(CONTROL DATA LOGO)
July 15, 1997
Dear Stockholder:
I am pleased to inform you that on July 8, 1997, Control Data Systems, Inc.
("Control Data") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with CDSI Holding Corporation ("Parent") and its wholly-owned
subsidiary, CDSI Acquisition Corp. (the "Purchaser"), that provides for the
acquisition of Control Data by Parent through the Purchaser at a price of $20.25
per share. Under the terms of the Merger Agreement, the Purchaser has commenced
today a cash tender offer to purchase all Control Data common stock at a price
of $20.25 per share, net cash to tendering stockholders. The tender offer is
currently scheduled to expire at 12:00 midnight on Monday, August 11, 1997.
Following the successful completion of the tender offer, upon approval by
stockholder vote, if required, the Purchaser will be merged into Control Data
and all shares not purchased in the tender offer (other than shares held by
dissenting stockholders, if applicable) will be converted into the right to
receive in cash the same price per share as is paid in the tender offer, without
interest.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
TENDER OFFER, AND THE MERGER AND HAS DETERMINED THAT THE TERMS OF THE OFFER AND
THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF CONTROL DATA STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU ACCEPT THE
TENDER OFFER AND TENDER YOUR CONTROL DATA STOCK TO THE PURCHASER PURSUANT TO THE
TENDER OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors that are described in the enclosed Schedule
14D-9, including, among other things, the opinion of Cowen & Company that the
financial terms of the tender offer and the merger are fair to the Control Data
stockholders (other than Parent and its affiliates) from a financial point of
view as of the date of such opinion.
Also accompanying this letter is a copy of the Purchaser's Offer to
Purchase and related materials, including a Letter of Transmittal for use in
tendering shares. These documents set forth the terms and conditions of the
Purchaser's offer and provide instructions as to how to tender your shares. We
urge you to read each of the enclosed materials carefully.
Sincerely,
CONTROL DATA SYSTEMS, INC.
/s/ James E. Ousley
James E. Ousley
President and Chief Executive Officer
Enclosures
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
CONTROL DATA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Subject Company)
CONTROL DATA SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Statement)
COMMON STOCK, $.01 PAR VALUE
- --------------------------------------------------------------------------------
(Title of Class of Securities)
21238F 10 6
- --------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
JAMES E. OUSLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONTROL DATA SYSTEMS, INC.
4201 LEXINGTON AVENUE NORTH
ARDEN HILLS, MINNESOTA 55126-6198
(612) 415-3001
- --------------------------------------------------------------------------------
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person(s) filing statement)
COPY TO:
KEITH A. LIBBEY, ESQ.
FREDRIKSON & BYRON, P.A.
900 SECOND AVENUE, SUITE 1100
MINNEAPOLIS, MN 55402
(612) 347-7010
<PAGE>
INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 relates to an
offer by CDSI Acquisition Corp., a Delaware corporation (the "Purchaser"), which
is a wholly-owned subsidiary of CDSI Holding Corporation, a Delaware corporation
("Parent"), to purchase all of the Shares (as defined below) of Control Data
Systems, Inc., a Delaware corporation (the "Company" or "Control Data").
Capitalized terms used herein and not otherwise defined herein shall have the
meaning assigned to such terms in the Offer to Purchase dated July 15, 1997, a
copy of which is filed as Exhibit (a)(1) hereto (the "Offer to Purchase").
ITEM 1. SECURITY AND SUBJECT COMPANY
This Statement relates to the common stock, $.01 par value per share (the
"Shares"), of Control Data Systems, Inc., a Delaware corporation and the subject
company. The address of the Company's principal executive offices is 4201
Lexington Avenue North, Arden Hills, Minnesota 55126.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer described in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated July 15, 1997, filed by
CDSI Acquisition Corp., a Delaware corporation (the "Purchaser") and a
wholly-owned subsidiary of CDSI Holding Corporation, a Delaware corporation
("Parent") (collectively referred to as the "Bidder"), to purchase all
outstanding Shares for cash at $20.25 per share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase and the related Letter of Transmittal (which collectively
constitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2)
hereto, respectively. The principal executive offices of each of Parent and the
Purchaser are located at 1013 Centre Road, Wilmington, Delaware 19805.
The Purchaser and Parent have been organized at the direction of Welsh,
Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"),
and WCAS Capital Partners III, L.P., a Delaware limited partnership ("WCAS CP
III"), to effect the transactions described herein. WCAS VII and WCAS CP III are
investment partnerships affiliated with Welsh, Carson, Anderson & Stowe
("WCAS"), a private equity investment firm principally engaged in the business
of investing in and acquiring companies in the healthcare and information
processing industries.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of July 8, 1997 (the "Merger Agreement"), among Parent, the Purchaser, and
the Company. A copy of the Merger Agreement is filed as Exhibit (c)(1) hereto
and is incorporated herein by reference in its entirety. Pursuant to the Merger
Agreement, following the consummation of the Offer and the satisfaction or
waiver of certain conditions, the Purchaser will be merged with and into the
Company (the "Merger"). In the Merger, each outstanding Share (other than the
Company's or any subsidiary's treasury Shares or Shares owned by Parent or the
Purchaser or by stockholders, if any, who properly exercise appraisal rights
under Delaware law) will be converted into the right to receive an amount in
cash equal to the price per Share paid pursuant to the Offer, without interest
thereon. The Merger Agreement is summarized in Item 3 of this Statement.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
Statement, is as set forth in Item 1, above.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company or its affiliates and its executive officers, directors and
affiliates are described in the Information Statement attached as Annex A
hereto, and incorporated herein by reference.
(2) Parent, the Purchaser and the Company have entered into the Merger
Agreement, a copy of which is filed with this Statement as Exhibit (c)(1) and
incorporated herein by reference.
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MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
Such summary is qualified in its entirety by reference to the Merger Agreement.
The Offer. The Offer has been commenced pursuant to the Merger Agreement.
The obligation of the Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to the satisfaction or waiver of the
condition that stockholders of the Company validly tender and do not withdraw
prior to the expiration of the Offer that number of Shares which represents at
least 51 percent of the Shares outstanding on a fully-diluted basis (the
"Minimum Condition"), the expiration or termination of all waiting periods
imposed by the HSR Act and certain other conditions that are described in
Section 18 of the Offer to Purchase ("Certain Conditions of the Offer"). The
Purchaser has agreed not to change the form of consideration to be paid pursuant
to the Offer, decrease the price per Share of the Offer or the number of Shares
sought in the Offer or impose any condition to the Offer in addition to those
described in Section 18 of the Offer to Purchase ("Certain Conditions of the
Offer"), but may waive any of the conditions to the Offer or change any of the
other terms or conditions of the Offer in its sole discretion.
Initially, the Offer will expire 20 business days after it is commenced.
The Purchaser has agreed, subject to the terms and conditions of the Offer, to
accept for payment and pay for all Shares validly tendered and not withdrawn
pursuant to the Offer promptly after the expiration of the Offer. If all
conditions of the Offer have not been satisfied or, to the extent permitted,
waived by the Purchaser as of any scheduled expiration date, the Purchaser may
or, if required to do so by law, will extend the Offer from time to time.
The Company has been advised that all of its directors and executive
officers intend either to tender their Shares pursuant to the Offer or to vote
in favor of the Merger.
Directors. The Merger Agreement provides that, effective upon the
acceptance for payment by the Purchaser of a majority of the outstanding Shares
pursuant to the Offer (and deposit with the Depositary of funds sufficient to
make payment for such Shares), the Purchaser has the right to designate the
number of directors, rounded up to the next whole number, on the Company Board
equal to the product of the number of directors on the Company Board (after
giving effect to any required increase in the size of the Board) and the ratio
that the number of Shares purchased by the Purchaser bears to the total number
of Shares then outstanding. The Company has agreed, subject to Section 14(f) of
the Exchange Act, to take all actions necessary to cause such designees to be
elected or appointed to the Company Board, including by increasing the size of
the Company Board and securing the resignations of such number of directors as
is necessary to provide the Purchaser with such level of representation. The
Company has further agreed to use its best efforts to cause individuals
designated by the Purchaser to constitute the same percentage, on each committee
of the Company Board and on the board of directors of each subsidiary of the
Company, that they represent on the Company Board. Notwithstanding the
foregoing, at all times prior to the effective time of the Merger (the
"Effective Time") at least two directors on the Company Board will be directors
in office as of the date of the Merger Agreement who are not employees of the
Company or any of its subsidiaries or affiliates of Parent or the Purchaser.
In connection with the foregoing, the Purchaser has provided the Company
with information concerning Messrs. Patrick J. Welsh, Thomas E. McInerney, and
Rudolph E. Rupert, for inclusion in this Statement.
The Merger. The Merger Agreement provides that as soon as practicable after
the satisfaction or waiver (if permissible) of the conditions to the Merger and
in accordance with the relevant provisions of the Delaware General Corporation
Law (the "DGCL"), the Purchaser will be merged with and into the Company. As a
result of the Merger, the separate corporate existence of the Purchaser will
cease and the Company will continue as the Surviving Corporation and will become
a wholly-owned subsidiary of Parent.
Conversion of Securities. At the Effective Time, each Share issued and
outstanding immediately prior to the Effective Time (other than Shares owned by
Parent, the Purchaser or any subsidiary thereof or held in the treasury of the
Company or any subsidiary of the Company and other than Shares held by
stockholders
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who shall have properly demanded and perfected appraisal rights under Section
262 of the DGCL) will be canceled and converted at the Effective Time into the
right to receive an amount in cash, without interest, equal to $20.25 or any
higher price paid for each Share in the Offer (the "Merger Consideration").
The Purchaser or the designated paying agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of Shares such amounts that the Purchaser or the paying
agent is required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended, the rules and
regulations promulgated thereunder or any other applicable law.
Pursuant to the Merger Agreement, each share of common stock, par value
$.01 per share, of the Purchaser issued and outstanding immediately prior to the
Effective Time shall be automatically converted into and become at the Effective
Time one share of common stock of the Surviving Corporation.
Options. The Merger Agreement provides for the acceleration of the vesting
of all unvested stock options outstanding under the Company's 1992 Equity
Incentive Plan (the "Company Stock Option Plan")_so that each holder of an
option thereunder will be entitled to receive from the Company, as of the
Effective Time, for each Share subject to such option, an amount in cash in
cancellation of such option equal to the excess, if any, of the Merger
Consideration over the per Share exercise price of such option, subject to
applicable withholding, if any.
Pursuant to the Merger Agreement, immediately prior to the Effective Time,
all options outstanding under the Company's 1993 Employee Stock Purchase Plan
(the "Company Stock Purchase Plan") shall become exercisable to the extent of
payroll deductions accumulated by participants as of such date, and each
participant shall be deemed to have purchased the number of whole Shares subject
to the options held by such participant at a per Share price determined pursuant
to the provisions of the Company Stock Purchase Plan, and each participant shall
receive a cash payment equal to the balance, if any, of such accumulated payroll
deductions remaining after the deemed purchase of such Shares. As of the
Effective Time, each participant under such plan shall receive, for each Share
such participant is deemed to have purchased thereunder, the Merger
Consideration.
The Company Stock Option Plan and the Company Stock Purchase Plan and all
options issued and outstanding thereunder will terminate effective as of the
Effective Time.
Directors and Officers; Certificate of Incorporation and Bylaws. The Merger
Agreement provides that the directors of the Purchaser immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation and
that the officers of the Company immediately prior to the Effective Time will be
the initial officers of the Surviving Corporation, until their respective
successors are duly elected and qualified. The Merger Agreement provides that,
at the Effective Time, the Certificate of Incorporation and Bylaws of the
Purchaser will become the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
Approvals Required under the DGCL and the Company's Restated Certificate of
Incorporation. Pursuant to the DGCL and the Company's Restated Certificate of
Incorporation, the affirmative vote of a majority of the outstanding Shares
entitled to vote thereon is required to approve the Merger Agreement and the
Merger.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including, among
others, representations by the Company, Parent and the Purchaser as to corporate
status and the enforceability of the Merger Agreement against each such party
and by the Company as to its capitalization, compliance with law, the accuracy
of financial statements and filings with the Commission and the absence of
certain material adverse changes or events concerning the Company's business
since December 31, 1996.
Stockholders' Meeting. The Merger Agreement provides that the Company will
take all action necessary to call, give notice of and convene a meeting of its
stockholders (the "Stockholders' Meeting") to consider and vote upon the
approval and adoption of the Merger Agreement and the Merger as soon as
reasonably practicable following the acquisition by the Purchaser of a majority
of the outstanding
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Shares (on a fully diluted basis). Parent and the Purchaser have agreed to vote
at the Stockholders' Meeting all Shares owned or acquired pursuant to the Offer
or otherwise by them or any of their affiliates in favor of the Merger. In the
event that the Purchaser acquires such number of Shares as constitutes at least
90% of the outstanding Shares, the parties will to take all necessary and
appropriate action to cause the Merger to become effective, in accordance with
Section 253 of the DGCL, as soon as reasonably practicable after such
acquisition, without a meeting of the stockholders of the Company.
The Merger Agreement provides that, in connection with the Stockholders
Meeting, the Company will file a proxy statement (the "Proxy Statement") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Securities and Exchange Commission (the "Commission"), and cause the definitive
Proxy Statement to be delivered to stockholders promptly following review by the
Commission. The Company has agreed not to distribute the Proxy Statement or any
amendment or supplement thereto without the prior consent of Parent and its
counsel. Parent and the Purchaser have agreed to cooperate fully with the
Company in the preparation of the Proxy Statement and any amendments and
supplements thereto. The Company has agreed to use its best efforts to have the
Proxy Statement cleared by the Commission and shall cause the definitive Proxy
Statement to be distributed to its stockholders entitled to vote upon the Merger
as promptly as practicable thereafter.
