent Shares will occur as soon as possible after the Merger.
13. Parent and Merger Sub will pay separately their respective
expenses, if any, incurred in connection with the Transactions.
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14. None of Parent, Merger Sub, or any other direct or indirect
subsidiary of Parent beneficially owns, nor has owned during the past five
years, any shares of Company Stock or the right to acquire or vote such
shares (except such rights as are granted in the Merger Agreement).
15. With respect to each instance, if any, in which shares of Company
Stock have been purchased (a "Stock Purchase") by any person during the
period since January 1, 1999: (i) the Stock Purchase was not made by such
person as a representative of Parent; (ii) the purchase price paid by such
person pursuant to the Stock Purchase was not advanced, and will not be
reimbursed, either directly or indirectly, by Parent; (iii) at no time was
such person or any other party required or obligated to surrender to Parent
the Company Stock acquired in the Stock Purchase, and neither such person
nor any other party will be required to surrender to Parent the Parent
Shares for which such shares of stock of the Company will be exchanged in
the Merger; and (iv) the Stock Purchase was not a formal or informal
condition to consummation of the Merger.
16. Immediately after the Transactions, not more than fifty percent
(50%) of the total voting power and not more than fifty percent (50%) of
the total value of all outstanding Parent stock will be owned, in the
aggregate (taking into account any attribution or constructive ownership
rules of Treasury Regulation Section 1.367(a)-3(c)), by U.S. persons that
are either officers or directors of the Company or that own stock
representing at least five percent (5%) or more of the total voting power
or total value of all outstanding Company Stock immediately prior to the
Transactions. For purposes of this representation, any stock of Parent
owned by U.S. persons immediately after the Transactions shall be taken
into account, whether or not received in exchange for stock or securities
of the Company.
17. Throughout the entire 36-month period immediately preceding the
Transactions, Parent, directly or through one or more qualified
subsidiaries (as defined in Treasury Regulation Section
1.367(a)-3(c)(5)(vii)), will have been engaged in an active trade or
business, consisting of producing systems for integrated document
management and archiving, outside of the United States, and Parent has no
intention to dispose of or discontinue such active trade or business.
18. At the time of the Transactions, the fair market value of Parent
(not taking into account assets acquired outside the ordinary course of
business within the 36-month period immediately preceding the Transactions)
will be at least equal to the fair market value of the Company.
19. After the Transactions, Parent will, and will cause the Company
to, comply with the record-keeping and information filing requirements of
Treasury Regulation Section 1.367(a)-3(c)(6).
20. No option (or interest similar to an option) to acquire Parent
stock has been or will be issued or acquired with a principal purpose of
avoiding the general rule of Section 367(a)(1) of the Code.
21. Neither Parent nor Merger Sub is an investment company as defined
in sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. None of the Parent Shares received by any shareholder-employee or
shareholder-independent contractor of the Company in the Transactions will
be separate consideration for, or allocable to, past or future services.
None of the compensation received by any shareholder-employee or
shareholder-independent contractor of the Company is separate consideration
for, or allocable to, such shareholder-employee's or
shareholder-independent contractor's shares of Company Stock surrendered in
the Transactions, and the compensation paid to such shareholder-employee or
shareholder-independent contractor will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
23. The documents listed in the attached Exhibit 1 represent the full
and complete agreement among Parent, Merger Sub and the Company regarding
the Transactions, and there are no other written or oral agreements
regarding the Transactions.
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24. The Transactions will be consummated solely in compliance with the
material terms of the Merger Agreement; as of the date hereof, none of the
material terms and/or conditions therein has been waived or modified, and
there is no plan or intention to waive or to modify any such material term
or condition.
25. There is no intercorporate indebtedness existing between Parent
and the Company or between Merger Sub and the Company that was issued,
acquired or will be settled at a discount.
26. The payment of cash in lieu of fractional shares of Parent Shares
is solely for the purposes of avoiding the expense and inconvenience of
issuing fractional shares and does not represent separately bargained for
consideration. The fractional share interests of each holder of Parent
Shares will be aggregated, and no such holder will receive cash in an
amount equal to or greater than the value of one full share of Parent
Shares. The total cash consideration that will be paid to Company
shareholders in lieu of fractional shares will not exceed 1% of the total
consideration that will be issued to the Company shareholders in exchange
for their shares. None of the cash to be paid in lieu of fractional shares
will be provided, directly or indirectly, by Parent, Merger Sub or the
Company.
27. In each instance in which Parent has provided a loan to the
Company, at the time such loan was provided, Parent expected the Company to
repay such loan in accordance with its terms.
28. Neither Parent nor any related person of Parent (as such term is
defined in Treasury Regulation Section 1.368-1(e)(3)) has treated, or has
any plan or intention to treat, any instrument denominated as indebtedness
of the Company as anything other than debt for tax or any other purpose.
29. Parent has not held discussions with any holder of Company
indebtedness (nor has Parent retained any person to engage in such
discussions whether such discussions are to occur before or after the
Effective Time) regarding the acquisition of or retirement of such
indebtedness for less than the principal amount of the indebtedness.
30. Parent has no plan or intention to cause the Company to retire any
indebtedness of the Company except in accordance with its terms.
31. Parent has no plan or intention to acquire from any third party
any indebtedness of the Company.
32. The BW Note Agreement between Parent and the Company dated as of
November 21, 2000 will be implemented in accordance with its terms.
33. Parent's principal reasons for participating in the Transactions
are bona fide business purposes not related to taxes.
34. The undersigned officers are authorized to make the certifications
contained in this letter on behalf of Parent and Merger Sub, as the case
may be.
It is understood that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the Merger
Agreement (including all schedules and exhibits thereto) and documents related
thereto, (ii) your opinions will be subject to certain limitations and
qualifications including that they may not be relied upon if any such
representations are not accurate in all material respects or if any of the
covenants or obligations set forth in the Merger Agreement are not satisfied in
all material respects and (iii) your opinions will not address any tax
consequences of the Transactions or any action taken in connection therewith
except as expressly set forth in such opinions.
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Parent and Merger Sub undertake to inform you immediately should any of the
foregoing statements or representations become untrue, incorrect or incomplete
in any respect on or prior to the Effective Time.
Very truly yours,
CE Computer Equipment AG
By:
--------------------------------------
Title:
--------------------------------------
Aspen Merger Sub Inc.
By:
--------------------------------------
Title:
--------------------------------------
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EXHIBIT 1
MERGER AGREEMENT DOCUMENTS
1. Amended and Restated Agreement and Plan of Merger Between CE Computer
Equipment AG and TREEV, Inc., dated as of November 19, 1999 and restated
as of May 8, 2000, and Amendment No. 1 thereto, dated as of November 20,
2000.
2. Voting and Registration Rights Agreement, dated as of November 19, 1999
and amended as of May 8, 2000 and Letter Agreement thereto, dated as of
November 20, 2000, from CE Computer Equipment AG to each of the parties
identified on Schedule A thereto.
3. Series A Preferred Stock Agreement, dated as of August 22, 2000 and
Letter Agreement thereto, dated as of November 20, 2000, from CE
Computer Equipment AG to each of the parties identified on Schedule A
thereto.
4. Exchange Agent Agreement between CE Computer Equipment AG and The Bank
of New York, as agent, to be dated as of November 22, 2000.
5. Contribution Agent Agreement between CE Computer Equipment AG and Aspen
Merger Corporation, as agent, dated as of November 17, 2000.
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ANNEX 4 TO AMENDMENT NO. 1
EXHIBIT E
FORM OF COMPANY AFFILIATE LETTER
TREEV, INC.