Conduct of the Company's Business. In the Merger Agreement, the Company has
agreed to conduct the business of the Company and its subsidiaries only in the
ordinary course of business and consistent with past practice. In particular,
the Company has covenanted, among other things, not to do any of the following
prior to the Effective Time: (i) sell, pledge, dispose of or encumber (or permit
any subsidiary of the Company to sell, pledge, dispose of or encumber) any
assets of the Company or any subsidiary of the Company, except inventory and
immaterial assets in the ordinary course of business; (ii) amend or propose to
amend its Certificate of Incorporation or Bylaws; (iii) split, combine or
reclassify any outstanding shares of its capital stock, or declare, set aside or
pay any dividend payable in cash, stock, property or otherwise with respect to
such shares (except for any dividends paid in the ordinary course to the Company
or to any wholly-owned subsidiary of the Company); (iv) redeem, purchase,
acquire or offer to acquire (or permit any subsidiary of the Company to redeem,
purchase, acquire or offer to acquire) any shares of its capital stock; (v)
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing matters; (vi) issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of, any additional shares of, or securities
convertible or exchangeable for, or any options, warrants or rights of any kind
to acquire any shares of, its capital stock of any class or other property or
assets whether pursuant to the Company Stock Option Plan or the Company Stock
Purchase Plan (except in respect of outstanding options under such Plans), or
otherwise; (vii) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof (except an existing wholly-owned subsidiary of the Company); (viii)
incur any indebtedness for borrowed money or issue any debt securities in an
amount exceeding $3,000,000 in the aggregate; (ix) enter into or modify any
material contract, lease, agreement or commitment, except in the ordinary course
of business and consistent with past practice; (x) terminate, modify, assign,
waive, release or relinquish any material contract rights or amend any material
rights or claims not in the ordinary course of business; (xi) settle or
compromise any material claim, action, suit or proceeding pending or threatened
against the Company, or, if the Company may be liable or obligated to provide
indemnification, against the Company's directors or officers, before any court,
governmental agency or arbitrator; (xii) grant any increase in the salary or
other compensation of its employees except (A) pursuant to the terms of
employment agreements in effect on the date of the Merger Agreement and
previously disclosed to Parent and (B) in the case of employees who are not
executive officers of the Company, in the ordinary course of business and
consistent with past practice; (xiii) grant any bonus to any employee or enter
into any employment agreement or make any loan to or enter into any material
transaction of any other nature with any employee of the Company or any
subsidiary of the Company; or (xiv) with certain exceptions, adopt or amend any
welfare or benefit agreement, plan or arrangement for directors, officers or
employees.
Notices of Certain Matters. The Company and Parent are each obligated under
the Merger Agreement to give the other prompt notice of (i) the occurrence, or
failure to occur, of any event that such party believes would be likely to cause
any of its representations or warranties contained in the Merger
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Agreement to be untrue or inaccurate in any material respect at any time from
July 8, 1997 to the Effective Time and (ii) any material failure of the Company,
Parent or the Purchaser, as the case may be, or any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under the Merger Agreement.
Indemnification and Insurance. The Merger Agreement provides for the
survival beyond the Merger, for a period of not less than six years from the
Effective Time, of all rights to indemnification and exculpation from liability
set forth in the Company's Restated Certificate of Incorporation and Bylaws as
in effect on the date of the Merger Agreement. During such period, such
provisions may not be amended, repealed or otherwise modified in any manner that
would adversely affect the rights thereunder of individuals who, at or prior to
the Effective Time, were directors, officers, employees or agents of the Company
("Indemnified Parties") unless such modification is required by law. Parent has
agreed to guarantee the performance of the Company's obligations under the
existing indemnification agreements with the Company's directors and officers.
In addition, pursuant to the Merger Agreement, Parent has agreed to cause
the Company to maintain, for a period of two years after the expiration date of
the Company's current policy, officers' and directors' liability insurance
covering those Indemnified Parties who are currently covered by the Company's
directors' and officers' liability insurance policy, on terms that are no less
favorable to such Indemnified Parties than the terms of such current coverage.
The Company is not obligated to expend in any one year an amount in excess of
150% of the annual premiums currently payable by the Company for such insurance.
Further Assurances. Pursuant to the terms of the Merger Agreement and
subject to the conditions thereof, each of the parties thereto has agreed to use
all reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by the
Merger Agreement, including, without limitation, using all reasonable efforts to
obtain all necessary waivers, consents and approvals and to effect all necessary
registrations and filings. Neither Parent nor the Company is obligated, however,
to make or agree to any divestiture of a significant asset in order to obtain
any waiver, consent or approval.
Publicity. Under the Merger Agreement, Parent and the Company have agreed,
subject to the requirements of law, not to issue any press release or make any
other public announcement concerning the Merger Agreement or the related
transactions without the prior consent of the other party.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (i) the Merger
Agreement and the Merger shall have been approved and adopted by the requisite
vote of the stockholders of the Company; (ii) any waiting period under the HSR
Act shall have expired or earlier terminated; (iii) no preliminary or permanent
injunction or other order, decree or ruling shall be in effect that would
restrain the effective operation of the business of the Company and its
subsidiaries from and after the Effective Time; and (iv) no proceeding shall be
pending that challenges the Merger Agreement or the transactions contemplated
thereby or seeks to prohibit, alter, prevent or materially delay the Merger. The
obligations of Parent and the Purchaser to effect the Merger are also subject to
the Purchaser having purchased Shares pursuant to the Offer.
Inquiries and Negotiations. Until termination of the Merger Agreement,
neither the Company nor any of its subsidiaries, nor any of their respective
directors, officers, employees, representatives or other agents, may, directly
or indirectly, solicit or initiate any discussions, submissions of proposals or
offers or negotiations with, or, subject to the fiduciary duties of the Company
Board as advised by counsel, participate in any negotiations or discussions
with, or provide any information or data of any nature whatsoever to, or
otherwise cooperate in any other way with, or assist or participate in,
facilitate or encourage any effort or attempt by, any person, corporation,
entity or "group" (as defined in Section 13(d) of the Exchange Act) other than
Parent and its affiliates, representatives and agents (each, a "Third Party") in
connection with any merger, consolidation, sale of any substantial subsidiary or
division that is material to the business of the Company and its subsidiaries,
sale of shares of capital stock or
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other equity securities, tender or exchange offer, recapitalization, debt
restructuring or similar transaction involving the Company (such transactions
being hereinafter referred to as "Alternative Transactions"). The Company has
agreed to notify Parent immediately if any proposal, offer, inquiry or other
contact is received by or continued with, the Company in respect of any such
transaction, and, in any such notice, to indicate the identity of the Third
Party and the terms and conditions of any proposals or offers or the nature of
any inquiries or contacts, and thereafter must keep Parent informed, on a
current basis, of the status and terms of any such proposals or offers and the
status of any such discussions or negotiations. The Company is required to give
Parent not less than two business days' notice prior to the execution of a
definitive agreement with respect to an Alternative Transaction and not less
than two days' notice (or the longest notice legally permitted, in the
reasonable opinion of the Company's counsel, if less than two days) of any
public announcement relating to any Alternative Transaction. The Company may not
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which the Company is a party.
Prior to furnishing any nonpublic information to, or entering into
negotiations or discussions with, any Third Party, the Company is required to
obtain an executed confidentiality agreement from such Third Party on terms
substantially the same as, or no less favorable to the Company in any material
respect than, those contained in the Confidentiality Agreement. The Company
cannot release any Third Party from, or waive any provision of, any such
confidentiality agreement or any other confidentiality or standstill agreement
to which the Company is a party. As of the date of the Merger Agreement, the
Company, its subsidiaries and the officers, directors, employees,
representatives and other agents of the Company and its subsidiaries were
required to cease all discussions, negotiations and communications with all
Third Parties and demand the immediate return of all confidential information
previously provided to Third Parties.
Termination; Fees and Expenses. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval thereof by the stockholders of the
Company:
(i) by mutual action of the Boards of Directors of Parent and the Company;
(ii) by either Parent or the Company, if the Offer is not consummated on or
before the close of business on October 31, 1997, or if the Merger is not
effected on or before the close of business on December 31, 1997; unless, in any
case, such event has been caused by the breach of the Merger Agreement by the
party seeking such termination;
(iii) by Parent if (1) the conditions to its obligations to consummate the
Merger shall not have been complied with or performed in any material respect
prior to December 31, 1997; (2) the Offer is terminated or expires without the
purchase of any Shares, unless such termination or expiration has been caused by
the failure of Parent or the Purchaser to perform in any material respect its
obligations under the Merger Agreement and the Offer; (3) the Board of Directors
of the Company shall have withdrawn, modified or amended in a manner adverse to
Parent and the Purchaser its approval or recommendation of the Offer and the
Merger or approved, recommended or endorsed any proposal for, or authorized the
Company to enter into, an Alternative Transaction; or (4) Cowen & Company shall
have withdrawn its opinion at any time prior to the earlier of (A) acceptance
for payment of Shares by the Purchaser under the Offer and (B) the Effective
Time; or
(iv) by the Company if (1) the conditions to its obligations to consummate
the Merger shall not have been complied with or performed in any material
respect prior to December 31, 1997, or (2) prior to the earlier of (x) the
acceptance for payment of Shares by the Purchaser under the Offer and (y)
stockholder approval of the Merger Agreement and the Merger, the Company shall
enter into a definitive written agreement with respect to an Alternative
Transaction with a Third Party, or a Third Party has commenced a tender offer
that, in either case, the Company Board believes in good faith is more favorable
to the Company's stockholders than the transactions contemplated by the Merger
Agreement, provided, that all amounts payable by the Company by reason of
termination of the Merger Agreement (as described below) shall have been paid
prior to such termination (except to the extent that certain expense
reimbursements are paid thereafter, promptly upon receipt of documentation
therefor).
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If the Merger Agreement is terminated due to a "Payment Event", the Company
will be required to pay to Parent, within two business days following such
Payment Event, (i) a fee of $8,200,000 in cash, plus (ii) all reasonable and
documented out-of-pocket costs and expenses of Parent and the Purchaser,
including without limitation fees and expenses of counsel, accountants,
investment bankers and other advisors and printing expenses. In the event that
the Merger Agreement is terminated for any other reason, and the Company has
failed to comply with or perform, or has breached, in any material respect, any
of its covenants or agreements contained in the Merger Agreement, the Company
shall pay to Parent, within two business days following such termination, the
fees and expenses referred to in clause (ii) of the preceding sentence, except
that such fees and expenses are not payable if Parent or the Purchaser has
failed to comply with or perform, or has breached, in any material respect, any
of its covenants or agreements contained in the Merger Agreement.
The Merger Agreement defines a "Payment Event" as (i) the termination of
the Merger Agreement by Parent for the reasons described in clause (iii)(3) or
clause (iii)(4) above; (ii) the termination of the Merger Agreement by the
Company for the reasons described in clause (iv)(2) above; or (iii) the
occurrence of any of the following events within six months after the date of
termination of the Merger Agreement (other than because Parent or the Purchaser
has failed to comply with or perform, or has breached in any material respect,
any of its covenants or agreements contained in the Merger Agreement) if
stockholders of the Company receive, pursuant to such event, cash, securities or
other consideration having an aggregate value, when taken together with the
value of any securities of the Company or its subsidiaries otherwise held by the
stockholders of the Company after such event, in excess of $20.90 per Share: (w)
the Company is acquired by merger or otherwise by a Third Party; (x) a Third
Party acquires more than 50% of the total assets of the Company and the
subsidiaries of the Company, taken as a whole; (y) a Third Party acquires more
than 50% of the outstanding Shares or (z) the Company adopts and implements a
plan of liquidation or share repurchase relating to more than 50% of the
outstanding Shares or an extraordinary dividend relating to more than 50% of the
assets of the Company and its subsidiaries, taken as a whole.
Except as set forth above, in the event that the transactions contemplated
by Merger Agreement are not consummated, neither the Company, on the one hand,
nor Parent and the Purchaser, on the other hand, shall have any obligation to
pay any of the fees and expenses of the other.
In the event that the transactions contemplated by the Merger Agreement are
consummated, Parent shall pay all of the fees and expenses of the Company,
Parent and the Purchaser incident to the negotiation, preparation and execution
of the Merger Agreement, including the fees and expenses of counsel,
accountants, investment bankers and other advisors.
Amendment. The Merger Agreement may be amended or supplemented at any time
before or after its approval and adoption by the stockholders of the Company by
action of the respective Boards of Directors of the Company, Parent and the
Purchaser, without action by the stockholders thereof, except that after
approval and adoption of the Merger Agreement by the Company's stockholders, no
such amendment or supplement shall, without consent of such stockholders, reduce
the amount or alter the form of the consideration that the holders of the
capital stock of the Company shall be entitled to receive at the Effective Time
pursuant to the Offer.
FINANCING COMMITMENT LETTER
On July 8, 1997, WCAS VII and WCAS CP III, delivered to Parent a letter
agreement confirming their commitment, subject to satisfaction of the conditions
described in the Merger Agreement, to provide or cause to be provided to Parent
and the Purchaser sufficient funding to permit the payment of the amounts to be
paid to stockholders of the Company pursuant to the Offer and the Merger, up to
an aggregate $200 million for WCAS VII and $100 million for WCAS CP III. A copy
of such letter agreement is filed with this Statement as Exhibit (c)(2) and
incorporated herein by reference.
Except as set forth in the preceding paragraphs of this Item 3 and as
described in Item 4, below, to the best knowledge of the Company, there are no
material contracts, agreements, arrangements or understanding, or any actual or
potential conflicts of interest, between the Company or its affiliates and (i)
the Company, its executive officers, directors or affiliates or (ii) the Bidder
or its respective executive officers, directors, controlling person or
affiliates.
7
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors of the Company has unanimously approved the Offer
and the Merger and determined that the terms of the Offer and the Merger are
fair to, and in the best interests of, the stockholders of the Company and
unanimously recommends that stockholders of the Company accept the Offer and
tender their Shares to the Purchaser.
(B) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION.
Background of the Offer
During the last three years the Company has, at the recommendation of the
Board of Directors, pursued strategic and financial opportunities intended to
improve the focus of the Company and enhance the value of the Company. Numerous
discussions and the completion of several transactions took place during this
period. Completed transactions have included the sale of the stock or assets of
eight product subsidiaries to AmeriData, Inc. in 1995 and 1996 and the sale of
the Company's ownership interest in Metaphase Technology, Inc. and the Company's
related product data management sales and support business to Structural
Dynamics Research Corporation ("SDRC") effective January 1, 1997. The Company
also made several acquisitions and held numerous other discussions during this
period to explore merger, acquisition and investment opportunities. These
included discussions with computer systems companies both in the United States
and Europe, telecommunication companies, computer services companies and
investment companies. None of these discussions resulted, however, in any formal
offers to acquire the Company or any part of it, except with respect to the
sales to AmeriData, Inc. and SDRC referenced above. The Company also held
discussions during this period with various investment bankers in fall 1995 and
spring 1997 to consider strategic options for the Company.
In November 1995, management of the Company met with representatives of
WCAS, which directly or indirectly controls Parent and the Purchaser, as to
whether either party was interested in pursuing the sale of the Company to one
of the WCAS managed funds. On November 1, 1995, the Company and WCAS VII
executed a Confidentiality Agreement, and a series of presentations occurred on
November 7, 1995, in which Company management presented certain financial and
business information to WCAS. Subsequent to the November 7 meeting, the Company
provided additional information to WCAS. In December 1995, the Company received
an oral response from WCAS that it was not interested in pursuing a transaction.
No further discussions with WCAS were held during the balance of 1995 or during
1996. The Company meanwhile continued to pursue strategic opportunities as
described above.
At the January 29, 1997, Board meeting, the Board reviewed the overall
strategic plan for 1997 and beyond and instructed management to continue to
explore strategic and financial alternatives for the Company. Discussions were
pursued by James E. Ousley, President and Chief Executive Officer of the
Company, with additional potential strategic partners without success.
Management also pursued informal discussions with various investment bankers and
strategic partners to explore alternatives.
In March 1997, the Company received a request from WCAS to update the
information that WCAS had reviewed in November 1995. In April 1997, Mr. Ousley
and W. Douglas Hajjar, Chairman of the Board of the Company, met with
representatives of WCAS to discuss strategic plans and alternatives for the
Company.
On May 21, 1997, representatives of WCAS met with Mr. Ousley and Mr. Hajjar
to discuss the possibility of WCAS making an offer to purchase the Company.
Subsequent to that discussion, information on business and financial matters of
the Company were provided to WCAS pursuant to its requests. On June 11-12, 1997,
WCAS reviewed marketing, technology and financial matters with the Company, and
decided to proceed with a due diligence review of the Company. From June 16 to
July 8, 1997, WCAS and its advisors performed legal, financial and business due
diligence with the Company.
On June 23, 1997, the Board of Directors of the Company met by
teleconference to discuss a potential offer from WCAS to purchase the Company.
The Board directed management to continue to proceed with its discussions with
WCAS and, at that meeting, Mr. Hajjar reviewed a meeting that Mr. Ousley and Mr.
8
<PAGE>
Hajjar had with representatives of Cowen & Company ("Cowen") on May 22, 1997, at
which time Cowen reviewed with Mr. Ousley and Mr. Hajjar its views on the
outlook for sale of the Company, potential buyers that had been identified, and
the potential valuation methods for the Company as a whole and its nonstrategic
business segments. Mr. Ousley informed the Board that he had previously
contacted each of the target companies identified by Cowen that were believed to
be viable prospects for an acquisition, had held discussions with those that had
indicated interest, and that no offers had resulted from those discussions.
On June 27, 1997, the Board of Directors of the Company met in Minneapolis.
At that meeting, representatives of Cowen outlined a preliminary valuation
approach for the Company. The Board then unanimously directed the Company to
pursue discussions with WCAS. Representatives of the Company and WCAS and their
respective legal advisors also proceeded to negotiate documentation for the
contemplated transactions.
On July 8, 1997, after the close of the financial markets in the United
States, the Purchaser offered to pay $20.25 per Share, in cash, for the Shares.
Company management conducted further discussions with the Purchaser and then
presented the offer to the Board of Directors at a special meeting held in the
early evening of July 8, 1997. Following further discussion of the price and
terms offered by the Purchaser, Cowen delivered its opinion to the Company Board
that the financial terms of the Offer and the Merger are fair, from a financial
point of view, to the Control Data stockholders (other than Parent and its
affiliates) as of the date of such opinion. Late in the evening on July 8, 1997,
the Boards of Directors of the Company and the Purchaser each unanimously
approved the transactions and the purchase price. Following such approvals the
Merger Agreement was executed and delivered, and the transaction was publicly
announced before financial markets in the United States opened on July 9, 1997.
Reasons for the Recommendation
At its meeting on July 8, 1997, the Board of Directors of the Company
unanimously (i) approved the Merger Agreement, the Offer and the Merger, (ii)
determined that the Offer and the Merger are fair to, and in the best interests
of, the stockholders of the Company, and (iii) resolved to recommend that
stockholders accept the Offer and tender their Shares pursuant to the Offer.
Prior to reaching its decision to approve the transactions contemplated by
the Merger Agreement and to recommend acceptance of the Offer, the Board of
Directors received presentations from, and reviewed the Offer and the Merger
Agreement with, management of the Company as well as with Cowen and the
Company's legal counsel. In reaching its decision, the Board considered a number
of factors, including, but not limited to, the following: (i) the terms and
conditions of the Merger Agreement, including the amount and form of the
consideration; (ii) the fact that the $20.25 per Share price represents a
premium of approximately 29% over the closing sale price of $15.69 per Share as
reported on the Nasdaq National Market on July 8, 1997; (iii) the recent
historical market prices of the Shares; (iv) the Board of Directors' knowledge
of the business, operations, prospects, properties, assets and earnings of the
Company; (v) the Company's current financial condition and future prospects;
(vi) the effect of the proposed transaction on the Company's relationships with
its employees and customers; (vii) the likelihood that the Offer and the Merger
would be consummated, including the experience, reputation and financial
condition of the Purchaser and its affiliates; (viii) a review of possible
values realizable by the Company's stockholders through other alternatives; (ix)
the fact that, pursuant to the Merger Agreement, the Company is not prohibited
from responding to any unsolicited alternative transaction to the extent that
the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Company's stockholders under the DGCL;
and (x) the presentation of Cowen at the meeting of the Board of Directors on
July 8, 1997, and the written opinion of Cowen dated July 8, 1997, to the effect
that, as of such date, the financial terms of the Offer and the Merger are fair
to the Control Data stockholders (other than Parent and its affiliates) from a
financial point of view.
The full text of the opinion of Cowen, which sets forth, among other
things, the assumptions made, matters considered and limitations on the review
undertaken, is filed as Exhibit (a)(5) hereto, is attached as Annex B hereto and
is incorporated herein by reference. Stockholders of the Company are urged to
read such opinion in its entirety. Cowen's opinion was presented for the
information of the Board in connection
9
<PAGE>
with its consideration of the Merger Agreement, and is directed only to the
fairness from a financial point of view of the consideration to be received by
holders of the Company's Common Stock (other than Parent and its affiliates)
pursuant to the Offer and the Merger. Cowen's opinion does not constitute a
recommendation to any stockholder as to whether to sell such stockholder's
shares in the Offer pursuant to the Merger Agreement.
In light of all the factors set forth above, the Board of Directors
approved the Merger Agreement, the Offer, and the Merger. In view of the variety
of factors considered in connection with its evaluation of the transaction, the
Board of Directors did not assign relative weights to the specific factors
considered in reaching its decision.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company retained Cowen to render a fairness opinion in connection with
a possible sale of the Company. On June 20, 1997, the Company entered into an
engagement letter (the "Letter Agreement") to engage Cowen to render, if
requested, an opinion as to the fairness, from a financial point of view, of the
financial terms of the Offer and the Merger to the stockholders of the Company
(other than Parent and its affiliates). The Company agreed to pay Cowen a fee of
$500,000 upon delivery of such opinion. The Company also agreed to pay Cowen's
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
incurred in carrying out its duties under the Letter Agreement and to indemnify
Cowen against certain liabilities arising out of or in connection with its
engagement.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to stockholders of the Company on its
behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) During the past 60 days, no transactions in Shares have been effected
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, its executive officers,
directors and their affiliates presently intend to tender to the Purchaser any
Shares that are held of record or beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Statement, no negotiation is being
undertaken or is underway by the Company in response to the Offer that relates
to or would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or its subsidiaries; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or its subsidiaries;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as set forth in this Statement, there is no transaction, board
resolution, agreement in principle or signed contract in response to the Offer
that relates to or would result in one or more of the events referred to in Item
7(a) above.
10
<PAGE>
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The information contained in Exhibits (a)(1), (a)(2), (a)(5), (c)(1) and
(c)(2) referred to in Item 9 below is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------
(a)(1) Form of Offer to Purchase dated July 15, 1997.
(a)(2) Form of Letter of Transmittal
(a)(3) Text of Joint Press Release issued by Control Data Systems, Inc. and
CDSI Holding Corporation dated July 9, 1997.
(a)(4) Form of Letter to Stockholders from Control Data Systems, Inc. dated
July 15, 1997
(a)(5) Opinion of Cowen & Company dated July 8, 1997
(c)(1) Agreement and Plan of Merger, dated as of July 8, 1997, by and among
Control Data Systems, Inc., CDSI Holding Corporation and CDSI
Acquisition Corp.
(c)(2) Letter to CDSI Holding Corporation by Welsh, Carson, Anderson & Stowe
VII, L.P. and WCAS Capital Partners III, L.P. dated July 8, 1997
11
<PAGE>
SIGNATURE. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
CONTROL DATA SYSTEMS, INC.
Dated: July 15, 1997 By /s/ James E. Ousley
---------------------------------------
James E. Ousley
President and Chief Executive
Officer
12
<PAGE>
ANNEX A
CONTROL DATA SYSTEMS, INC.
4201 LEXINGTON AVENUE NORTH
ARDEN HILLS, MINNESOTA 55126
----------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED
IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT
TO SEND THE COMPANY A PROXY.
----------------
This Information Statement is being mailed on or about July 15, 1997 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Control Data Systems, Inc. (the "Company") to holders of
the Shares. You are receiving this Information Statement in connection with the
possible election of persons designated by the Purchaser to a majority of the
seats on the Board of Directors of the Company. This Information Statement is
required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder.
Under the Merger Agreement, effective upon payment by the Purchaser for all
Shares accepted for payment pursuant to the Offer, provided that such Shares
constitute a majority of all Shares on a fully-diluted basis, Purchaser will be
entitled to designate the number of directors (rounded up to the next whole
number) on the Company's Board of Directors that equals the product of the
number of directors on the Company's Board of Directors (giving effect to the
election of additional directors) and the ratio that the combined voting power
of the Shares so purchased bears to the total combined voting power of all
outstanding Shares. The Company has agreed to increase the size of its Board of
Directors and/or to secure the resignation of directors, conditioned on and
effective as of the closing of the Offer, to enable the Purchaser's designees
(the "Purchaser Designees") to be appointed to the Board.
Effective upon the closing of the Offer, Patrick J. Welsh, Thomas E.
McInerney, and Rudolph E. Rupert, as the Purchaser Designees, may become members
of the Company's Board of Directors. Information regarding such Purchaser
Designees is included herein. Pursuant to the Merger Agreement, the Purchaser
commenced the Offer on July 15, 1997. The Offer is scheduled to expire at 12:00
midnight, New York City time, on Monday, August 11, 1997, unless the Offer is
extended.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9. The
information contained in this Information Statement concerning the Purchaser,
Parent and the Purchaser Designees has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or
completeness of such information.
A-1
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of July 7, 1997, there were 12,622,359
Shares outstanding. The Board of Directors currently consists of one class with
six members. At each annual meeting of stockholders, all six directors are
elected for one-year terms. The officers serve at the discretion of the Board.
PURCHASER DESIGNEES
Pursuant to the Merger Agreement, upon the acceptance for payment by the
Purchaser of a majority of the outstanding Shares pursuant to the Offer (and
deposit with the Depositary of funds sufficient to make payment for such
Shares), the Purchaser will be entitled to designate the number of directors to
the Board of Directors of the Company (rounded up to the next whole number) that
equals the product of the number of directors on the Company's Board of
Directors (giving effect to the election of additional directors) and the ratio
that the number of Shares purchased by the Purchaser bears to the total number
of outstanding Shares. The Company has agreed to increase the size of its Board
of Directors and/or to secure the resignation of directors, conditioned on and
effective as of the closing of the Offer and subject to compliance with Section
14(f) of the Exchange Act, to provide the Purchaser with such level of
representation. Notwithstanding the foregoing, at all times prior to the
Effective Time of the Merger at least two directors on the Company Board will be
directors in office as of the date of the Merger Agreement who are not employees
of the Company or any of its subsidiaries or affiliates of Parent or the
Purchaser.
In connection with the foregoing, the Purchaser has provided the Company
with information concerning the persons it is designating for appointment to the
Company Board (the "Purchaser Designees"), who consist of Patrick J. Welsh,
Thomas E. McInerney, and Rudolph E. Rupert, for inclusion in this Statement. The
Purchaser has informed the Company that each of the Purchaser Designees has
consented to act as a director. Except as otherwise disclosed in the Schedule
14D-1, none of the Purchaser Designees (i) is currently a director of, or holds
any position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best knowledge of
the Purchaser, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by the Purchaser that,
to the best of the Purchaser's knowledge, none of the Purchaser Designees has
been involved in any transaction with the Company or any of its directors,
executive officers or affiliates that is required to be disclosed pursuant to
the rules and regulations of the Commission.
It is expected that some or all of the Purchaser Designees may assume
office at any time following the purchase by the Purchaser of a majority of the
Shares pursuant to the Offer and that, upon assuming office, the Purchaser
Designees will thereafter constitute a majority of the Board of Directors.
A-2
<PAGE>
Biographical information concerning each of the Purchaser Designees is
presented below.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE
- ------------------------- -------------------------------------------------------------- ----
<S> <C> <C>
Patrick J. Welsh ...... Patrick J. Welsh is Chairman and director of each of 53
Parent and the Purchaser. Mr. Welsh is general
partner or managing member of the sole general
partners of several investment funds affiliated with
WCAS. Mr. Welsh serves as a director of
Pharmaceutical Marketing Services Inc. and MedCath
Incorporated.
Thomas E. McInerney ..... Thomas E. McInerney is President and director of 55
each of Parent and the Purchaser. Mr. McInerney is
general partner or managing member of the sole
general partners of several investment funds
affiliated with WCAS. Mr. McInerney serves as a
director of The Bisys Group, Inc., Aurora
Electronics, Inc. and DecisionOne Holdings Corp.
Rudolph E. Rupert ...... Rudolph E. Rupert is Vice President, Secretary, 31
Treasurer, and director for each of Parent and the
Purchaser. Mr. Rupert is Vice President of WCAS. Mr.
Rupert was an associate at General Atlantic
Partners, L.L.P., a private investment group focused
on software and information technol- ogy, from
September 1994 to March 1997. Mr. Rupert was a
consultant at Onex Investment Corp., a publicly
traded holding company, from Febru- ary 1993 to
September 1994 and an Associate at Lazard Freres, an
invest- ment bank, from January 1987 to May 1992.
</TABLE>
CURRENT DIRECTORS
Biographical information concerning each of the Company's current directors
follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ---------------------- --------------------------------------------------------------- ----- ---------
<S> <C> <C> <C>
W. Donald Bell ...... W. Donald Bell is the founder, President and Chief 60 August
Executive Officer of Bell Microproducts, Inc., a 1992
distribution company specializing in semicon- ductors,
computer products, and manufacturing services. Mr. Bell
founded Bell Microproducts, Inc. in 1988.
Grant A. Dove ...... Grant A. Dove is a Managing Partner of Technology 69 August
Strategies & Alli- ances, a strategic planning and 1992
investment banking firm. Mr. Dove joined TS&A in 1991.
From 1987-1992, Mr. Dove served as Chairman of the Board
and Chief Executive Officer of Microelectronics and
Computer Technology Corporation (MCC). He is Chairman of
the Board and a director of OPTEK Technology, Inc. Mr.
Dove is also a director of US West, Inc., Cooper Cameron
Corporation, Intervoice, Inc., The Fore Front Group,
Inc., and MCC.
Marcelo A. Gumucio ... Marcelo A. Gumucio is the President and Chief Executive 59 August
Officer of Micro Focus, Inc., an international software 1992
organization engaged in the design of software. Mr.
Gumucio joined Micro Focus in 1996 and is cur- rently a
member of its Board of Directors. From 1992 to 1996, Mr.
Gumucio held positions as the President, Chairman and
Chief Executive Officer of Memorex Telex, N.V. Prior to
that time, Mr. Gumucio was President of Gumucio, Burke &
Associates, a private investment firm he founded in 1990.
Mr. Gumucio was the President, Chief Operating Of- ficer
and member of the Board of Directors of Cray Research,
Inc. from March 1988 to July 1990.