13900 LINCOLN PARK DRIVE
3RD FLOOR
HERNDON, VIRGINIA 20171
USA
CE COMPUTER EQUIPMENT AG
HERFORDER STRASSE 155A
33609 BIELEFELD
GERMANY
LADIES AND GENTLEMEN:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of TREEV, Inc., a Delaware corporation ("Company"), as the
term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145
of the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). Pursuant to the terms of the Amended and Restated Agreement
and Plan of Merger, dated as of November 19, 1999 and amended and restated as of
May 8, 2000, as amended by Amendment No. 1 thereto dated as of
[ ], 2000 (as so amended, the "Agreement"), between CE Computer
Equipment AG, an Aktiengesellschaft organized and existing under the laws of the
Federal Republic of Germany ("Parent"), and the Company, Aspen Merger Sub Inc.,
a Delaware corporation, shall be merged with and into the Company (the
"Merger"), and the stockholders of the Company shall receive ordinary shares,
without par value, of Parent ("Parent Ordinary Shares") or American Depositary
Shares ("Parent ADSs") representing Parent Ordinary Shares in exchange for
shares of common stock, par value $.0001 per share, of the Company (the "Company
Common Stock") and shares of Series A Cumulative Convertible Preferred Stock,
par value $.0001 per share, of the Company (the "Company Series A Preferred
Stock"). Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Agreement.
I understand and acknowledge that persons who are affiliates of Parent or
the Company will not be eligible to hold Parent ADSs and will instead receive
Parent Ordinary Shares in the Merger and the Option and Warrant Exchange. As a
result of the Merger and the Option and Warrant Exchange, I may receive Parent
Ordinary Shares or Parent ADSs in exchange for shares owned by me of Company
Common Stock or Company Series A Preferred Stock, warrants owned by me to
acquire Company Common Stock or employee stock options of the Company, as the
case may be (the Parent ADSs together with the Parent Ordinary Shares are
hereinafter collectively referred to as the "Parent Securities").
I represent, warrant and covenant to Parent that in the event I receive any
Parent Securities as a result of the Merger or the Option and Warrant Exchange:
A. I shall not make any sale, transfer or other disposition of Parent
Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Parent Securities to the
extent I felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Parent Securities to me
pursuant to the Merger and the Option and Warrant Exchange shall be
registered with the Commission under the Act on a Registration Statement on
Form F-4. However, I have also been advised that, since (a) at the time
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the Merger shall be submitted for a vote of the stockholders of the
Company, I may be deemed to be an affiliate of the Company and (b) the
distribution by me of Parent Securities has not been registered under the
Act, I may not sell, transfer or otherwise dispose of Parent Securities
issued to me in the Merger and the Option and Warrant Exchange unless (i)
such sale, transfer or other disposition is made in conformity with the
volume and other limitations of Rule 145 promulgated by the Commission
under the Act, (ii) such sale, transfer or other disposition has been
registered under the Act or (iii) in the opinion of counsel reasonably
acceptable to Parent, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
D. I understand that, except as provided in the Agreement [and in the
Voting Agreement, as amended, to which I am a party], Parent is under no
obligation to register the sale, transfer or other disposition of Parent
Securities by me or on my behalf under the Act or to take any other action
necessary in order to make compliance with an exemption from such
registration available.
E. I also understand that stop transfer instructions will be given to
Parent's transfer agents or the depositary for the Parent ADSs with respect
to Parent Securities issued to me and that there will be placed on the
certificates for Parent Securities issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
BETWEEN THE REGISTERED HOLDER HEREOF AND CE COMPUTER
EQUIPMENT AG, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF CE COMPUTER EQUIPMENT AG."
F. I also understand that, unless the sale or transfer by me of
Parent Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Parent reserves the right to
put the following legend on the certificates issued to my transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
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Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
--------------------------------------
Name:
Accepted this day of
, , by
CE COMPUTER EQUIPMENT AG
By:
--------------------------------------------------------
Name:
Title:
TREEV, INC.
By:
--------------------------------------------------------
Name:
Title:
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<PAGE> 336
ANNEX B
EXECUTION COPY
VOTING AND REGISTRATION RIGHTS AGREEMENT
VOTING AND REGISTRATION RIGHTS AGREEMENT, dated as of November 19, 1999
(this "Agreement"), among CE Computer Equipment AG, an Aktiengesellschaft
organized and existing under the laws of the Federal Republic of Germany (the
"Acquiror"), and each of the parties identified on Schedule A hereto
(individually a "Stockholder" and collectively the "Stockholders").
WHEREAS, TREEV, Inc., a Delaware corporation (the "Company") and the
Acquiror have contemporaneously with the execution of this Agreement, entered
into an Agreement and Plan of Merger dated as of November 19, 1999 (the "Merger
Agreement") which provides, among other things, that the Acquiror will cause to
be incorporated a Delaware corporation ("Merger Vehicle");
WHEREAS, Merger Vehicle will be merged (the "Merger") with and into the
Company pursuant to the terms and conditions of the Merger Agreement;
WHEREAS, as an essential condition and inducement to the Acquiror to enter
into the Merger Agreement and in consideration therefor, the undersigned
Stockholders and the Acquiror have entered into this Agreement; and
WHEREAS, as of the date hereof, the Stockholders own of record and
beneficially the number of shares of common stock, par value $0.0001 per share,
of the Company (the "Company Common Stock") and the number of options to
purchase shares of Company Common Stock ("Options") and Warrants to purchase
Company Common Stock ("Warrants") set forth opposite their respective names on
Schedule A hereto and wish to enter into this Agreement with respect to such
shares of Company Common Stock and such Options and Warrants;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and in the Merger Agreement and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
SECTION 1.01. Voting Agreement. Each Stockholder hereby agrees, severally
and not jointly, to: (a) appear, or cause the holder of record on any applicable
record date (the "Record Holder") to appear, for the purpose of obtaining a
quorum at any annual or special meeting of stockholders of the Company and at
any adjournment thereof at which matters relating to the Merger, the Merger
Agreement or any transaction contemplated by the Merger Agreement are
considered; (b) vote, or cause the Record Holder to vote, in person or by proxy
or by written consent all the shares of Company Common Stock or other equity
securities of the Company owned by such Stockholder, or with respect to which
such Stockholder has or shares voting power or control, and all the shares of
Company Common Stock or other equity securities of the Company which may, or
with respect to which voting power or control may, hereafter be acquired by such
Stockholder pursuant to Options, Warrants or otherwise (collectively, the
"Shares") in favor of the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement; and (c) vote, or cause the Record Holder
to vote, such Stockholder's Shares against any action, proposal or agreement
that would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Merger Agreement, or
which would result in any of the conditions to the Company's obligations under
the Merger Agreement not being fulfilled.
SECTION 1.02. Irrevocable Proxy. Concurrently with the execution of this
Agreement, each Stockholder agrees to deliver to the Acquiror a proxy in the
form attached hereto as Exhibit 1 (a "Proxy"), which shall be irrevocable to the
extent provided in Section 212 of the Delaware General
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Corporation Law, covering the total number of Shares beneficially owned (as such
term is defined in Rule 13d-3 under the Exchange Act) by such Stockholder set
forth therein.
SECTION 1.03. No Ownership Interest. Nothing contained in this Agreement
will be deemed to vest in the Acquiror or Merger Vehicle any direct or indirect
ownership or incidence of ownership of or with respect to any Shares. All
rights, ownership and economic benefits of and relating to the Shares will
remain and belong to the Stockholders, and neither the Acquiror nor Merger
Vehicle will have any authority to manage, direct, superintend, restrict,
regulate, govern, or administer any of the policies or operations of the Company
or exercise any power or authority to direct the Stockholders in the voting or
control of any of their Shares, except as otherwise provided herein, in the
Merger Agreement or the performance of the Stockholders' duties or
responsibilities as stockholders of the Company.
SECTION 1.04. Evaluation of Investment. Each Stockholder, by reason of his
knowledge and experience in financial and business matters, believes himself
capable of evaluating the merits and risks of the investment in American
Depositary Shares ("Acquiror ADSs"), each representing one Ordinary Share
without par value of Acquiror ("Acquiror Shares") contemplated by the Merger
Agreement. Each Stockholder also acknowledges that he possesses all information
relating to the Acquiror, Merger Vehicle and the Company which he deems relevant
to an investment in the Acquiror ADSs should the Merger be consummated. Each
Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
SECTION 1.05. No Inconsistent Agreements. Each Stockholder hereby
represents, warrants and covenants that, except as contemplated by this
Agreement and the Merger Agreement, such Stockholder (a) has not entered, and
will not enter into, any agreement with respect to the voting of such
Stockholder's Shares and (b) has not granted, and will not grant, any proxy or
power of attorney which is inconsistent with this Agreement.