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- --------------------- --------------------------------------------------------------- ----- ---------
<S> <C> <C> <C>
W. Douglas Hajjar ... W. Douglas Hajjar is Chairman of the Company. He was Vice 50 August
Chairman of Cadence Design Systems, Inc., an electronic 1992
design automation ven- dor, from December 1991, when
Cadence Design Systems, Inc. completed its merger with
Valid Logic Systems, Inc., to May 1994. From September
1987 through December 1991, Mr. Hajjar was Chairman and
Chief Exec- utive Officer of Valid Logic Systems, Inc.
Mr. Hajjar also serves on the Board of Platinum Software
Corporation.
Keith A. Libbey ... Keith A. Libbey is a member and Chairman Emeritus of the 60 August
Board of Fredrikson & Byron, P.A., a law firm with 1992
principal offices in Minneap- olis, Minnesota.
James E. Ousley ... James E. Ousley has been President and Chief Executive 51 August
Officer of the Company since the establishment of the 1992
Company as an independent public company through the
transfer of Ceridian Corporation's Computer Products
business to the Company and subsequent immediate spin-off
of the Company from Ceridian effective July 31, 1992. Mr.
Ousley was Pres- ident of Ceridian's Computer Products
business from April 1989 and was Executive Vice President
of Ceridian from February 1990 until the spin- off of the
Company. From January 1989 to April 1989, Mr. Ousley was
Vice President, Marketing and Sales for Ceridian's
Computer Products business and prior thereto held various
positions with Ceridian.
</TABLE>
COMPENSATION OF DIRECTORS
Officers of the Company do not receive any additional compensation for
serving as members of the Board of Directors or any of its committees. Directors
who are not employees of the Company receive an annual retainer fee of $16,000
($17,000 if chairman of a Board committee) and $1,000 for each Board or Board
committee meeting attended. The Chairman of the Company receives $25,000 per
calendar quarter, with no additional fees for Board or Board committee meetings
attended. If there is a "change of control" of the Company as defined in the
Company's 1992 Equity Incentive Plan, then the Chairman shall, upon a "change of
control termination" as defined in such Plan, be paid an amount equal to three
times the Chairman's annual fee. The consummation of the Offer and acquisition
by the Purchaser of at least a majority of the Company's outstanding stock
pursuant thereto will, assuming the current Chairman of the Company ceases to
hold such position, constitute a change of control termination.
Under the Company's 1992 Equity Incentive Plan, directors who are not
employees of the Company are also eligible for stock options. As specified in
the Plan, an option for 25,000 shares of the Company's Common Stock is granted
to each non-employee director when such director first assumes office as a
director. The Plan also provides for the annual grant of an option for 5,000
shares to each non-employee director upon the non-employee director's reelection
to the Board. The per share exercise price for an option granted to a
non-employee director is the fair market value of a share of the Common Stock as
of the date the option is granted. Each option is a nonqualified stock option,
expires ten years after the date it is granted and becomes exercisable as to
one-third of the shares subject to the option on each of the succeeding three
anniversaries of the option grant. If a non-employee director ceases to be a
director of the Company for reasons other than death or disability, any portion
of an option not yet exercisable at such time will be forfeited, and the portion
of the option then exercisable will remain exercisable for 90 days. Pursuant to
the Merger Agreement, all outstanding options will become fully vested, and the
holders of such options will receive cash in termination of such options on a
per-Share basis equal to the excess of the Merger Consideration over the
pre-Share exercise price of such options.
A-4
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors held four Board meetings in fiscal year
1996. The standing committees of the Board of Directors include the Audit
Committee and the Compensation Committee. No director missed a meeting of the
Board of Directors or a meeting of any Board committee on which the director
served. The Board does not have a standing nominating or similar committee.
Audit Committee. The Audit Committee held two meetings in fiscal year
1996. Committee members are Mr. Libbey (Chair) and Mr. Hajjar. The Committee
reviews Control Data's annual financial statements; makes recommendations
regarding Control Data's independent auditors and scope of auditor services;
reviews the adequacy of accounting and audit policies, compliance assurance
procedures and internal controls; reviews nonaudit services performed by
auditors to maintain auditors' independence; and reports to the Board of
Directors on disclosure adequacy and adherence to accounting principles. The
Audit Committee also appoints the Company's Retirement Committee, which is
responsible for administering the Company's U.S. qualified retirement plans.
Compensation Committee. The Compensation Committee held two meetings in
fiscal year 1996. Committee members are Mr. Dove (Chair), Mr. Bell and Mr.
Gumucio. The Committee reviews compensation philosophy and major compensation
and benefits programs for executives; administers certain stock plans; and
approves executive officers' and directors' compensation.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION
- -------------------------- ----- -----------------------------------------------
James E. Ousley ......... 51 President and Chief Executive Officer
Joseph F. Killoran ...... 56 Vice President and Chief Financial Officer
Ruth A. Rich ............ 53 Vice President, Human Resources/Administration
and Sec- retary
Dieter Porzel ............ 60 Vice President, Europe/Middle East/Africa
Region
Michael G. Eleftheriou ... 52 Vice President, Technical Services
David B. Folsom ......... 49 Vice President, Electronic Commerce Solutions
and Chief Technology Officer
Arnold (Nol) Rutgers ... 55 Vice President, Sales and Operations, U.S. and
Asia
Executive officers of the Company are elected by the Board of Directors and
serve at the Board's discretion. There are no family relationships among any
directors or executive officers of the Company.
James E. Ousley has been President and Chief Executive Officer of Control
Data since August 1992. Mr. Ousley was President of Ceridian's Computer Products
business from April 1989 to July 1992; and Executive Vice President of Ceridian
from February 1990 to July 1992.
Joseph F. Killoran has been Vice President and Chief Financial Officer of
Control Data since February 1994. Mr. Killoran was Vice President and Controller
of Control Data from August 1992 to January 1994; and Vice President and
Controller for Ceridian's Computer Products business from 1989 to July 1992.
Ruth A. Rich has been Vice President, Human Resources/Administration of
Control Data since August 1992 and Secretary since March 1997. Ms. Rich was Vice
President, Human Resources/ Administration for Ceridian's Computer Products
business from November 1990 to July 1992; and Vice President, Human
Resources/Administration for Ceridian's Information Services Group from May 1986
to November 1990.
A-5
<PAGE>
Dieter Porzel has been Vice President, Europe/Middle East/Africa Region of
Control Data since February 1993. Mr. Porzel was Vice President, Central Europe
Region for Control Data from August 1992 to January 1993; and Vice President,
Central Europe Region of Ceridian's Computer Products business from 1987 to
1992.
Michael G. Eleftheriou has been Vice President, Technical Services of
Control Data since January 1996. Mr. Eleftheriou was Vice President of
Assessment and Planning for Control Data from October 1994 to December 1995;
General Manager of United States Systems Integration Operations from May 1994 to
September 1994; General Manager of Control Data Mexico from October 1992 to
April 1994; General Manager of Worldwide Sales and Services from August 1992 to
September 1992; General Manager, Worldwide Sales and Services of Ceridian's
Computer Products business from December 1991 to July 1992; and General Manager
of Ceridian's Cyber Marketing business from April 1990 to November 1991.
David B. Folsom has been Vice President, Electronic Commerce Solutions of
Control Data since October 1994. In addition, in March 1997, Mr. Folsom assumed
the role of Chief Technology Officer. Mr. Folsom was General Manager of
Networking Competency Centers of Control Data from August 1992 to September
1994; and Director of Software Development for Ceridian's Computer Products
business from 1990 to July 1992.
Arnold (Nol) Rutgers has been Vice President, Sales and Operations, U.S.
and Asia of Control Data since October 1996. Mr. Rutgers was Vice President,
Asia/Pacific Region from June 1995 to September 1996; Vice President, Marketing
from October 1994 to May 1995; General Manager of Strategic Planning for Control
Data from August 1992 to September 1994; and General Manager of Strategic
Planning for Ceridian's Computer Products business from September 1989 to July
1992.
EXECUTIVE COMPENSATION
The following table sets forth the fiscal year 1996 annual and long-term
compensation for the Company's Chief Executive Officer and the next four highest
paid executive officers, as well as the total compensation paid to each such
individual during fiscal years 1994 and 1995:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION -------------- -------------------------
-------------------------------------------- NUMBER OF
OTHER RESTRICTED SECURITIES ALL OTHER
ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL FISCAL SALARY (1) BONUS COMPENSATION AWARD(S) (2) OPTIONS/SARS PAYOUTS SATION (3)
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------------------------- ------ ----------- --------- -------------- -------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Ousley .................. 1996 398,846 320,000 0 0 0 0 3,750
President and Chief Executive 1995 385,000 383,000 0 318,750 0 0 3,750
Officer 1994 380,944 77,000 0 0 0 0 0
Dieter Porzel (4) ............... 1996 239,320 47,864 0 0 0 0 0
Vice President, Europe/Middle 1995 262,458 67,160 0 0 0 0 0
East and Africa 1994 239,432 29,929 0 0 25,000 0 0
Joseph F. Killoran ............... 1996 198,077 100,000 0 0 0 0 3,750
Vice President and Chief 1995 175,000 137,500 0 0 0 0 3,750
Financial Officer 1994 173,269 21,875 0 0 25,000 0 0
Arnold (Nol) Rutgers ............ 1996 133,846 52,500 0 0 15,000 0 3,750
Vice President, Sales and 1995 102,426 65,000 0 0 10,000 0 3,750
Operations, USA and Asia 1994 98,709 10,573 0 0 25,000 0 0
Ruth A. Rich ..................... 1996 129,231 65,000 0 0 0 0 3,750
Vice President, Human Resources/ 1995 120,000 60,000 0 0 0 0 3,750
Administration and Secretary 1994 120,000 15,000 0 0 10,000 0 0
</TABLE>
- ----------
(1) The amounts reflected in "Salary" include the named executive's salary
deferral contributions to the Company's Personal Investment Plan, which is
a savings plan qualified under Sections 401(a) and 401(k) of the Internal
Revenue Code, for the period indicated.
A-6
<PAGE>
(2) Reflects a restricted stock award of 50,000 shares. Of the 50,000 shares
granted, restrictions on 16,666 shares lapsed on July 5, 1995 and
restrictions on 16,666 shares lapsed on January 2, 1997. The restrictions
on the remaining shares will lapse immediately prior to the consummation of
the Offer. Any dividends declared by the Company on its Common Stock would
be payable to Mr. Ousley on his restricted shares. The value of the
restricted stock holdings that had not lapsed at the end of fiscal year
1996 was $733,348.
(3) "All Other Compensation" reflects, in each instance, a discretionary profit
sharing contribution made by the Company on behalf of the named executive
under the Company's Personal Investment Plan for fiscal year 1996. For
fiscal years 1995 and 1996, each U.S. employee received, upon the Company's
attainment of certain financial objectives determined by the Board of
Directors, an amount equal to two and one-half percent (2 1/2 %) of annual
compensation up to $150,000, or a maximum contribution of $3,750.
Contributions for future fiscal years and any related financial objectives
will be determined by the Board of Directors.
(4) All amounts for Mr. Porzel were paid in Deutsche Marks and converted to
U.S. dollar equivalents at the exchange rates prevailing on the last day of
the applicable fiscal year. Amounts paid in fiscal year 1996 were converted
at the rate prevailing on December 31, 1996 (0.6450).
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no options/SARs granted to the named executives during 1996
except the following:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS (1) OPTION TERM (2)
-------------------------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/ SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------- --------------- -------------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arnold Rutgers ...... 15,000 6.8% $18.875 7/24/06 $178,365 $450,165
</TABLE>
- ----------
(1) The option gives the optionee the right to purchase Common Stock. No SARs
were granted separately or in tandem with the option. The options become
exercisable as to one-third of the shares subject to the option on each of
the three succeeding anniversaries of the date of grant. Following a
"change of control termination," the option will become immediately
exercisable. A "change of control termination" means (i) the optionee's
termination of employment by the Company for reasons other than a willful
failure to perform his or her employment duties or conduct constituting a
felony involving moral turpitude; or (ii) the termination of employment
with the Company by the optionee for "good reason," which is generally
defined as an adverse change in the optionee's responsibilities, authority,
compensation or working conditions, or a material breach of the optionee's
employment agreement by the Company. Such termination of employment must
occur within two years of a "change of control," which is defined as (i) a
merger or consolidation involving the Company if less than 50% of the
Company's voting stock after the business combination is held by persons
who were stockholders before the business combination; (ii) a sale of the
assets of the Company substantially as an entity; (iii) ownership by a
person or group of at least 20% of the Company's voting securities; (iv)
approval by the stockholders of a plan for the liquidation of the Company;
and (v) certain changes in the composition of the Company's Board of
Directors. The options will be accelerated and the holders will receive
cash therefor at the time of the Merger, as described in the Merger
Agreement.
(2) The potential realizable value of the option grant has been estimated
assuming the stated per share market price of the Company's Common Stock
appreciates in value at annualized rates of 5% and 10% from the grant date
to the date that the option expires, net of the exercise price that the
optionee must pay for the shares underlying such option. However, actual
gains, if any, from the exercise of these options and from holding shares
of the Company's Common Stock depend on the future performance of the
Common Stock and overall stock market conditions. Whether the gains
reflected in this Table will actually be achieved cannot be assured.
A-7
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
The following table summarizes the options and SARs exercised during fiscal
year 1996 and presents the value of unexercised options and SARs held by the
named executives at December 31, 1996:
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/ SARS OPTIONS/ SARS
AT FISCAL YEAR-END (1) (#) AT FY-END (2) ($)
SHARES ACQUIRED VALUE EXERCISABLE (E) EXERCISABLE (E)
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE(U) UNEXERCISABLE (U)
- -------------------------- ----------------- -------------- ---------------------------- ---------------------
<S> <C> <C> <C> <C>
James E. Ousley ......... 0 0 351,677(E) $ 5,015,553(E)
0(U) $ 0(U)
Dieter Porzel ............ 54,993 723,990 33,333(E) $ 430,206(E)
16,668(U) $ 217,725(U)
Joseph F. Killoran ...... 0 0 99,066(E) $ 1,384,456(E)
8,334(U) $ 112,716(U)
Arnold Rutgers ......... 0 0 31,849(E) $ 441,104(E)
30,001(U) $ 218,346(U)
Ruth A. Rich ............ 0 0 99,896(E) $ 1,440,979(E)
3,334(U) $ 47,926(U)
</TABLE>
- ----------
(1) All are options to purchase Common Stock. No SARs were exercised or are
outstanding, whether free standing or in tandem with the options. The
number of unexercised options includes shares that may be issued upon the
exercise of replacement options which were provided to the optionee
pursuant to the provisions of the spin-off of the Company from Ceridian
Corporation to replace Ceridian stock options held by such optionee at the
time of the spin-off. The number of shares subject to the optionee's
replacement options and the per share exercise price were calculated to
preserve the economic value of the optionee's Ceridian stock options. In
addition, the replacement options contain the same terms and conditions as
the Ceridian options, and the replacement options' duration and
exercisability are measured according to the dates that the Ceridian
options were granted. All options will be accelerated and the holders will
receive cash therefor at the time of the Merger, as described in the Merger
Agreement.
(2) The values are based on the difference between $22.00 (the closing price of
the Company's Common Stock on December 31, 1996 as reported by the Nasdaq
National Market) and the options' exercise price.
PENSION PLAN AND BENEFIT EQUALIZATION PLAN
The Company maintains a defined benefit pension plan (the "Retirement
Plan") for its U.S. employees (including executive officers and employees of
U.S. subsidiaries), which is funded by employee salary reductions and after-tax
contributions and Company contributions. However, effective December 20, 1992,
benefits under the Retirement Plan were frozen, meaning that no employees may
become participants in the plan after that date, that pension benefits for all
employees currently participating in the Retirement Plan will be computed only
on the basis of compensation paid and years of service completed to that date,
and that no future contributions will be made to the Retirement Plan except to
the extent required by the funding standards of ERISA and the Internal Revenue
Code. All current Retirement Plan participants also acquired a fully vested
interest in their pension benefits.
Generally, the amount of the annual pension benefit under the Retirement
Plan equals an annual base pension of 1.2% of the participant's average annual
compensation during the participant's highest consecutive five-year earnings
period ending on or before December 20, 1992, multiplied by the participant's
credited years of service as of such date. In addition, the participant is
entitled to an annual excess pension benefit of 0.4% of such average annual
compensation in excess of the participant's "break point" multiplied by the
participant's years of credited service as of December 20, 1992, or 30 years,
whichever is less. A participant's "annual compensation" generally consists of
salary and any annual bonus paid under the Executive Incentive Plan. The
participant's "break point" amount essentially represents an average of the
social security wage bases to which a participant has been subject over his or
her career, and has been frozen at the amount determined for the participant as
of December 20, 1992.
A-8
<PAGE>
The Company also maintains a Benefit Equalization Plan, under which
benefits were also frozen on December 20, 1992. In 1992, the Internal Revenue
Code limited the annual benefits payable from the Retirement Plan at $112,221
and provided that compensation in excess of $228,860 per year could not be used
in calculating benefits under the Company's Retirement Plan described above. The
Benefit Equalization Plan provides employees (including certain named executive
officers) with supplemental pension benefits so that they will receive, in the
aggregate, the benefits that they would have been entitled to receive under the
frozen Retirement Plan had these limits not been imposed. The Benefit
Equalization Plan is an unfunded plan, and any amounts payable remain subject to
the claims of the Company's creditors. Any benefits payable to a participant
under the Benefit Equalization Plan commence at the same time as the pension
benefits payable under the Retirement Plan.
The estimated annual benefits payable under the Retirement Plan and Benefit
Equalization Plan upon retirement at age 65 (expressed in the form of a
single-life annuity) for each of the named executive officers are as follows:
Mr. Ousley, $75,009; Ms. Rich, $45,728; and Mr. Rutgers, $10,325. The years of
service this calculation represents at the time the plan was frozen in 1992 was
24.5 years, 25.9 and 10.0 years, respectively. Mr. Rutgers also participated in
an insured defined benefit plan in the Netherlands from 1967 to 1982. The amount
of the benefit payable to Mr. Rutgers from the Netherlands plan is 1/40 of
eligible salary multiplied by years of service. An estimate of his benefit under
the Netherlands plan cannot be calculated at this time because certain
beneficiaries are entitled to receive a portion of that benefit when it becomes
payable.
Neither Mr. Killoran nor Mr. Porzel participated in the Retirement Plan.
Mr. Killoran had participated in a pension plan sponsored by Ceridian
Corporation for employees of a company acquired by Ceridian and received a
distribution from Ceridian under that plan. The German subsidiary of the Company
maintains a defined benefit plan for its employees, including Mr. Porzel.
Generally, the amount of the benefit is 0.5% of eligible earnings up to the
German social security wage base for each year of credited service, plus 2.0% of
eligible earnings above the social security wage base for each year of credited
service. Based upon present earnings, the estimated annual benefit payable to
Mr. Porzel under the German retirement plan at age 65 is an amount of Deutsche
Marks equivalent to $75,295, calculated at the exchange rate prevailing on
December 31, 1996. Future increases in Mr. Porzel's compensation, if any, will
not affect these amounts.
EMPLOYMENT AGREEMENTS
The Company has severance agreements, expiring January 4 , 1998, with
Messrs. Ousley and Killoran under which the executive will receive certain
severance payments and benefits in the event of a "change of control
termination." Such term has the same meaning set forth in the Company's 1992
Equity Incentive Plan, except the severance agreements require that the
executive's termination of employment occur within one year of the change of
control event in order to entitle him to the severance pay and benefits provided
by his severance agreement. If a change of control termination occurs under his
severance agreement, Mr. Ousley is entitled to receive, within five days after
such termination, a severance payment equal to approximately three times his
average annual taxable compensation for the five tax years preceding the year in
which the change of control event occurs. Mr. Killoran's severance payment is
approximately one and one-half times his average annual taxable compensation
over the same five-year period. In the event of a change of control termination,
the Company is also required to continue for 36 months the executive's life,
health, dental and disability benefits at a level comparable to the benefits he
was receiving before the change of control termination. The severance agreements
also provide that all change of control compensation payable to the executive
must be less than the amount which would be considered a "parachute payment"
under Section 280G of the Internal Revenue Code. To the extent that the
severance payment to which the executive is entitled under his severance
agreement, together with any other change of control compensation payable to
him, would exceed this amount, the executive must designate which payments or
change of control compensation should be reduced or eliminated so as to avoid
receipt of a parachute payment.
The German subsidiary of the Company, Control Data GmbH, has an employment
agreement with Mr. Porzel which is terminable by Control Data GmbH upon 36
months' notice or upon Mr. Porzel reaching age 65, and by Mr. Porzel upon six
months' notice. Under this agreement, Mr. Porzel is re-
A-9
<PAGE>
quired to devote full time to serve as the "Vorsitzender der Geschaeftsfuehrung"
(chief executive officer) of Control Data GmbH. As such, he is prohibited from
disclosing confidential information about the Company during and after the term
of employment, and he is required to disclose and assign to Control Data GmbH,
in accordance with applicable German law, any intellectual property created
during his employment. The agreement also provides for remuneration at levels
determined in accordance with the compensation policies of the Company, and
prescribes certain acts that require the prior approval of the Company. Upon any
termination of his employment, Mr. Porzel will be entitled to receive
remuneration at then-current levels for the balance of his notice period.
COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Company's executive officers generally are
made by the Compensation Committee of the Board of Directors. The three members
of the Compensation Committee are non-employee directors as defined in Rule
16b-3 of the Securities Exchange Act of 1934. Decisions by the Compensation
Committee relating to the compensation of the Company's executive officers are
reviewed by the full Board, except for decisions about awards under the
Company's 1992 Equity Incentive Plan which are made by the Committee in order
for the awards under such Plan to satisfy Rule 16b-3.
Compensation Philosophy and Relationship of Performance. This report
reflects the Compensation Committee's executive officer compensation philosophy
as endorsed by the Board of Directors. The resulting actions taken by the
Company are shown in the compensation tables supporting this report. The
Compensation Committee either approves or recommends to the Board of Directors
compensation levels and compensation components for the executive officers. All
of the non-employee members of the Board of Directors review compensation
actions affecting the Chief Executive Officer. This report reflects the
compensation philosophy for fiscal year 1996.
The Compensation Committee's executive compensation policies are designed
to enhance the financial performance of the Company, and thus stockholder value,
by significantly aligning the financial interests of the key executives with
those of stockholders.
The executive compensation program is viewed in total considering all of
the component parts: base salary, annual performance incentives, benefits, and
long-term incentive opportunity in the form of stock options and restricted
stock grants. The annual compensation components consist generally of lower base
salaries than those of comparable companies combined with higher incentive plans
based on the Company's financial performance and performance against its
strategic initiatives. Long-term incentive is based on stock performance through
stock options and restricted stock grants. The Compensation Committee's position
is that stock ownership by management is beneficial in aligning management's and
stockholders' interests in the enhancement of stockholder value. Overall, the
intent is to have more significant emphasis on variable compensation components
and less on fixed components. The Committee believes this philosophy and
structure are in the best interests of the stockholders.
Compensation reflected in the previous tables paid to the Company's
executive officers is from January 1, 1994 to December 31, 1996, consisting of
the following elements: base salary, performance incentives and deferred profit
sharing contributions for such period, and stock options and restricted stock
granted under the Company's 1992 Equity Incentive Plan.
Recent tax law changes, effective for fiscal year 1994 and future years,
may disallow deductions for compensation paid by the Company to each of the
Company's named executive officers if the officer's compensation exceeds
$1,000,000. Special rules apply for "performance-based" compensation, including
compensation resulting from stock options. The 1992 Equity Incentive Plan
includes a per-employee limit on the options that can be granted to salaried
employees, including the named executive officers, during any calendar year. For
other performance-based compensation plans, including the Executive Incentive
Plan described below, the Company intends to take whatever steps are necessary
to comply with the deduction limits imposed by these tax provisions.
Annual Incentive Arrangements. The Company has adopted an Executive
Incentive Plan which provides annual incentive compensation to key employees,
including named executive officers, who by
A-10
<PAGE>
the nature of their positions, are deemed sufficiently accountable to impact
directly the strategic objectives and financial results of the Company. The Plan
is approved by the Compensation Committee, whose members are not eligible to
participate in the Plan.
The Committee believes that key executives should have a significant
proportion of total cash compensation subject to specific strategic and
financial measurements. At the beginning of each fiscal year, or upon an
individual being appointed an executive officer, the Committee sets a target
bonus amount for each executive officer expressed as a percentage of the
executive's base salary. Performance goals for purposes of determining annual
incentive compensation are established which include net earnings and other
strategic and financial measurements. Generally, the target level of net
earnings is assigned a significantly greater weight than the aggregate weight
assigned to all remaining factors. Senior management, including the named
executives, have the potential to earn significantly higher levels of incentive
compensation if the Company exceeds its targets. The target incentive
compensation levels established by the Compensation Committee for fiscal year
1996 for Messrs. Porzel, Rutgers, and Killoran and for Ms. Rich were
approximately 50% of annual base salary.
The performance goals established at the beginning of fiscal year 1996 were
based on several strategic and financial measurements, including a target level
of net earnings and restructure management. As noted above, the target level of
net earnings was assigned a significantly greater weight than the weight
assigned to other factors. Messrs. Porzel and Rutgers were also assigned
geographically specific financial measurements. Based on the evaluation of the
above criteria, the Compensation Committee awarded incentive payments for fiscal
1996 at 40% of the target incentive compensation level for Mr. Porzel, 70% of
the target incentive compensation level for Mr. Rutgers, and 100% of the target
incentive compensation level for Mr. Killoran and Ms. Rich.
1992 Equity Incentive Plan. The Compensation Committee of the Board of
Directors determines stock option grants to eligible employees including the
named executives. The Committee believes that options granted to management
reinforce the Committee's philosophy that management compensation should be
closely linked with shareholder value. Stock options have been granted to
approximately 65% of the Company's management worldwide.
Other Compensation Plans. Control Data has adopted certain broad-based
employee benefit plans in which all U.S. employees, including Messrs. Ousley,
Killoran, Rutgers, and Ms. Rich, are permitted to participate on the same terms
and conditions relating to eligibility and generally subject to the same
limitations on the amounts that may be contributed or the benefits payable under
those plans. Under the Company's Personal Investment Plan, which is a defined
contribution plan qualified under the Internal Revenue Code Sections 401(a) and
401(k), participants, including the aforementioned executives, can contribute a
percentage of their annual compensation. Beginning in 1993, the Company
established a discretionary profit sharing contribution contingent upon the
Company reaching a target level of net earnings. The Company made a profit
sharing contribution of 2.5% of annual compensation up to a maximum of $150,000
for fiscal year 1996 to all eligible U.S. employees. Each of the U.S. named
executives received a profit sharing contribution of $3,750 to their Personal
Investment Plan accounts. The Company permits participants to invest their
salary deferral contributions and any Company matching or profit sharing
contributions in a Company Common Stock Fund in order to align the employees'
and the stockholders' interests in the enhancement of stockholder value. To
further align these interests, the Company has adopted an Employee Stock
Purchase Plan, approved by the stockholders in 1993, through which employees may
purchase shares of the Company's Common Stock. Other than these purchases of or
investments in Common Stock and the Company's discretionary profit sharing
contribution, benefits under the Company's broad-based benefit plans are not
tied to Company performance.
Mr. Ousley's 1996 Compensation. In general, compensation for the CEO
aligns with the philosophies and practices discussed above for executive
officers. All compensation determinations and stock grants to the CEO are
reviewed by the Committee with the Board of Directors.
At the beginning of each fiscal year, the Committee reviews the
compensation level of the CEO. The Committee considers data on compensation
history and competitive practices in determining the CEO's total compensation,
and reviews the data in light of the Company's philosophy that the compen-
A-11
<PAGE>
sation of the CEO should be influenced primarily by the financial performance of
the Company. This places a meaningful portion of the CEO's compensation at risk
along with the stockholders, as well as offering significant, market-competitive
upside opportunities based on the Company's performance. The objective is to
motivate and incent the CEO to achieve a level of Company performance consistent
with the Company's strategic business objectives.
During fiscal year 1996, the Committee reviewed Mr. Ousley's salary,
considering the compensation comparative data for CEO positions, the Committee's
philosophy on positioning Mr. Ousley's compensation as compared to market data
and his overall effectiveness in leading the Company. As a result of this
review, the Committee decided to increase Mr. Ousley's annual base salary by
$15,000.
For fiscal year 1996, the CEO's performance goals were established based on
strategic and financial measurements, including a target level of net earnings,
restructure management and sale of non-strategic assets. The target level of net
earnings was assigned a significantly greater weight than the weight assigned to
other factors. In evaluating Mr. Ousley's performance for the purpose of
determining his incentive compensation for such period, the Committee considered
the Company's performance against its financial, major refocusing and
restructuring objectives, implementation of the Company's continuing strategy
shift, and his demonstrated leadership. Based on this evaluation, the
Compensation Committee awarded an incentive payment of 100% of Mr. Ousley's
target incentive compensation level which was 80% of his year-end annualized
base salary.
The Compensation Committee is satisfied that the cash compensation and
long-term incentive plans in the form of stock option and restricted stock
awards provided to the CEO and to the executive officers of the Company are
structured and have operated to create a high degree of alignment with increased
profitability and shareholder value.