ARTICLE II
COVENANTS OF THE STOCKHOLDERS
SECTION 2.01. No Disposition or Encumbrance of Shares. (a) Each Stockholder
hereby covenants and agrees, severally and not jointly, that such Stockholder
shall not, directly or indirectly, offer or otherwise agree to sell, assign,
transfer, exchange, or dispose of, or create or permit to exist any security
interest, lien, claim, pledge, option, right of first refusal, agreement,
limitation on such Stockholder's voting rights, charge or other encumbrance of
any nature whatsoever with respect to any Shares, Options or Warrants owned
directly or indirectly by such Stockholder or with respect to which such
Stockholder has the power of disposition, whether now or hereafter acquired, to
or for the benefit of or in favor of any other person (a "Transferee") without
the prior written consent of the Acquiror, unless the Transferee agrees in
writing to be bound by the terms of this Agreement with respect to such Shares,
Options or Warrants (provided nothing contained herein will be deemed to
restrict the exercise of Options or Warrants).
(b) Each Stockholder hereby agrees and consents to the entry of stop
transfer instructions by the Company against the transfer of any Shares
inconsistent with the terms of Section 2.01(a).
SECTION 2.02. No Solicitation. From the date hereof until the termination
of this Agreement, each Stockholder will not (whether directly or indirectly
through advisors, agents or other intermediaries) (a) solicit, initiate,
consider, encourage or accept any other proposals or offers from any Person (as
defined below), other than the Acquiror or Merger Vehicle, (i) relating to any
acquisition or purchase of all or any portion of the assets or capital stock of
the Company or any subsidiary of the Company (other than sales of inventory in
the ordinary course of business consistent with past practice), (ii) to enter
into any business combination with the Company or any subsidiary of the Company,
or (iii) to enter into any other extraordinary business transaction involving or
otherwise relating to the Company or any subsidiary of the Company, or (b)
participate in any discussions, conversations, negotiations or other
communications regarding, or furnish to any Person, other than the Acquiror or
Merger Vehicle, any information with respect to, or otherwise cooperate in any
way, assist or participate in, facilitate or encourage any effort or
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attempt by any such other Person, to seek to do any of the foregoing. Each
Stockholder immediately shall cease and cause to be terminated all existing
discussions, conversations, negotiations and other communications with all
Persons other than the Acquiror or Merger Vehicle conducted heretofore with
respect to any of the foregoing. Each Stockholder shall notify the Acquiror
promptly if any such proposal or offer, or any inquiry or contact with any
Person with respect thereto, is made and shall, in any such notice to the
Acquiror, indicate in reasonable detail the identity of the Person making such
proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or contact, including without limitation a description
of any financial terms of such proposal, offer, inquiry or contact, if
applicable. For the purposes of this Agreement, the term "Person" means any
individual, partnership, firm, corporation, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"Exchange Act").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants, severally and not jointly,
to the Acquiror as follows:
SECTION 3.01. Authority Relative to This Agreement. Such Stockholder is
legally competent to execute and deliver this Agreement, to perform his
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by such
Stockholder and, assuming the due authorization, execution and delivery by the
Acquiror and the other Stockholders, constitutes a legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
SECTION 3.02. No Conflict. The execution and delivery of this Agreement by
such Stockholder does not, and the performance of this Agreement by such
Stockholder will not, result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance, on any of
the Shares, Options or Warrants pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or the Shares, Options or Warrants owned by him are bound or
affected.
SECTION 3.03. Title to the Shares, Options and Warrants. The Shares,
Options and Warrants owned by such Stockholder are owned free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on such Stockholder's voting rights, charges and other
encumbrances of any nature whatsoever, and such Stockholder has not appointed or
granted any proxy, which appointment or grant remains effective, with respect to
any Shares.
ARTICLE IV
REGISTRATION RIGHTS
SECTION 4.01. Incidental Registration. (a) Whenever the Acquiror proposes
to register any Acquiror ADSs under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act") on a
form and in a manner that would permit registration of Registrable Securities
(as hereinafter defined) for sale to the public under the Securities Act, it
will each such time give prompt written notice to all Stockholders holding
Registrable Securities of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration (including without limitation whether or not such
registration will be in connection with an underwritten offering of Acquiror
ADSs and, if so, the identity of the managing underwriter and whether such
offering will be pursuant to a "best efforts" or "firm commitment"
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underwriting if such disclosure is acceptable to the managing underwriter). Upon
the written request of any such Stockholder delivered to the Acquiror within 30
days after such notice shall have been given to such Stockholder (which request
shall specify the Registrable Securities intended to be disposed of by such
Stockholder and the intended method of disposition thereof), the Acquiror will
use its reasonable best efforts to effect the registration under the Securities
Act, as expeditiously as is reasonable, of all Registrable Securities that the
Acquiror has been so requested to register by the Stockholders, to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered;
provided, however, that:
(i) if, at any time after giving such written notice of its intention
to register any of such securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Acquiror shall determine for any reason not to register such securities,
the Acquiror may, at its election, give written notice of such
determination to each Stockholder that has requested to register
Registrable Securities and thereupon the Acquiror shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration;
(ii) if (A) the registration so proposed by the Acquiror involves an
underwritten offering of the securities so to be registered, to be
distributed by or through one or more underwriters of recognized standing
under underwriting terms appropriate for such a transaction, and (B) the
managing underwriter of such underwritten offering shall advise the
Acquiror that, in its judgment, the number of Registrable Securities and
any other securities proposed to be included in such offering by the
Acquiror should be limited due to market conditions, then the Acquiror will
promptly advise each such Stockholder thereof and may require, by written
notice to each such Stockholder accompanying such advice, that, to the
extent necessary to meet such limitation, all Company Stockholders (as
hereinafter defined) proposing to sell Acquiror ADSs in such offering shall
share pro rata in the number of Acquiror ADSs to be excluded from such
offering, such pro rata sharing to be based on the respective numbers of
Acquiror ADSs as to which registration has been requested by such Company
Stockholders; provided, however, that in no event will the amount of
Acquiror ADSs to be sold by such Company Stockholders pursuant to such
registration statement after such reduction represent less than 20% of the
Acquiror ADSs included in such offering;
(iii) the Acquiror shall not be obligated to effect any registration
of Registrable Securities under this Section 4.01 that is incidental to the
registration of any of its securities in connection with any merger,
acquisition, exchange offer, dividend reinvestment plan or stock option or
other employee benefit plan; and
(iv) notwithstanding any other provision of this Agreement to the
contrary, the Acquiror shall not be required to register any Registrable
Securities under this Agreement and shall have no obligation under this
Section 4.01 with respect to any requests made by Stockholders after the
first anniversary of the date of consummation of the Merger.
For purposes of this Agreement, "Registrable Securities" shall mean Acquiror
ADSs which are issued to the Stockholders upon consummation of the Merger;
provided, however, that, as to any particular Registrable Securities that have
been issued, such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement, (ii) a sale has been made in
reliance on and in accordance with Rule 144 under the Securities Act, (iii) they
shall have been otherwise transferred or disposed of, (iv) they shall no longer
be held by or for the benefit of the Stockholder to whom they were issued in the
Merger or (v) they shall have ceased to be outstanding.
(b) The Acquiror will pay all Registration Expenses in connection with each
registration of Registrable Securities effected by it pursuant to this Section
4.01. For purposes of this Agreement, "Registration Expenses" shall mean all
out-of-pocket expenses incident to the Acquiror's performance of or compliance
with this Article IV, including without limitation all registration and filing
fees (including filing fees with respect to the National Association of
Securities Dealers, Inc.), all fees and expenses of
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complying with state securities or "blue sky" laws (including reasonable fees
and disbursements of its independent public accountants, including the expenses
of any special audits and underwriters' counsel in connection with any "blue
sky" memorandum or survey), all printing expenses, all listing fees, all
registrars' and transfer agents' fees, and the fees and disbursements of counsel
for the Acquiror and "cold comfort" letters required by or incident to such
performance and compliance.