Grant A. Dove Marcelo A. Gumucio W. Donald Bell
A-12
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative stockholder return
on the Company's Common Stock with the S&P 500 Composite Stock Index and the
Nasdaq Computer and Data Processing Stock Index. The comparison assumes $100 was
invested as of August 1, 1992 (the date of the spin-off of the Company from
Ceridian Corporation) in Common Stock of the Company and in each of the
foregoing indices and assumes reinvestment of dividends. The Nasdaq Computer and
Data Processing Stock Index was chosen for comparison purposes because it
encompasses over 200 companies, many of which are comparable in size to the
Company.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
THE COMPANY, S&P 500 AND PEER GROUP
[GRAPHIC OMITTED]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Control Data Systems, Inc. $100.00 $110.61 $122.73 $83.33 $237.88 $266.67
S&P 500 Composite Stock Index $100.00 $104.00 $114.14 $115.70 $159.23 $196.32
NASDAQ $100.00 $117.63 $124.50 $151.15 $230.19 $284.18
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10 percent of
the Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders ("Insiders") are required by Commission regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, during the fiscal year ended December 31,
1996, all Section 16(a) filing requirements applicable to Insiders were complied
with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners. The following table shows information concerning
each person who to the best of Control Data's knowledge, was the beneficial
owner of more than 5% of Control Data Common Stock as of March 17, 1997, which
was the most recent practicable date as of which the Company was able to obtain
stock ownership information regarding non-management stockholders.
A-13
<PAGE>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------- --------------------- --------
Massachusetts Financial Services Company (1) . 887,755 7.0%
500 Boylston Street
Boston, MA 02116
First Bank Systems, Inc. (2) ............... 752,414 6.0%
601 2nd Avenue South
Minneapolis, MN 55402
Leon G. Cooperman (3) ........................ 730,000 5.8%
c/o Omega Advisors, Inc.
88 Pine Street, 31st Floor
New York, NY 10005
- ----------
(1) Represents sole power to vote 731,155 shares and sole power to dispose of
887,755 shares.
(2) Represents sole power to vote 725,665 shares and sole power to dispose of
505,365 shares.
(3) Represents sole power to vote 583,600 shares and sole power to dispose of
583,600 shares.
Management Stockholdings. The following table shows the Control Data Common
Stock beneficially owned by each Control Data director, each executive officer
named in the Summary Compensation Table and by all directors and executive
officers (including the named individuals as a group) as of July 7, 1997.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------------ ---------------------- ---------
<S> <C> <C>
W. Donald Bell ................................................... 34,999 0.3%
Grant A. Dove ................................................... 34,999 0.3%
Marcelo A. Gumucio ................................................ 34,999 0.3%
W. Douglas Hajjar ................................................ 59,999 0.5%
Keith A. Libbey ................................................... 35,249 0.3%
James E. Ousley ................................................... 401,906 3.1%
Joseph F. Killoran ................................................ 109,206 0.8%
Dieter Porzel ...................................................... 50,001 0.3%
Ruth A. Rich ...................................................... 104,173 0.8%
Arnold Rutgers ................................................... 43,144 0.3%
All directors and executive officers as a group (12 persons) ...... 989,370 7.3%
</TABLE>
- ----------
(1) Except as otherwise noted, each person or group named in the table has sole
power to vote and dispose of all shares listed for such person or group. Of
the total number of Mr. Ousley's shares, 16,668 are shares over which Mr.
Ousley has sole voting power but which are subject to restrictions on
disposition. Shares not currently outstanding but deemed beneficially owned
by virtue of the right of the person to acquire them as of July 7, 1997, or
within 60 days of such date (on or before September 5, 1997), are treated
as also outstanding only when determining the amount and percent owned by
such person or by the group. Shares covered by unexercisable portions of
options are not considered outstanding but are subject to the receipt of
cash therefor in connection with the Merger. Such additional shares so
considered outstanding are as follows: Mr. Bell, 34,999 shares; Mr. Dove,
34,999 shares; Mr. Gumucio, 34,999 shares; Mr. Hajjar, 34,999 shares, Mr.
Libbey, 34,999 shares; Mr. Ousley, 351,677 shares; Mr. Killoran, 107,400
shares; Mr. Porzel, 50,001 shares; Ms. Rich, 103,230 shares; Mr. Rutgers,
41,849 shares; all directors and executive officers as a group, 906,825
shares.
A-14
<PAGE>
ANNEX B
[LETTERHEAD]
July 8, 1997
Board of Directors
Control Data Systems, Inc.
4201 Lexington Avenue North
Arden Hills, MN 55126
Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of the outstanding shares of Common
Stock, par value $0.01 per share ("Common Stock") of Control Data Systems, Inc.
(the "Company"), of the terms of the Transaction (as hereinafter defined). For
the purposes of this opinion, the "Transaction" means collectively the
transactions described below pursuant to that certain Agreement and Plan of
Merger among the Company, CDSI Holding Corporation ("Parent"), a Delaware
corporation, and CDSI Acquisition Corp. ("Acquisition"), a wholly owned
subsidiary of Parent to be dated July 8, 1997 (the "Agreement").
As more specifically set forth in the Agreement, and subject to certain terms
and conditions thereof, Acquisition has agreed to purchase all of the
outstanding shares of Common Stock at a price of $20.25 per share. Following the
closing of the Tender Offer, Acquisition will be merged with and into the
Company (the "merger"), and each outstanding share of Common Stock not acquired
by Acquisition pursuant to the Tender Offer portion of the Transaction will be
converted into the right to receive $20.25 in cash (other than shares of Common
Stock held in the treasury of the Company or any subsidiary thereof).
In the ordinary course of its services, Cowen & Company ("Cowen") is regularly
engaged in the valuation and pricing of businesses and their securities and in
advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed Control Data's financial statements for the fiscal years ended
December 31, 1995 and December 31, 1996 and for the three month periods
ended March 31, 1996 and March 31, 1997 and certain publicly available
filings with the Securities and Exchange Commission and certain other
relevant financial and operating data of the Company;
(2) reviewed a draft of the Agreement;
(3) held meetings and discussions with senior management of the Company to
discuss the business, operations, competitive position, historical
financial results and future prospects of the Company;
(4) reviewed financial projections furnished to us by the management of the
Company, including, among other things, the capital structure, sales, net
income, cash flow, capital requirements and other data of the Company we
deemed relevant;
(5) reviewed Cowen research estimates and First Call EPS consensus estimates
for the Company (collectively, the "Estimates");
(6) reviewed certain financial and stock market information regarding the
Company, in comparison with similar information regarding certain other
publicly traded companies which we deemed relevant;
(7) considered the financial terms, to the extent publicly available, of
selected recent business transactions which we deemed to be comparable in
whole or in part to the Transaction;
B-1
<PAGE>
(8) analyzed the projections provided by the management of the Company for the
cash flows generated by the Company and its business units to determine the
present value of the discounted cash flows;
(9) reviewed the historical prices, price/earnings ratios and trading activity
of the Company Common Stock from July 31, 1992 to July 8, 1997 and compared
those trading histories with those of other companies which we deemed
relevant;
(10) reviewed the premiums implied by the Agreement in comparison with premiums
paid in other recent acquisitions and transactions deemed to be relevant;
(11) conducted such other studies, analysis, inquiries and investigations as we
deemed appropriate.
Cowen was not requested to, and did not, solicit third party indications of
interest in acquiring all or substantially all of the stock or assets of the
Company or the assets of any of its business units.
On July 8, 1997, the closing price of the Common Stock of the Company in the
last transaction reported by NASDAQ was $15.6875 per share.
In rendering our opinion, we relied upon the Company's management with respect
to the accuracy and completeness of the financial and other information
furnished to us as described above. With respect to the financial projections
furnished to us by management of the Company, we have also assumed, with your
consent, that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgements of the Company' management. In
addition, with respect to the Estimates, the management of the Company confirmed
that such Estimates provide a reasonable basis for our opinion. With your
consent, we have relied upon such projections and the Estimates in preparing our
opinion.
We have not assumed any responsibility for independent verification of such
information, including financial information, nor have we made an independent
evaluation or appraisal of any of the properties or assets of the Company.
With respect to all legal matters relating to the Company and Transaction, we
have relied on the advice of legal counsel to the Company. We have also assumed
that the Transaction will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Exchange Act of 1934,
as amended, and all other applicable federal and state statutes, rules and
regulations. Our opinion is based on economic, monetary, market and other
conditions existing on the date hereof.
Cowen will receive a fee for rendering this opinion. In addition, in the
ordinary course of its business, Cowen trades the debt and equity securities of
the Company for its own account and for the accounts of its customers, and,
accordingly, it may at any time hold a long or short position in such
securities.
On the basis of our review and analysis, as described above, it is our opinion
as investment bankers that, as of the date hereof, the financial terms of the
Transaction are fair, from a financial point of view, to the stockholders of the
Company (other than Parent and its affiliates).
This letter does not constitute a recommendation to any holders of common stock
to tender or not to tender their shares in the Transaction or how to vote in any
shareholder vote with respect to the Transaction.
Very truly yours,
/s/ Cowen & Company
Cowen & Company
B-2
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
(a)(1) Form of Offer to Purchase dated July 15, 1997.
(a)(2) Form of Letter of Transmittal
(a)(3) Text of Joint Press Release issued by Control Data Systems, Inc. and
CDSI Holding Corporation dated July 9, 1997.
(a)(4) Form of Letter to Stockholders from Control Data Systems, Inc. dated
July 15, 1997 (included immediately prior to Schedule 14D-9 Cover
Page).
(a)(5) Opinion of Cowen & Company dated July 8, 1997 (See Annex B of
Schedule 14D-9)
(c)(1) Agreement and Plan of Merger, dated as of July 8, 1997, by and among
Control Data Systems, Inc., CDSI Holding Corporation and CDSI
Acquisition Corp.
(c)(2) Letter to CDSI Holding Corporation by Welsh, Carson, Anderson & Stowe
VII, L.P. and WCAS Capital Partners III, L.P. dated July 8, 1997
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
CONTROL DATA SYSTEMS, INC.
by
CDSI Acquisition Corp.
a Wholly-Owned Subsidiary of
CDSI Holding Corporation
at
$20.25 Net Per Share
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 11, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN
PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES WHICH REPRESENTS AT
LEAST FIFTY-ONE PERCENT (51%) OF THE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
CONTROL DATA SYSTEMS, INC. (THE "COMPANY") OUTSTANDING ON A FULLY DILUTED BASIS
(AS DEFINED HEREIN). THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 18 OF THE OFFER TO PURCHASE ("CERTAIN CONDITIONS OF THE OFFER").
---------------
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE, HAS DETERMINED THAT
EACH OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR TO, AND IN THE BEST
INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO
THE OFFER.
---------------
IMPORTANT
Stockholders who desire to tender all or any portion of their Shares (as defined
herein) should either (i) complete and sign the Letter of Transmittal (or
facsimile thereof) that accompanies this Offer to Purchase in accordance with
the instructions in such Letter of Transmittal, have their signature thereon
guaranteed if required by Instruction 1 to such Letter of Transmittal, mail or
deliver it and any other required documents to The Bank of New York (the
"Depositary") and either deliver the certificates ("Share Certificates")
representing the tendered Shares to the Depositary, or tender such Shares
pursuant to the procedures for book-entry transfer set forth under Section 3 of
the Offer to Purchase ("Procedure for Tendering Shares") or (ii) request their
broker, dealer, bank, trust company or other nominee to effect the transaction
for them. Stockholders whose Shares are registered in the name of a broker,
dealer, bank, trust company or other nominee must contact such broker, dealer,
bank, trust company or other nominee to tender such Shares.
Stockholders who desire to tender their Shares and whose Share Certificate(s)
are not immediately available, or who cannot comply in a timely manner with the
procedures for book-entry transfer, or who cannot deliver all required documents
to the Depositary prior to the expiration of the Offer, may tender such Shares
by following the procedures for guaranteed delivery set forth under Section 3 of
the Offer to Purchase ("Procedure for Tendering Shares").
Questions and requests for assistance may be directed to Georgeson & Company
Inc. (the "Information Agent"), or J.P. Morgan Securities Inc. ("JP Morgan" or
the "Dealer Manager"), at their respective addresses and telephone numbers set
forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and other related materials may be
obtained from the Information Agent or the Dealer Manager or from brokers,
dealers, banks or trust companies.
---------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
---------------
The Dealer Manager for the Offer is:
J.P. MORGAN & CO.
The date of this Offer to Purchase is July 15, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
-----
INTRODUCTION ......................................................... 1
THE OFFER ............................................................ 3
1. Terms of the Offer ................................................ 3
2. Acceptance for Payment and Payment for Shares ..................... 3
3. Procedure for Tendering Shares .................................... 4
4. Extension of the Offer Period; Termination; Amendment ............. 6
5. Withdrawal Rights ................................................ 7
6. Appraisal Rights ................................................ 8
7. Certain Federal Income Tax Consequences ........................... 9
8. Price Range of the Shares; Dividend Policy of the
Company ........................................................... 9
9. Effect of the Offer on the Market for the Shares;
Nasdaq National Market Listing; Exchange Act
Registration; Margin Regulations ................................ 10
10. Source and Amount of Funds ....................................... 11
11. Certain Information Concerning the Company ..................... 11
12. Selected Consolidated Financial Data of the Company ............... 12
13. Certain Information Concerning WCAS VII, WCAS CP III,
Parent and the Purchaser .......................................... 14
14. Background of the Offer and the Merger; Contacts with
the Company ....................................................... 16
15. The Merger Agreement ............................................. 16
16. Purpose and Structure of the Offer and the Merger;
Reasons of Parent and the Purchaser for the Offer and
the Merger ........................................................ 22
17. Plans for the Company After the Offer and the Merger;
Certain Effects of the Offer and the Merger ............. 22
18. Certain Conditions of the Offer ................................. 23
19. Certain Legal Matters ............................................. 25
20. Fees and Expenses ................................................ 27
21. Miscellaneous ................................................... 28
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER;
GENERAL PARTNERS OF VII PARTNERS; AND MANAGING MEMBERS OF CP III
ASSOCIATES
ANNEX A RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE DGCL
<PAGE>
To the Holders of Shares of Common
Stock of Control Data Systems, Inc.:
INTRODUCTION
CDSI Acquisition Corp. (the "Purchaser"), a Delaware corporation and a
wholly-owned subsidiary of CDSI Holding Corporation, a Delaware corporation
("Parent"), hereby offers to purchase all outstanding shares (the "Shares") of
common stock, $.01 par value ("Common Stock"), of Control Data Systems, Inc., a
Delaware corporation (the "Company"), at a price of $20.25 per Share, net to the
seller in cash, without interest (the "Offer Price"), upon the terms and subject
to the conditions set forth in this Offer to Purchase and the related Letter of
Transmittal (this Offer to Purchase and the related Letter of Transmittal,
together with any amendments or supplements hereto or thereto, collectively
constitute the "Offer").