SECTION 4.02. Registration Procedures. (a) If and when the Acquiror is
required to use its reasonable best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 4.01, the
Acquiror will as expeditiously as is reasonable:
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") on any appropriate form a registration statement with respect
to such Registrable Securities and use its reasonable best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement
until the earlier of (A) such time as all such Registrable Securities and
other securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement and (B) the expiration of three months from the date
such registration statement first becomes effective;
(iii) furnish to each Stockholder selling such Registrable Securities
such number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents, as such Stockholder may
reasonably request in order to facilitate the sale or disposition of such
Registrable Securities;
(iv) use its reasonable best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or "blue sky" laws of such
jurisdictions as each Stockholder shall reasonably request, and do any and
all other acts and things that may be necessary to enable such seller to
consummate the disposition in such jurisdictions of such Stockholder's
Registrable Securities covered by such registration statement, except that
the Acquiror shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, or to subject itself to taxation in respect
of doing business in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(v) furnish to each Stockholder selling Registrable Securities a
signed counterpart, addressed to such Stockholder, of (A) an opinion of
counsel for the Acquiror, dated the effective date of such registration
statement (or, if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting agreement),
and (B) a "cold comfort" letter signed by the independent public
accountants who have issued a report on the Acquiror's financial statements
included in such registration statement, covering substantially the same
matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters as such sellers may reasonably request;
(vi) immediately notify each Stockholder selling Registrable
Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such
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registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing or if it is necessary to amend or
supplement such prospectus to comply with law, and at the request of any
such Stockholder prepare and furnish to such Stockholder a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities or securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing and shall
otherwise comply in all material respects with law and so that such
prospectus, as amended or supplemented, will comply with law;
(vii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months, beginning with the
first month of the first fiscal quarter after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) use its reasonable best efforts to list such securities on
each securities exchange on which Acquiror ADSs are then listed, if such
securities are not already so listed and if such listing is then permitted
under the rules of such exchange, and provide a transfer agent and
registrar for such Registrable Securities not later than the effective date
of such registration statement; and
(ix) issue to any underwriter to which any Stockholder may sell such
Registrable Securities in connection with any such registration (and to any
direct or indirect transferee of any such underwriter) certificates
evidencing Acquiror ADSs.
The Acquiror may require each Stockholder selling Registrable Securities as to
which any registration is being effected to furnish the Acquiror with such
information regarding such Stockholder and the distribution of such securities
as the Acquiror may from time to time reasonably request in writing and as shall
be required by law or by the Commission in connection therewith.
(b) If any registration pursuant to Section 4.01 shall be in connection
with an underwritten public offering, each Stockholder holding Registrable
Securities agrees, if so required by the managing underwriters, not to effect
any public sale or distribution (including any sale pursuant to Rule 144 under
the Securities Act) of Registrable Securities (other than as part of such
underwritten public offering) within 5 U.S. business days prior to the effective
date of the registration statement with respect to such underwritten public
offering or 180 days after the effective date of such registration statement.
(c) The Acquiror agrees, if so required by the managing underwriters in
connection with an underwritten offering of Registrable Securities pursuant to
Section 4.01, not to effect any public sale or distribution of any of its equity
securities or securities convertible into or exchangeable or exercisable for any
of such equity securities during the 5 U.S. business days prior to and the 180
days after the effective date of any registration statement with respect to such
underwritten public offering, except as part of such underwritten offering or
except in connection with a stock option plan, stock purchase plan, savings or
similar plan, or an acquisition, merger or exchange offer.
(d) It is understood that in any underwritten offering of Registrable
Securities in addition to the shares (the "initial shares") the underwriters
have committed to purchase, the underwriting agreement may grant the
underwriters an option to purchase a number of additional shares (the "option
shares") equal to up to 15% of the initial shares (or such other maximum amount
as the National Association of Securities Dealers, Inc. may then permit), solely
to cover over-allotments. Acquiror ADSs proposed to be sold by the Acquiror and
the Company Stockholders shall be allocated between initial shares and option
shares as agreed or, in the absence of agreement, pursuant to Section
4.01(a)(ii). The number of initial shares and option shares to be sold by
requesting holders shall be allocated pro rata among all such Company
Stockholders on the basis of the relative number of Acquiror ADSs each such
holder has
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requested to be included and is permitted to include in such registration. For
purposes of this Agreement, the term "Company Stockholders" shall mean,
collectively, (i) the Series A Stockholders (as defined in the Series A
Preferred Voting and Registration Rights Agreement dated as of the date hereof
between the Acquiror and certain holders of Series A Cumulative Convertible
Preferred Stock of the Company), (ii) the Series M Stockholder (as defined in
the Series M Preferred Stock and Series M1 Preferred Stock Voting and
Registration Rights Agreement dated as of the date hereof between the Acquiror
and the holder of Series M Convertible Preferred Stock of the Company and Series
M1 Convertible Preferred Stock of the Company) and (iii) the Stockholders.
SECTION 4.03. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Acquiror will give the Stockholders on
whose behalf such Registrable Securities are to be so registered and their
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Acquiror with its officers and the independent public accountants who have
issued a report on its financial statements as shall be necessary, in the
opinion of such holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
SECTION 4.04. Indemnification. (a) In the event of any registration of any
equity securities of the Acquiror under the Securities Act, the Acquiror will,
and hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 4.01, the Stockholder selling any
Registrable Securities covered by such registration statement, its directors,
officers, employees, agents, trustees, other fiduciaries, general and limited
partners (and directors, officers, employees and agents thereof and, if such
seller is a portfolio or investment fund, its investment advisors), each other
Person who participates as an underwriter in the offering or sale of such
securities, each officer and director of each such underwriter, each Person, if
any, who controls the Acquiror and is not a seller of any Registrable Securities
covered by such registration statement and each other Person, if any, who
controls such seller, such underwriter or any such non-selling controlling
Person within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any losses, claims, damages, liabilities and expenses,
joint or several, to which such seller or any such director, officer, employee,
agent, trustee or other fiduciary or participating or controlling Person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement under which
such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any
amendment or supplement thereto, or any document incorporated by reference
therein, or (ii) any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Acquiror will reimburse such seller, and each such director, officer,
employee, agent, trustee, other fiduciary, underwriter and controlling Person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Acquiror shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon (i) an
untrue statement or omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Acquiror for use in the preparation thereof by such seller, underwriter
or non-selling controlling Person, as the case may be, or (ii) an untrue
statement or omission made in any preliminary prospectus but notified to such
seller and underwriter prior to any sale of Registrable Securities and
subsequently corrected by the Acquiror in any final prospectus, amendment or
supplement made available to such seller or underwriter but which final
prospectus, amendment or supplement was not used by such seller or underwriter
in the sale of Registrable Securities that gave rise to such loss, claim,
damage, liability (or action or proceeding in respect thereof). Such indemnity
shall remain in full force and effect regardless of any investigation made
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by or on behalf of such seller or any such director, officer, employee, agent,
trustee, other fiduciary, underwriter or controlling Person and shall survive
the transfer of such securities by such seller.
(b) The Acquiror may require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 4.01, that
the Acquiror shall have received an undertaking satisfactory to it from (i) the
prospective seller of such securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 4.04(a)) the
Acquiror, each such underwriter of such securities, each officer and director of
each such underwriter and each other Person, if any, who controls the Acquiror
or any such underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, and (ii) each such underwriter of such
securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 4.04(a)) the Acquiror, each officer and director
of the Acquiror, each prospective seller, each officer and director or each
prospective seller and each other Person, if any, who controls the Acquiror or
any such prospective seller within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, with respect to any statement in or
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with written information furnished by such prospective seller or
such underwriter, as the case may be, to the Acquiror for use in the preparation
of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Acquiror or any such director, officer or controlling Person and shall survive
the transfer of such securities by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 4.04(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of such
indemnifying party's obligations under the preceding provisions of this Section
4.04, except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim (in which case, the indemnifying party shall not be
liable for the fees and expenses of more than one counsel for all sellers of
Acquiror ADSs, or more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
such indemnifying party may wish with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of such indemnifying party's election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof.
SECTION 4.05. Contribution. (a) If the indemnification provided for in
Section 4.04 is unavailable to the indemnified parties in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying party
and the Acquiror shall contribute to the amounts paid or payable by such
indemnified parties as a result of such losses, claims, damages or liabilities
(i) as between the Acquiror and the Stockholders selling Registrable Securities
covered by a registration statement, on the one hand, and the underwriters, on
the other, in such proportion as is appropriate to reflect the relative benefits
received by the Acquiror and such Stockholders, on the one hand, and the
underwriters, on the other, from the offering of the Registrable Securities, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Acquiror and such Stockholders, on the one hand, and of the
underwriters, on the other, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations, and (ii) as between the Acquiror, on the one
hand, and each Stockholder selling Registrable Securities covered by a
registration statement, on the other, in such
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proportion as is appropriate to reflect the relative fault of the Acquiror and
of each such Stockholder in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by the Acquiror and such Stockholders, on the one hand, and the
underwriters, on the other, shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Acquiror and such Stockholders
bear to the total underwriting discounts and commissions received by the
underwriters. The relative fault of the Acquiror and such Stockholders, on the
one hand, and of the underwriters, on the other, shall be determined by
reference to, among other things, whether the untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Acquiror and such Stockholders or by the underwriters. The relative fault of
the Acquiror, on the one hand, and of each such Stockholder, on the other, shall
be determined by reference to, among other things, whether the untrue statement
of a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(b) The Acquiror and the Stockholders selling Registrable Securities
covered by a registration statement agree that it would not be just and
equitable if contribution pursuant to this Section 4.05 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.05, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such underwriter has otherwise been required to pay by reason of such untrue
statement or omission, and no such Stockholder shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities of such Stockholder were offered to the public exceeds
the amount of any damages that such Stockholder has otherwise been required to
pay by reason of such untrue statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Each Stockholder's obligation to
contribute pursuant to this Section 4.05 is several in the proportion that the
proceeds of the offering received by such Stockholder bears to the total
proceeds of the offering received by all the Company Stockholders and not joint.
SECTION 4.06. Nominees of Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for a Stockholder, the Stockholder,
as the beneficial owner thereof, may, at its election, be treated as the holder
of such Registrable Securities for purposes of any request or other action by
any Stockholder pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Stockholder
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Acquiror may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Termination. This Agreement will terminate upon the earliest
to occur of (a) the termination of the Merger Agreement in accordance with its
terms or (b) the Effective Time; provided, however, that (i) the provisions of
Sections 4.01, 4.02, 4.03 and 4.06 will survive until the first anniversary of
the date of consummation of the Merger and (ii) the provisions of Sections 4.04
and 4.05 will survive for the period of the relevant statute of limitations from
the date of the first registration statement filed by the Acquiror which is
subject to Section 4.01. Upon such termination, no party will have any further
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obligations or liabilities hereunder, provided that no such termination will
relieve any party from liability for any breach of this Agreement prior to such
termination.
SECTION 5.02. Expenses. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
SECTION 5.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
5.03):
(a) if to a Stockholder:
to the address set forth on Schedule A hereto
with a copy to:
Cooley Godward, LLP
2002 Edmund Halley Drive
Suite 300
Reston, Virginia 20191
U.S.A.
Telecopy: + 1 703 262 8100
Attention: Sidney Smith
(b) if to the Acquiror:
CE Computer Equipment AG
Herforder StraSSe 155A
33609 Bielefeld
Germany
Telecopy: +49 521 931 8111
Attention: Thomas Wenzke
with a copy to:
Shearman & Sterling
199 Bishopsgate
London EC2M 3TY
United Kingdom
Telecopy: + 44 171 920 9020
Attention: W. Jeffrey Lawrence
SECTION 5.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 5.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
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SECTION 5.06. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
the Acquiror, on the one hand, and the Stockholders, on the other hand, with
respect to the subject matter hereof.
SECTION 5.07. Assignment. This Agreement may not be assigned by operation
of law or otherwise without the express written consent of the Acquiror and each
Stockholder (which consent may be granted or withheld in the sole discretion of
each of the parties hereto), except that the Acquiror may assign this Agreement
to an affiliate without the consent of any Stockholder; provided, however that
no such assignment shall relieve the Acquiror of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 5.08. No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other person or entity any legal or equitable right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
SECTION 5.09. Amendment. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, each of the
parties hereto.
SECTION 5.10. Governing Law. This Agreement shall be governed by the laws
of the State of Delaware, excluding (to the greatest extent permissible by law)
any rule of law that would cause the application of the laws of any jurisdiction
other than the State of Delaware. All actions and proceedings arising out of or
related to this Agreement shall be heard and determined in any Delaware state or
federal court sitting in Delaware.
SECTION 5.11. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 5.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 5.13. Definitions. Capitalized terms used and not defined herein
will have the meaning set forth in the Merger Agreement.
SECTION 5.14. Obligations of Stockholders. The obligations of the
Stockholders hereunder will be "several" and not "joint" or "joint and several."
Without limiting the generality of the foregoing, under no circumstances will
any Stockholder have any liability or obligation with respect to any
misrepresentation or breach of covenant of any other Stockholder.
SECTION 5.15. Further Assurances. The Acquiror and each Stockholder will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 5.16. Waiver of Jury Trial. Each of the parties hereto irrevocably
and unconditionally waives all right to trial by jury in any action, proceeding
or counterclaim (whether based in contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of the parties hereto in the
negotiation, administration, performance and enforcement thereof.
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IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be duly executed as of the date first written above.
CE Computer Equipment AG
/s/ HANS-JURGEN BRINTRUP
--------------------------------------
Name: Hans-Jurgen Brintrup
Title: Member of the Board of
Management
/s/ THOMAS WENZKE
--------------------------------------
Name: Thomas Wenzke
Title: Member of the Board of
Management
/s/ JAMES J. LETO
--------------------------------------
James J. Leto
/s/ ROBERT P. BERNARDI
--------------------------------------
Robert P. Bernardi
/s/ JOHN F. BURTON
--------------------------------------
John F. Burton
/s/ C. ALAN PEYSER
--------------------------------------
C. Alan Peyser
/s/ THOMAS A. WILSON
--------------------------------------
Thomas A. Wilson
/s/ MARK A. PAIEWONSKY
--------------------------------------
Mark A. Paiewonsky
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/s/ RICHARD E. MCMAHON
--------------------------------------
Richard E. McMahon
/s/ BRIAN H. HAJOST
--------------------------------------
Brian H. Hajost
/s/ HORACE T. ARDINGER, JR.
--------------------------------------
Horace T. Ardinger, Jr.