The Purchaser and Parent have been organized at the direction of Welsh, Carson,
Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), and
WCAS Capital Partners III, L.P., a Delaware limited partnership ("WCAS CP III"
and, together with WCAS VII, the "Investors") to effect the transactions
described herein. WCAS VII and WCAS CP III are investment partnerships
affiliated with Welsh, Carson, Anderson & Stowe ("WCAS"), a private equity
investment firm specializing in buyouts in the healthcare and information
processing industries. The Investors have committed to provide or cause to be
provided up to $300 million of cash financing for the Offer and the Merger. See
Section 10 of the Offer to Purchase ("Source and Amount of Funds").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES
WHICH REPRESENTS AT LEAST FIFTY-ONE PERCENT (51%) OF THE SHARES OUTSTANDING ON A
FULLY DILUTED BASIS (AS DEFINED HEREIN) (THE "MINIMUM CONDITION"). SEE SECTION
18 OF THE OFFER TO PURCHASE ("CERTAIN CONDITIONS OF THE OFFER").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. Parent or the Purchaser will pay all fees and expenses of
J.P. Morgan Securities Inc. ("JP Morgan"), as Dealer Manager (in such capacity,
the "Dealer Manager"), The Bank of New York, as Depositary (the "Depositary"),
and Georgeson & Company Inc., as Information Agent (the "Information Agent"),
incurred in connection with the Offer. See Section 20 of the Offer to Purchase
("Fees and Expenses").
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BY UNANIMOUS VOTE,
HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS
THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER. COWEN & COMPANY HAS DELIVERED TO THE COMPANY BOARD ITS WRITTEN OPINION,
DATED JULY 8, 1997, THAT, AS OF THAT DATE, THE FINANCIAL TERMS OF THE OFFER AND
THE MERGER ARE FAIR TO THE HOLDERS OF THE COMMON STOCK (OTHER THAN PARENT AND
ITS AFFILIATES) FROM A FINANCIAL POINT OF VIEW. SEE SECTION 14 OF THE OFFER TO
PURCHASE ("BACKGROUND OF THE OFFER AND THE MERGER; CONTACTS WITH THE COMPANY").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to stockholders herewith.
The Company has advised the Purchaser that as of the close of business on July
7, 1997 (i) 12,622,359 Shares were issued and outstanding; (ii) 2,348,123 Shares
were held in the treasury of the Company; (iii) 1,688,490 Shares were authorized
and reserved for future issuance pursuant to outstanding stock options granted
under the Company's 1992 Equity Incentive Plan (the "Company Stock Option
Plan"); and (iv) up to 65,000 Shares (depending on the extent of payroll
deductions) were authorized and reserved for issuance under the Company's 1992
Employee Stock Purchase Plan (the "Company Stock Purchase Plan"). (The Company
Stock Option Plan and the Company Stock Purchase Plan are hereinafter
collectively referred to as the "Company Stock Plans".) For purposes of the
Offer, in determining the number of Shares outstanding on a "Fully Diluted
Basis", there shall be included all Shares actually outstanding plus all Shares
issuable upon exercise or conversion or exchange of then outstanding options,
warrants and other rights to purchase, or other securities convertible into or
exchangeable for, Shares, including options under the Company Stock Plans. As of
July 15, 1997, neither the
<PAGE>
Purchaser nor Parent owned any Shares. Accordingly, Parent and the Purchaser
believe that the Minimum Condition will be satisfied if at least 7,331,683
Shares are validly tendered in the Offer and not withdrawn. See Section 15 of
the Offer to Purchase ("The Merger Agreement").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of
July 8, 1997, by and among Parent, the Purchaser and the Company (the "Merger
Agreement"). The Merger Agreement provides that the merger of the Purchaser with
and into the Company (the "Merger") will take place as soon as practicable after
the satisfaction or waiver, if permissible, of all conditions to the Merger. In
the event that Parent and the Purchaser acquire at least 90% of the Shares then
outstanding, pursuant to the Offer or otherwise, then, at the election of Parent
and the Purchaser, the Merger will take place without a meeting or a vote of the
Company's stockholders pursuant to Section 253 of the General Corporation Law of
the State of Delaware (the "DGCL"). However, if, following the consummation of
the Offer, Parent and the Purchaser do not own 90% or more of the Shares then
outstanding, the Company will hold a special meeting of the stockholders to
consider and vote upon approval of the Merger Agreement.
Under the Company's Restated Certificate of Incorporation, as amended (the
"Company Certificate") and Section 251 of the DGCL, the Merger Agreement and the
Merger must be approved by the holders of a majority of the outstanding Shares.
If the Minimum Condition has been satisfied in connection with the Offer, the
Purchaser will have sufficient voting power to approve the Merger without the
vote of any other stockholder of the Company. Parent and the Purchaser have
agreed to vote all Shares beneficially owned by them in favor of the adoption of
the Merger Agreement and the Merger. Parent and the Purchaser have been advised
by the Company that all directors and executive officers of the Company intend
either to tender their Shares in the Offer or to vote in favor of the Merger.
The purpose of the Offer and the Merger is for Parent to acquire the entire
equity interest in the Company. Following consummation of the Merger, the
Company will continue as the surviving corporation (the "Surviving Corporation")
and will become a wholly-owned subsidiary of Parent. At the effective time of
the Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Parent, the Purchaser or
any subsidiary of Parent or the Purchaser, Shares held in the treasury of the
Company or any subsidiary of the Company or Shares owned or held by stockholders
who shall have properly demanded and perfected appraisal rights under Section
262 of the DGCL) will be canceled and converted automatically into the right to
receive in cash, without interest, an amount equal to the price paid per Share
in the Offer (the "Merger Consideration"). The Merger Agreement is more fully
described under Section 15 of the Offer to Purchase ("The Merger Agreement").
Pursuant to the Merger Agreement, at the Effective Time, each holder of a then
outstanding option under the Company Stock Option Plan shall be entitled to
receive in cancellation of such option an amount in cash equal to the excess, if
any, of the Merger Consideration over the per share exercise price of such
option, subject to applicable withholding taxes, if any. Pursuant to the Merger
Agreement, immediately prior to the Effective Time, all options outstanding
under the Company Stock Purchase Plan shall become exercisable to the extent of
payroll deductions accumulated by participants as of such date, and each
participant shall be deemed to have purchased the number of whole Shares subject
to the options held by such participant at a per Share price determined pursuant
to the provisions of the Company Stock Purchase Plan and shall receive a cash
payment equal to the balance, if any, of such accumulated payroll deductions
remaining after the deemed purchase of such Shares. As of the Effective Time,
each participant shall receive, for each Share such participant is deemed to
have purchased, the Merger Consideration. The Company Stock Plans and all
options issued and outstanding thereunder shall terminate effective as of the
Effective Time.
No appraisal rights are available in connection with the Offer. However,
stockholders will have appraisal rights in connection with the Merger regardless
of whether the Merger is consummated with or without a vote of the Company's
stockholders. See Section 6 of the Offer to Purchase ("Appraisal Rights").
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION ABOUT THE OFFER AND THE MERGER. STOCKHOLDERS ARE URGED TO READ
CAREFULLY THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL IN THEIR
ENTIRETY BEFORE MAKING ANY DECISION WITH RESPECT TO THE OFFER.
2
<PAGE>
THE OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will accept for payment and pay for all Shares validly
tendered on or prior to the Expiration Date and not theretofore withdrawn in
accordance with the provisions set forth under Section 5 of the Offer to
Purchase ("Withdrawal Rights"). The term "Expiration Date" means 12:00 midnight,
New York City time, on August 11, 1997, unless and until the Purchaser, subject
to the terms and conditions of the Merger Agreement, shall have extended the
period of time during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, shall expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition and the expiration or termination of all waiting periods
imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations thereunder (the "HSR Act"). See Section 18 of the Offer to
Purchase ("Certain Conditions of the Offer"), which sets forth additional
conditions to the Offer. If such conditions are not satisfied prior to the
Expiration Date, subject to the terms of the Merger Agreement, the Purchaser
reserves the right (but shall not be obligated) to (i) amend the Offer or
decline to purchase any of the Shares tendered and terminate the Offer and/or
the Merger Agreement, (ii) waive any of the conditions to the Offer, to the
extent permitted by applicable law and, subject to complying with applicable
rules and regulations of the Commission, purchase and pay for all Shares validly
tendered or (iii) extend the Offer and, subject to the right of stockholders to
withdraw Shares until the Expiration Date, retain the Shares that have been
tendered until the expiration of the period or periods for which the Offer is
extended.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will purchase, by accepting for payment, and will pay
for, all Shares validly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with the terms set forth under Section 5 of the
Offer to Purchase ("Withdrawal Rights") promptly after the later to occur of (i)
the Expiration Date or (ii) the satisfaction or waiver (where permissible) of
the terms and conditions set forth under Section 18 of the Offer to Purchase
("Certain Conditions of the Offer"). Any determination concerning the
satisfaction or waiver of any such terms and conditions will be within the sole
discretion of the Purchaser, which determination will be final and binding on
all holders of Shares. Subject to applicable rules of the Commission and the
terms and conditions of the Merger Agreement, the Purchaser expressly reserves
the right, in its sole discretion, to delay acceptance for payment of or payment
for Shares in order to comply in whole or in part with any applicable law. See
Section 1 of the Offer to Purchase ("Terms of the Offer").
In all cases, payment for Shares accepted for payment pursuant to the Offer will
be made only after timely receipt by the Depositary of (i) Share Certificates
(or timely Book-Entry Confirmation of the book-entry transfer of such Shares
into the Depositary's account at a Book-Entry Transfer Facility pursuant to the
procedures set forth under Section 3 of the Offer to Purchase ("Procedure for
Tendering Shares")), (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees, or an Agent's Message (as defined below) in connection with a
book-entry transfer and (iii) any other documents required by the Letter of
Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered to the Purchaser and not
properly withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares pursuant
to the Offer. In all cases, upon the terms and subject to the conditions of the
Offer, payment for Shares accepted for payment pursuant to the Offer will be
made by deposit by the Purchaser of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payment from the Purchaser and transmitting payment to such validly
tendering stockholders. Upon the deposit of funds with the Depositary for the
purpose of making payments to tendering stockholders, the Purchaser's obligation
to make such payments shall be satisfied and tendering stockholders must
thereafter look solely to the Depositary for payment of amounts owed to them by
reason of the acceptance for payment of Shares pursuant to the Offer. The
Purchaser will pay any stock transfer taxes with respect to the transfer and
sale to it or its order pursuant to the Offer, except as otherwise provided in
Instruction 6 of the Letter of Transmittal, as well as any charges and expenses
of the Depositary and the Information Agent.
3
<PAGE>
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender or for any other reason, Share Certificates for any such Shares
will be returned, without expense, to the tendering stockholder (or, in the case
of Shares delivered by book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
under Section 3 of the Offer to Purchase ("Procedure for Tendering Shares"),
such Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), as promptly as practicable after the expiration, termination or
withdrawal of the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of the Purchaser's subsidiaries or affiliates, the
right to purchase all or any portion of the Shares tendered pursuant to the
Offer, but any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for purchase.
3. PROCEDURE FOR TENDERING SHARES
Valid Tender.
For a stockholder to validly tender Shares pursuant to the Offer, either (i) a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), together with any required signature guarantees, or an Agent's Message
in connection with a book-entry delivery of Shares, and any other required
documents, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase, and Share Certificates for tendered
Shares must be received by the Depositary at one of such addresses or such Share
Certificates must be delivered pursuant to the procedures for book-entry
transfer set forth below (and a Book-Entry Confirmation (as defined below)
received by the Depositary), in each case on or prior to the Expiration Date or
(ii) the tendering stockholder must comply with the guaranteed delivery
procedures set forth below.
Book-Entry Delivery.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company ("DTC") and the Philadelphia Depositary Trust Company
("PDTC") (DTC and PDTC, each, a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in a Book-Entry Transfer Facility may make
book-entry delivery of Shares by causing the book-entry transfer system to
transfer such Shares into the Depositary's account at a Book-Entry Transfer
Facility in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. Although delivery of Shares may be effected through book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility, the
Letter of Transmittal, properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other required documents, must, in any case, be transmitted
to, and received by, the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase on or prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery procedures
described below. The confirmation of a book-entry transfer of Shares into the
Depositary's account at a Book-Entry Transfer Facility as described above is
referred to herein as a "Book-Entry Confirmation". DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS BOOK-ENTRY PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer
Facility to, and received by, the Depositary and forming a part of the
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received the
Letter of Transmittal and agrees to be bound by the terms of the Letter of
Transmittal and that the Purchaser may enforce such agreement against such
participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED AT THE
DEPOSITARY. IF DELIVERY IS BY MAIL, THEN INSURED OR REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
4
<PAGE>
Signature Guarantees.
No signature guarantee is required on the Letter of Transmittal if (i) the
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, for purposes of this Section, includes any participant in a Book-Entry
Transfer Facility system whose name appears on a security position listing as
the owner of the Shares) tendered therewith and such registered holder(s) has
not completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on such Letter of Transmittal or (ii)
such Shares are tendered for the account of a bank, broker, dealer, credit
union, savings association or other entity that is a member in good standing of
the Securities Transfer Agents Medallion Program (an "Eligible Institution"). In
all other cases, all signatures on the Letter of Transmittal must be guaranteed
by an Eligible Institution. See Instructions 1 and 5 to the Letter of
Transmittal. If the Share Certificates are registered in the name of a person
other than the signer of the Letter of Transmittal, or if payment is to be made
or Share Certificates not validly tendered or not accepted for payment or not
purchased are to be issued or returned to a person other than the registered
holder of the Share Certificates, the tendered Share Certificates must be
endorsed in blank or accompanied by appropriate stock powers, signed exactly as
the name or names of the registered holder(s) appear on the Share Certificates
with the signatures on such Share Certificates or stock powers guaranteed by an
Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal.
Guaranteed Delivery.
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's Share Certificates are not immediately available or the procedures
for book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Depositary on or prior to the
Expiration Date, such Shares may nevertheless be tendered provided that all the
following guaranteed delivery procedures are duly complied with:
(1) such tender is made by or through an Eligible Institution;
(2) the Depositary receives (by hand, mail, telegram or facsimile
transmission) on or prior to the Expiration Date, a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form
provided by the Purchaser; and
(3) the Share Certificates representing all tendered Shares, in proper
form for transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees (or in the
case of Book-Entry Transfer, an Agent's Message) and any other documents
required by the Letter of Transmittal, are received by the Depositary within
three trading days after the date of execution of such Notice of Guaranteed
Delivery. A "trading day" is any day on which the National Association of
Securities Dealers Automated Quotation National Market (the "Nasdaq National
Market") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or by mail to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice of Guaranteed
Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) Share Certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (ii) a Letter of Transmittal (or
facsimile thereof) for such Shares, properly completed and duly executed, with
any required signature guarantees, or, in the case of Book-Entry Transfer, an
Agent's Message, and (iii) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different times
depending upon when Share Certificates, Book-Entry Confirmations and such other
documents are actually received by the Depositary. Under no circumstances will
interest be paid by the Purchaser on the purchase price of the Shares to any
tendering stockholder, regardless of any extension of the Offer or any delay in
making such payment.
The Purchaser's acceptance for payment of Shares validly tendered pursuant to
any of the procedures described above will constitute a binding agreement
between the tendering stockholder and the Purchaser upon the terms and subject
to the conditions of the Offer.