/s/ DOUGLAS ADKINS
--------------------------------------
Douglas Adkins
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SCHEDULE A
<TABLE>
<CAPTION>
SHARES OF COMPANY
SHARES OF COMMON STOCK
COMPANY SUBJECT TO WARRANTS
BENEFICIAL OWNER STOCKHOLDER NAME AND ADDRESS COMMON STOCK AND OPTIONS
---------------- ---------------------------- ------------ -------------------
<S> <C> <C> <C>
James J. Leto........................ James J. Leto 124,687 568,992
3650 S.E. Torch Lake Drive
Bellaire, MI 49615
Robert P. Bernardi................... Robert P. Bernardi 111,875 128,699
10607 Creamcup Ln.
Great Falls, VA 22066
John F. Burton....................... John F. Burton 0 42,328
1110 Harvey Road
McLean, VA 22101
C. Alan Peyser....................... C. Alan Peyser 6,000 38,018
7 Arrowhead Terrace
Bethesda, MD 20817
Thomas A. Wilson..................... Thomas A. Wilson 0 375,000
127 Dunedin Court
Cary, NC 27511
Mark A. Paiewonsky................... Mark A. Paiewonsky 0 65,000
1403 Earnshaw Court
Reston, VA 20190
Richard E. McMahon................... Richard E. McMahon 2,000 75,000
22 Glenhurst Court
North Potomac, MD 20878
Brian J. Hajost...................... Brian J. Hajost 4,587 150,001
11287 Inglish Mill Drive
Great Falls, VA 22066
Horace T. Ardinger, Jr............... Horace T. Ardinger, Jr. 4,031,094 165,500
1701 Elm Street Suite 3000
Thanksgiving Tower
Dallas, TX 75201
Douglas Adkins....................... Douglas Adkins 1,092,288 43,750
1701 Elm Street Suite 3000
Thanksgiving Tower
Dallas, TX 75201
</TABLE>
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EXHIBIT 1
IRREVOCABLE PROXY
TO VOTE
TREEV, INC. STOCK
The undersigned stockholder (the "Stockholder") of TREEV, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by Section 212 of the Delaware General Corporation Law) appoints Thomas Wenzke,
Peter Schmerler and Hans-Jurgen Brintrup, and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of common stock of the Company or other equity
securities that now are or hereafter may be beneficially owned by the
undersigned, or with respect to which the undersigned has or shares voting power
or control, and all the shares of common stock of the Company or other equity
securities of the Company which may, or with respect to which voting power or
control may, hereafter be acquired by the undersigned pursuant to options,
warrants or otherwise on or after the date hereof (collectively, the "Shares")
in accordance with the terms of this Irrevocable Proxy. The Shares beneficially
owned by the undersigned stockholder of the Company as of the date of this
Irrevocable Proxy are listed on the final page of this Irrevocable Proxy. Upon
the undersigned's execution of this Irrevocable Proxy, any and all prior proxies
given by the undersigned with respect to any Shares that are inconsistent with
this Irrevocable Proxy are hereby revoked and the undersigned agrees not to
grant any subsequent proxies with respect to the Shares that are inconsistent
with this Irrevocable Proxy until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent provided in Section 212 of the
Delaware General Corporation Law), is granted pursuant to the Voting and
Registration Rights Agreement dated as of November 19, 1999, by and among the
Acquiror, the undersigned and other stockholders of the Company (the "Voting
Agreement"), and is granted in consideration of the Acquiror entering into the
Agreement and Plan of Merger, dated as of November 19, 1999, between the
Acquiror and the Company (the "Merger Agreement"). The Merger Agreement provides
for the merger of a Delaware corporation with and into the Company in accordance
with its terms (the "Merger"). As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) the termination of the Merger Agreement in
accordance with its terms and (ii) the Effective Time (as defined in the Voting
Agreement). This Irrevocable Proxy is intended to bind the undersigned
stockholder as a stockholder of the Company only with respect to the specific
matters set forth herein and shall not prohibit the undersigned stockholder from
acting in accordance with his or her fiduciary duties, if applicable, as an
officer or director of the Company.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to Section 228 of the Delaware General Corporation Law), at
every annual, special or adjourned meeting of the stockholders of the Company
and in every written consent in lieu of such meeting in favor of approval of the
Merger and the Merger Agreement and in favor of any matter that could reasonably
be expected to facilitate the Merger.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned Stockholder
may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
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This proxy is irrevocable (to the extent provided in Section 212 of the
Delaware General Corporation Law).
STOCKHOLDER
By:
--------------------------------------
Shares beneficially owned:
________ shares of Company common
stock
Dated: November 19, 1999
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EXECUTION COPY
AMENDMENT NO. 1 TO VOTING AND REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1 TO VOTING AND REGISTRATION RIGHTS AGREEMENT, dated as of
May 8, 2000 (this "Amendment"), among CE Computer Equipment AG, an
Aktiengesellschaft organized and existing under the laws of the Federal Republic
of Germany (the "Acquiror"), and each of the parties identified on Schedule A
hereto (individually a "Stockholder" and collectively, the "Stockholders").
WHEREAS, the Acquiror and each of the Stockholders have entered into the
Voting and Registration Rights Agreement (the "Voting Agreement"), dated as of
November 19, 1999 (capitalized terms used but not defined in this Amendment
having the meanings assigned to them in the Voting Agreement);
WHEREAS, the Acquiror and TREEV, Inc., a Delaware corporation (the
"Company") have entered into the Agreement and Plan of Merger, dated as of
November 19, 1999 (the "Original Merger Agreement");
WHEREAS, the Acquiror executed a Letter Waiver, dated March 22, 2000, in
favor of the Company, waiving compliance with the closing condition contained in
Section 7.02(g) of the Original Merger Agreement;
WHEREAS, the Acquiror and the Company have, contemporaneously with the
execution of this Amendment, amended and restated the Original Merger Agreement
(as so amended and restated, the "Amended and Restated Merger Agreement") to
reflect, among other things, that (i) the Acquiror and the Company no longer
intend that the Merger shall be accounted for as a "pooling of interests" for
financial reporting purposes under applicable United States accounting rules and
the accounting standards of the United States Securities and Exchange
Commission, (ii) the approval of the Amended and Restated Merger Agreement by
the stockholders of the Acquiror is not required and (iii) the Company's Series
M Convertible Preferred Stock, par value $.0001 per share, and the Company's
Series M1 Convertible Preferred Stock, par value $.0001 per share, have been
converted into common stock, par value $.0001 per share, of the Company;
WHEREAS, as an essential condition and inducement to the Acquiror to enter
into the Amended and Restated Merger Agreement and in consideration therefor,
the undersigned Stockholders and the Acquiror have entered into this Amendment;
NOW, THEREFORE, in consideration of the foregoing, the parties hereto hereby
agree as follows:
SECTION 1. In accordance with Section 5.09 of the Voting Agreement, effective
as of the date hereof, (a) references in the Voting Agreement to the
"Merger Agreement" shall mean the Amended and Restated Merger
Agreement and (b) references in the Voting Agreement to the "Merger"
and to the "transactions contemplated by the Merger Agreement" shall
mean the Merger and the transactions contemplated by the Amended and
Restated Merger Agreement.
SECTION 2. Concurrently with the execution of this Amendment, each Stockholder
agrees to deliver to the Acquiror a proxy in the form attached
hereto as Exhibit 1 (a "Proxy"), which shall be irrevocable to the
extent provided in Section 212 of the Delaware General Corporation
Law, covering the total number of Shares beneficially owned (as such
term is defined in Rule 13d-3 under the Exchange Act) by such
Stockholder set forth therein.
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<PAGE> 353
SECTION 3. In accordance with Section 5.09 of the Voting Agreement, effective
as of the date hereof, the last sentence of Section 4.02(d) of the
Voting Agreement shall be amended and restated in its entirety to
read as follows:
"For purposes of this Agreement, the term "Company Stockholders"
shall mean, collectively, (i) the Series A Stockholders (as defined
in the Series A Preferred Voting and Registration Rights Agreement
among the Acquiror and certain holders of Series A Cumulative
Convertible Preferred Stock of the Company) and (ii) the
Stockholders."
SECTION 4. In accordance with Section 5.09 of the Voting Agreement, effective
as of the date hereof, the address of Shearman & Sterling as set
forth in Section 5.03(b) of the Voting Agreement shall be restated
and amended in its entirety to read as follows:
"Shearman & Sterling
9 Appold Street
London EC2A 2AP
United Kingdom
Telecopy: +44 20 7655 5500
Attention: W. Jeffrey Lawrence"
SECTION 5. The Voting Agreement, except, upon their becoming effective, to the
extent of the amendments specifically provided in this Amendment, is
and shall continue to be in full force and effect. On and after the
effective date of this Amendment each reference in the Voting
Agreement to "this Agreement", "herein", "hereof" or words of like
meaning referring to the Voting Agreement, shall mean the Voting
Agreement as amended by this Amendment.
SECTION 6. This Amendment shall be governed by the laws of the State of
Delaware excluding (to the greatest extent permissible by law) any
rule of law that would cause the application of the laws of any
jurisdiction other than the State of Delaware. All actions and
proceedings arising out of or related to this Amendment shall be
heard and determined in any Delaware State or federal court sitting
in Delaware.
SECTION 7. This Amendment may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment
to be duly executed as of the date first written above.
CE COMPUTER EQUIPMENT AG
/s/ HANS-JURGEN BRINTRUP
--------------------------------------
Name: Hans-Jurgen Brintrup
Title: Member of the Board of
Management
/s/ THOMAS WENZKE
--------------------------------------
Name: Thomas Wenzke
Title: Member of the Board of
Management
B-18
<PAGE> 354
/s/ JAMES J. LETO
--------------------------------------
James J. Leto
/s/ ROBERT P. BERNARDI
--------------------------------------
Robert P. Bernardi
/s/ JOHN F. BURTON
--------------------------------------
John F. Burton
/s/ C. ALAN PEYSER
--------------------------------------
C. Alan Peyser
/s/ THOMAS A. WILSON
--------------------------------------
Thomas A. Wilson
/s/ MARK A. PAIEWONSKY
--------------------------------------
Mark A. Paiewonsky
/s/ RICHARD E. MCMAHON
--------------------------------------
Richard E. McMahon
/s/ BRIAN H. HAJOST
--------------------------------------
Brian H. Hajost
/s/ HORACE T. ARDINGER, JR.
--------------------------------------
Horace T. Ardinger, Jr.
/s/ DOUGLAS ADKINS
--------------------------------------
Douglas Adkins
B-19
<PAGE> 355
SCHEDULE A
<TABLE>
<CAPTION>
SHARES OF COMPANY
COMMON STOCK
SHARES OF COMPANY SUBJECT TO WARRANTS
BENEFICIAL OWNER STOCKHOLDER NAME AND ADDRESS COMMON STOCK AND OPTIONS
---------------- ---------------------------- ----------------- -------------------
<S> <C> <C> <C>
James J. Leto........................ James J. Leto 124,687 568,992
3650 S.E. Torch Lake Drive
Bellaire, MI 49615
Robert P. Bernardi................... Robert P. Bernardi 111,875 128,699
10607 Creamcup Ln
Great Falls, VA 22066
John F. Burton....................... John F. Burton 0 42,328
1110 Harvey Road
McLean, VA 22101
C. Alan Peyser....................... C. Alan Peyser 6,000 38,018
7 Arrowhead Terrace
Bethesda, MD 20817
Thomas A. Wilson..................... Thomas A. Wilson 0 375,000
127 Dunedin Court
Cary, NC 27511
Mark A. Paiewonsky................... Mark A. Paiewonsky 0 65,000
1403 Earnshaw Court
Reston, VA 20190
Richard G. McMahon................... Richard G. McMahon 3,768 75,000
22 Glenhurst Court
North Potomac, MD 20878
Brian H. Hajost...................... Brian H. Hajost 4,587 150,001
11287 Inglish Mill Dr.
Great Falls, VA 22066
Horace T. Ardinger, Jr............... Horace T. Ardinger, Jr. 4,031,094 165,500
1701 Elm Street
Suite 3000
Thanksgiving Tower
Dallas, TX 75201
Douglas Adkins....................... Douglas Adkins 1,092,288 43,750
1701 Elm Street
Suite 3000
Thanksgiving Tower
Dallas, TX 75201
</TABLE>
B-20
<PAGE> 356
EXHIBIT 1
IRREVOCABLE PROXY
TO VOTE
TREEV, INC. STOCK
The undersigned stockholder (the "Stockholder") of TREEV, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by Section 212 of the Delaware General Corporation Law) appoints Thomas Wenzke,
Peter Schmerler and Hans-Jurgen Brintrup, and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of common stock of the Company or other equity
securities that now are or hereafter may be beneficially owned by the
undersigned, or with respect to which the undersigned has or shares voting power
or control, and all the shares of common stock of the Company or other equity
securities of the Company which may, or with respect to which voting power or
control may, hereafter be acquired by the undersigned pursuant to options,
warrants or otherwise on or after the date hereof (collectively, the "Shares")
in accordance with the terms of this Irrevocable Proxy. The Shares beneficially
owned by the undersigned stockholder of the Company as of the date of this
Irrevocable Proxy are listed on the final page of this Irrevocable Proxy. Upon
the undersigned's execution of this Irrevocable Proxy, any and all prior proxies
given by the undersigned with respect to any Shares that are inconsistent with
this Irrevocable Proxy are hereby revoked and the undersigned agrees not to
grant any subsequent proxies with respect to the Shares that are inconsistent
with this Irrevocable Proxy until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent provided in Section 212 of the
Delaware General Corporation Law), is granted pursuant to the Voting and
Registration Rights Agreement, dated as of November 19, 1999 and amended by
Amendment No. 1 to the Voting and Registration Rights Agreement, dated as of May
8, 2000, by and among the Acquiror, the undersigned and other stockholders of
the Company (as so amended, the "Voting Agreement"), and is granted in
consideration of the Acquiror having entered into the Agreement and Plan of
Merger, dated as of November 19, 1999, and amended and restated as of May 8,
2000, between the Acquiror and the Company (as so amended and restated, the
"Amended and Restated Merger Agreement"). The Amended and Restated Merger
Agreement provides for the merger of a Delaware corporation with and into the
Company in accordance with its terms (the "Merger"). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) the termination of the
Amended and Restated Merger Agreement in accordance with its terms and (ii) the
Effective Time (as defined in the Voting Agreement). This Irrevocable Proxy is
intended to bind the undersigned stockholder as a stockholder of the Company
only with respect to the specific matters set forth herein and shall not
prohibit the undersigned stockholder from acting in accordance with his or her
fiduciary duties, if applicable, as an officer or director of the Company.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to Section 228 of the Delaware General Corporation Law), at
every annual, special or adjourned meeting of the stockholders of the Company
and in every written consent in lieu of such meeting in favor of approval of the
Merger and the Amended and Restated Merger Agreement and in favor of any matter
that could reasonably be expected to facilitate the Merger. The attorneys and
proxies named above may not exercise this Irrevocable Proxy on any other matter
except as provided above. The undersigned Stockholder may vote the Shares on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
B-21
<PAGE> 357
This proxy is irrevocable (to the extent provided in Section 212 of the
Delaware General Corporation Law).
STOCKHOLDER
By:
--------------------------------------
Shares beneficially owned:
shares of Company common
stock
shares of Company common
stock subject
to options and warrants
Dated: May 8, 2000
B-22
<PAGE> 358
CE COMPUTER EQUIPMENT AG
HERFORDER STRASSE 155A
33609 BIELEFELD, GERMANY
November 20, 2000
To The Parties Listed on Exhibit A:
Reference is made to (1) the Voting and Registration Rights Agreement,
dated as of November 19, 1999, among CE Computer Equipment AG ("CE") and each of
you, and Amendment No. 1 thereto, dated as of May 8, 2000 (as so amended, the
"Agreement") and (2) Amendment No. 1, dated as of the date hereof, to the
Amended and Restated Agreement and Plan of Merger between CE and TREEV, Inc.,
dated as of November 19, 1999 and amended and restated as of May 8, 2000.
CE hereby agrees and acknowledges that each reference in Section 4.01 and
Section 4.02 of the Agreement to "Acquiror ADSs" shall be deemed to be a
reference to "Acquiror ADSs or Acquiror Shares".
Except to the extent specifically provided above, the Agreement is and
shall continue to be in full force and effect in accordance with its terms.
Very truly yours,
CE COMPUTER EQUIPMENT AG
By: /s/ HANS-JURGEN BRINTRUP
------------------------------------
Name: Hans-Jurgen Brintrup
Title: Member of Management Board
B-23
<PAGE> 359
EXHIBIT A
PARTIES TO VOTING AND REGISTRATION RIGHTS AGREEMENT
JAMES J. LETO
ROBERT P. BERNARDI
JOHN F. BURTON
C. ALAN PEYSER
THOMAS A. WILSON
MARK A. PAIEWONSKY
RICHARD E. MCMAHON
BRIAN H. HAJOST
HORACE T. ARDINGER, JR.
DOUGLAS ADKINS
B-24
<PAGE> 360
ANNEX C
[BANK OF AMERICA LOGO]
BANC OF AMERICA SECURITIES LLC
9 WEST 57TH STREET
NEW YORK, NY 10019
TEL 212.583.8000
May 8, 2000
Board of Directors
TREEV, Inc.
13900 Lincoln Park Drive
3rd Floor
Herndon, Virginia 20171
Members of the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to TREEV, Inc. (the "Company") of the consideration proposed to be received
in connection with the proposed merger (the "Merger") of the Company with a
wholly owned subsidiary of CE Computer Equipment AG (the "Purchaser"). Pursuant
to the terms of the Amended and Restated Agreement and Plan of Merger, to be
dated as of May 8, 2000 (the "Agreement"), between the Company and the
Purchaser, the Company will become a wholly owned subsidiary of the Purchaser,
and security holders of the Company will receive aggregate consideration equal
to 1,330,000 ordinary shares, without par value, of the Purchaser (the
"Purchaser Ordinary Shares") in the form of American Depository Shares for all
the securities held by the Company's security holders, other than securities
held in treasury or held by the Purchaser or any affiliate of the Purchaser or
as to which dissenters' rights have been perfected.
You have informed us, and we have assumed with your consent, that the
Merger will be accounted for as a purchase in accordance with U.S. Generally
Accepted Accounting Principles ("GAAP") and that the Merger will be treated as a
tax-free reorganization and/or exchange, each pursuant to the Internal Revenue
Code of 1986, as amended. The terms and conditions of the Merger are more fully
set out in the Agreement.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and the Purchaser,
respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and the Purchaser,
respectively;
(iii) analyzed certain financial forecasts prepared by the managements of
the Company and the Purchaser, respectively;
(iv) discussed the past and current operations, financial condition and
prospects of the Company with senior executives of the Company and
discussed the past and current operations, financial condition and
prospects of the Purchaser with senior executives of the Purchaser;
(v) discussed with senior executives of the Company and the Purchaser
information relating to certain strategic and operational benefits
anticipated from the Merger; provided, however, we note that such
strategic and operational benefits were not quantified to us by either
the Company or the Purchaser;
C-1
<PAGE> 361
(vi) reviewed the pro forma impact of the Merger on the Purchaser's
earnings per share, consolidated capitalization and financial ratios;
(vii) reviewed and considered in the analysis, information prepared by
senior management of the Company and the Purchaser relating to the
relative contributions of the Company and the Purchaser to the
combined company;
(viii) reviewed the reported prices and trading activity for the common
stock, par value $.0001 per share, of the Company (the "Company
Common Stock") and the Purchaser Ordinary Shares;
(ix) compared the financial performance of the Company and the Purchaser
and the prices and trading activity of the Company Common Stock and
the Purchaser Ordinary Shares with that of certain other publicly
traded companies we deemed relevant;
(x) compared certain financial terms of the Merger to financial terms, to
the extent publicly available, of certain other business combination
transactions we deemed relevant;
(xi) participated in discussions and negotiations among representatives of
the Company and the Purchaser and their financial and legal advisors,
as requested;
(xii) reviewed the Agreement and certain related documents; and
(xiii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by us
for the purposes of this opinion.
With respect to the financial forecasts of both the Company and Purchaser,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and good faith judgments of the future
financial performance and operational plans of the Company and the Purchaser,
and we note that such financial forecasts did not provide for any strategic and
operational benefits anticipated from the Merger. We further note that the
Company has in the past experienced from time to time significant financing
requirements in order to continue operations, and management of the Company has
informed us that it expects this trend to continue in the future, and this
opinion does not in any manner address whether such financing requirements will
arise in the future, whether the Company would be able to meet such financing
requirements, if any, if the Merger is not consummated, or whether the surviving
entity after the Merger would be able to meet such financing requirements, if
any, if the Merger is consummated. We note that we have relied, with your
consent, upon the Company's analysis of its ability to utilize certain historic
net operating losses against its projected future earnings in arriving at our
opinion. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company or Purchaser, nor have we been furnished with any
such appraisals, or made any physical inspection of the properties or assets of
the Company.
We have assumed and relied upon, without independent verification, the
assessment by the management of the Company and the Purchaser of their
respective technology and products, and the integration of the Company's
technology with the Purchaser's technology and the timing of introduction of
future products incorporating such technology. We have also assumed and relied
upon the Company's ability to retain key managers.
We provided limited advice concerning the structure, the specific amount of
the consideration and other aspects of the transactions contemplated by the
Agreement (the "Transactions"). At the Company's request, we solicited one party
(other than the Purchaser) with respect to the sale of all or any part of the
Company or any other alternative transaction. We had limited participation in
negotiations with respect to the terms of the Transactions. Consequently, we
have assumed that such terms are the most beneficial terms from the Company's
perspective that could under the circumstances be negotiated among the parties
to the Transactions, and no opinion is expressed as to whether any alternative
transaction might produce
C-2
<PAGE> 362
consideration for the Company's security holders in an amount in excess of that
contemplated in the Merger.
We have acted as sole financial advisor to the Board of Directors of the
Company in connection with the Transactions and will receive a fee for our
services, including a portion which is due upon delivery of our opinion and the
balance which is contingent upon the consummation of the Merger. A Banc of
America Securities LLC affiliate serves as agent bank under the Company's senior
credit facility and has received fees for the rendering of such services. In the
ordinary course of our businesses, we and our affiliates may actively trade the
debt and equity securities of the Company and the Purchaser for our own account
or for the accounts of customers and, accordingly, we or our affiliates may at
any time hold long or short positions in such securities.
It is understood that this letter is for the benefit and use of the Board
of Directors of the Company in connection with and for purposes of its
evaluation of the Merger and is not on behalf of, and shall not confer rights or
remedies upon, any person other than the Board of Directors. This opinion may
not be disclosed, referred to, or communicated (in whole or in part) to any
third party for any purpose whatsoever except with our prior written consent in
each instance. However, this opinion may be included in its entirety in any
filing made by the Company in respect of the Transactions with the Securities
and Exchange Commission, so long as this opinion is reproduced in such filing in
full and any description of or reference to us or summary of this opinion and
the related analysis in such filing is in a form acceptable to us and our
counsel. In furnishing this opinion, we do not admit that we are experts within
the meaning of the term "experts" as used in the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, nor do we admit that this opinion constitutes a report or valuation
within the meaning of Section 11 of the Securities Act. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof. It should be
understood that subsequent developments may affect this opinion and we do not
have any obligation to update, revise, or reaffirm this opinion. This opinion
does not in any manner address the prices at which the Purchaser Ordinary Shares
will trade following consummation of the Merger. This opinion does not in any
manner address the current liquidity of the Purchaser Ordinary Shares or the
possible impact, if any, of the Merger on the volumes traded or the liquidity of
the Purchaser Ordinary Shares, Company Common Stock or any other security. In
addition, we express no opinion or recommendation as to how the security holders
of the Company and the Purchaser should vote at the respective stockholders'
meetings held in connection with the Merger.
This opinion does not in any manner address the allocation of the
consideration proposed to be received by the various security holders of the
Company among the various classes of the Company's outstanding securities.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, we are of the opinion on the date hereof that
the consideration to be received by the Company's security holders in the
proposed Merger is fair from a financial point of view to the Company.
Very truly yours,
BANC OF AMERICA SECURITIES LLC
By: /s/ Donna M. Hitscherich
------------------------------------
Name: Donna M. Hitscherich
Title: Managing Director
C-3