5
<PAGE>
Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation
to Give Notice of Defects.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of any tender of Shares will be determined by the Purchaser, in
its sole discretion, which determination will be final and binding. The
Purchaser reserves the absolute right to reject any or all tenders determined by
it not to be in proper form or the acceptance for payment of or payment for
which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser
also reserves the absolute right to waive any of the conditions of the Offer or
any defect or irregularity in any tender with respect to any particular Shares,
or with respect to those Shares held by any particular stockholder, whether or
not similar conditions, defects or irregularities are waived in the case of
other Shares. No tender of Shares will be deemed to have been validly made until
all defects or irregularities relating thereto have been cured or waived. None
of Parent, the Purchaser, any of their affiliates or assigns, the Depositary,
the Information Agent, the Dealer Manager or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification. The Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding.
Proxy.
By executing a Letter of Transmittal, a tendering stockholder irrevocably
appoints Patrick J. Welsh and Thomas E. McInerney, and each of them
individually, the attorneys-in-fact and proxies of the stockholder, each with
full power of substitution, to vote in such a manner as each such attorney and
proxy or his substitute shall, in his sole discretion, deem proper, and
otherwise act (including pursuant to written consent) with respect to all of the
Shares tendered by the stockholder which have been accepted for payment by the
Purchaser prior to the time of such vote or action (and any Distributions (as
defined in the Offer to Purchase)) which the stockholder is entitled to vote at
any meeting of stockholders (whether annual or special and whether or not an
adjourned or postponed meeting) of the Company, or by consent in lieu of such
meeting, or otherwise. The power of attorney and proxy will be coupled with an
interest in the tendered Shares, will be irrevocable and will be granted in
consideration of, and effective upon, the acceptance for payment of such Shares
by the Purchaser in accordance with the terms of the Offer. Such acceptance for
payment shall revoke, without further action, any other power of attorney or
proxy granted by the stockholder at any time with respect to the Shares and no
subsequent powers of attorney or proxies will be given (and if given will be
deemed not to be effective) with respect thereto by the stockholder. The
Purchaser shall reserve the right to require that, in order for Shares to be
deemed validly tendered, immediately upon the Purchaser's acceptance for payment
of such Shares, the Purchaser or its designees is able to exercise full voting
rights with respect to such Shares and other securities, including voting at any
meeting of stockholders.
Backup Withholding.
In order to avoid backup withholding of Federal income tax on payments of cash
pursuant to the Offer, a stockholder tendering Shares in the Offer must provide
the Depositary with such stockholder's correct taxpayer identification number
("TIN") on a Substitute Form W-9 and certify under penalties of perjury that
such TIN is correct and that such stockholder is not subject to backup
withholding. Certain stockholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
If a stockholder does not provide its correct TIN or fails to provide the
certification described above, under Federal income tax laws, the Depositary
will be required to withhold 31% of the amount of any payment made to such
stockholder pursuant to the Offer. All stockholders tendering Shares pursuant to
the Offer should complete and sign the Substitute Form W-9 included as part of
the Letter of Transmittal to provide the information and certification necessary
to avoid backup withholding (unless an applicable exemption exists and is
provided in a manner satisfactory to the Purchaser and the Depositary).
Noncorporate foreign stockholders should complete and sign a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
4. EXTENSION OF OFFER PERIOD; TERMINATION; AMENDMENT
Subject to the applicable rules and regulations of the Commission, the Purchaser
expressly reserves the right, subject to the terms and conditions of the Merger
Agreement, at any time and from time to time, upon the failure to be satisfied
of any of the conditions to the Offer set forth under Section 18 of the Offer to
Purchase ("Certain Conditions of the Offer"), to (i) terminate or amend the
Offer, (ii) extend the Offer and postpone acceptance for payment of any Shares,
or (iii) waive any condition by giving oral or written notice of such
termination, amendment, extension or waiver to the Depositary and by making a
public announcement thereof. During any such extension, all Shares previously
tendered and not properly
6
<PAGE>
withdrawn will remain subject to the Offer, including the right of a tendering
stockholder to withdraw such stockholder's Shares. See Section 5 of the Offer to
Purchase ("Withdrawal Rights"). UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON
THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES
ITS RIGHT TO EXTEND THE OFFER.
Any termination, amendment, extension or waiver will be followed as promptly as
practicable by public announcement. In the case of an extension, Rule 14e-1(d)
under the Exchange Act requires that the announcement be made no later than 9:00
a.m., Eastern Time, on the next business day after the previously scheduled
Expiration Date in accordance with the public announcement requirements of Rule
14d-4(c) under the Exchange Act. Subject to applicable law (including Rules
14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material
change in the information published, sent or given to stockholders in connection
with the Offer be promptly disseminated to stockholders in a manner reasonably
designed to inform stockholders of such change), and without limiting the manner
in which the Purchaser may choose to make any public announcements, the
Purchaser will not have any obligations to publish, advertise or otherwise
communicate any such public announcement other than by issuing a press release
to the Dow Jones News Service. As used herein, a "business day" means any day
other than a Saturday, Sunday or federal holiday and consists of the time period
from 12:01 a.m. through 12:00 midnight, Eastern Time.
If the Purchaser extends the Offer or if the Purchaser (whether before or after
its acceptance for payment of the Shares) is delayed in its acceptance for
payment of or payment for any Shares validly tendered and not withdrawn in the
Offer, or the Purchaser is unable to accept for payment or pay for such Shares
pursuant to the Offer for any reason, then, without prejudice to the Purchaser's
rights under the Offer, the Depositary may retain tendered Shares on behalf of
the Purchaser, and such Shares may not be withdrawn except to the extent
tendering stockholders are entitled to withdrawal rights as described in Section
5 of the Offer to Purchase ("Withdrawal Rights"). The ability of the Purchaser
to delay the payment for the Shares that the Purchaser has accepted for payment,
however, is limited by Rule 14e-1(c) under the Exchange Act, which requires that
a bidder pay the consideration offered or return the securities deposited by or
on behalf of holders of securities promptly after the termination or withdrawal
of such bidder's offer.
If the Purchaser or Parent make a material change in the terms of the Offer or
the information concerning the Offer or waive a material condition of the Offer,
the Purchaser will, or Parent will cause the Purchaser to, disseminate
additional tender offer materials and extend the Offer to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer, other than a change in price
or a change in the percentage of securities sought, or a change in the dealer's
advisory fee, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In the
Commission's view, an offer should remain open for a minimum of five business
days from the date a material change is first published, sent or given to
securityholders, and, if material changes are made with respect to information
that approaches the significance of price and share levels, a minimum of ten
business days may be required to allow for adequate dissemination and investor
response. With respect to a change in price or, subject to certain limitations,
a change in the percentage of securities sought or a change in a dealer's
solicitation fee, a minimum period of ten business days from the date of such
change is generally required under the applicable rules and regulations of the
Commission to allow for adequate dissemination to stockholders and investor
response.
5. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 5 of the Offer to Purchase, tenders
of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant
to the Offer may be withdrawn pursuant to the procedures set forth below at any
time prior to the Expiration Date, and, unless theretofore accepted for payment
by the Purchaser pursuant to the Offer, may also be withdrawn at any time after
September 15, 1997. If the Purchaser extends the Offer, is delayed in its
acceptance for payment of Shares or is unable to purchase Shares validly
tendered pursuant to the Offer for any reason, then without prejudice to the
Purchaser's rights under the Offer, the Depositary may nevertheless, on behalf
of the Purchaser, retain tendered Shares and such Shares may not be withdrawn
except to the extent that tendering stockholders are entitled to withdrawal
rights as described in this Section. Any such delay will be accompanied by an
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn if Share Certificates
7
<PAGE>
have been tendered and the name of the registered holder of the Shares to be
withdrawn as set forth on such Share Certificates if different from the name of
the person who tendered the Shares. If Share Certificates have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such Share Certificates, the serial numbers shown on such Share Certificates
must be submitted to the Depositary and, unless such Shares have been tendered
by an Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been delivered pursuant to
the procedures for book-entry transfer as set forth under Section 3 of the Offer
to Purchase ("Procedure for Tendering Shares"), any notice of withdrawal must
specify the name and number of the account at the appropriate financial
institution that is a member of the system of a Book-Entry Transfer Facility to
be credited with the withdrawn Shares and otherwise comply with such Book-Entry
Transfer Facility's procedures for such withdrawal, in which case a notice of
withdrawal will be effective if delivered to the Depositary by any method of
delivery described in the first sentence of this paragraph. Withdrawals of
tenders of Shares may not be rescinded, and any Shares properly withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. Withdrawn
Shares may be retendered by again following one of the procedures described
above under Section 3 of the Offer to Purchase ("Procedure for Tendering
Shares") at any time on or prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of notices
of withdrawal will be determined by the Purchaser, in its sole discretion, which
determination shall be final and binding. None of Parent, the Purchaser, any of
their affiliates or assigns, the Depositary, the Information Agent, the Dealer
Manager or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
6. APPRAISAL RIGHTS
No appraisal rights are available in connection with the Offer. If the Merger is
consummated, however, stockholders of the Company who have not tendered their
Shares will have certain rights under the DGCL to dissent and demand appraisal
of, and to receive payment in cash of the fair value of, their Shares.
Stockholders who perfect such rights by complying with the procedures set forth
in Section 262 of the DGCL ("Section 262") will have the fair value of their
Shares (exclusive of any element of value arising from the accomplishment or
expectation of the Merger) determined by the Delaware Court of Chancery and will
be entitled to receive a cash payment equal to such fair value from the
Surviving Corporation. In addition, such dissenting stockholders would be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares. In determining the fair value of the Shares, the court is required
to take into account all relevant factors. Accordingly, such determination could
be based upon considerations other than, or in addition to, the market value of
the Shares, including, among other things, asset values and earning capacity. In
Weinberger v. UOP, Inc., the Delaware Supreme Court stated that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. The Weinberger court also noted that under Section 262,
fair value is to be determined "exclusive of any element of value arising from
the accomplishment or expectation of the merger". In Cede & Co. v. Technicolor,
Inc., however, the Delaware Supreme Court stated that, in the context of a
two-step cash merger, "to the extent that value has been added following a
change in majority control before cash-out, it is still value attributable to
the going concern", to be included in the appraisal process. As a consequence of
the foregoing, the fair value determined in any appraisal proceeding could be
the same as or more or less than the Merger Consideration. See Annex A attached
hereto for a detailed description of appraisal rights under the DGCL, as well as
the text of Section 262.
Parent does not intend to object, assuming the proper procedures are followed,
to the exercise of appraisal rights by any stockholder and the demand for
appraisal of, and payment in cash for the fair value of, the Shares. Parent
intends, however, to cause the Surviving Corporation to argue in an appraisal
proceeding that, for purposes of such proceeding, the fair value of each Share
is less than the Merger Consideration. In this regard, stockholders should be
aware that opinions of investment banking firms as to the fairness from a
financial point of view (including Cowen & Company's opinion described in the
Company's Schedule 14D-9 filed in connection with the Offer) are not necessarily
opinions as to "fair value" under Section 262.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT PURPORT
TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS
DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE
8
<PAGE>
FULL TEXT OF SECTION 262 INCLUDED HEREWITH IN ANNEX A. THE PRESERVATION AND
EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT ADHERENCE TO THE
APPLICABLE PROVISIONS OF THE DGCL.
7. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The summary of Federal income tax consequences set forth below is for general
information only and is based on the Purchaser's understanding of the law as
currently in effect. The tax consequences to each stockholder will depend in
part upon such stockholder's particular situation. Special tax consequences not
described herein may be applicable to particular classes of taxpayers, such as
financial institutions, broker-dealers, persons who are not citizens or
residents of the United States and stockholders who acquired their Shares
through the exercise of an employee stock option or otherwise as compensation.
ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR
FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN SUCH TAX LAWS.
The receipt of cash for Shares pursuant to the Offer will be a taxable
transaction for Federal income tax purposes under the the Internal Revenue Code
of 1986, as amended (the "Code"), and may also be a taxable transaction under
applicable state, local or foreign income and other tax laws. Generally, for
Federal income tax purposes, a tendering stockholder will recognize gain or loss
in an amount equal to the difference between the cash received by the
stockholder pursuant to the Offer and the stockholder's adjusted tax basis in
the Shares tendered by the stockholder and purchased pursuant to the Offer. For
Federal income tax purposes, such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if the beneficial owner held the Shares
for more than one year as of the date of sale (in the case of the Offer) or the
Effective Time (in the case of the Merger). Long-term capital gain of
individuals currently is taxed at a maximum rate of 28%. Legislation has been
approved by the House Ways and Means Committee and by the Senate Finance
Committee which, if enacted, generally would tax the long-term capital gain of
individuals at a maximum rate of 20%, effective with respect to transactions
occurring on or after May 7, 1997. It is uncertain, however, whether, in what
form, and with what effective date such legislation will be enacted.
A stockholder (other than certain exempt stockholders including, among others,
all corporations and certain foreign individuals and entities) that tenders
Shares may be subject to 31% backup withholding unless the stockholder provides
its TIN and certifies that such number is correct or properly certifies that it
is awaiting a TIN, or unless an exemption applies. A stockholder who does not
furnish its TIN may be subject to a penalty imposed by the IRS. See Section 3 of
the Offer to Purchase ("Procedure for Tendering Shares").
If backup withholding applies to a stockholder, the Depositary is required to
withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an appropriate income tax return.
The receipt of cash by stockholders pursuant to the Merger should result in
Federal income tax consequences to such stockholders similar to those described
above.
8. PRICE RANGE OF THE SHARES; DIVIDEND POLICY OF THE COMPANY
The Company's common stock is listed and traded principally on the Nasdaq
National Market under the symbol CDAT. The following table sets forth for the
periods indicated the high and low sale prices of the common stock as reported
by the Nasdaq National Market, based on the Company's 1996 Annual Report to
Stockholders and other publicly available sources.
9
<PAGE>
CONTROL DATA SYSTEMS, INC.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
FISCAL 1995
Quarter ended March 31, 1995 .................................... $ 7.25 $ 5.88
Quarter ended June 30, 1995 .................................... $10.75 $ 6.63
Quarter ended September 30, 1995 .............................. $12.13 $ 8.63
Quarter ended December 31, 1995 ................................. $21.38 $10.13
FISCAL 1996
Quarter ended March 31, 1996 .................................... $26.13 $14.25
Quarter ended June 30, 1996 .................................... $27.50 $18.00
Quarter ended September 30, 1996 .............................. $24.00 $12.75
Quarter ended December 31, 1996 ................................. $28.63 $19.13
FISCAL 1997
Quarter ended March 31, 1997 .................................... $24.38 $13.50
Quarter ended June 30, 1997 .................................... $15.88 $12.75
Quarter ending September 30, 1997 (through July 14, 1997) ...... $21.19 $14.63
</TABLE>
On July 8, 1997, the last full day of trading prior to the public announcement
of the proposed acquisition of the Company by Parent and the Purchaser,
according to published sources, the reported closing price of the Shares on the
Nasdaq National Market was $15.69 per Share. On July 14, 1997, the last full day
of trading before the commencement of the Offer, according to published sources,
the reported closing price of the Shares on the Nasdaq National Market was
$20.19 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE SHARES. According to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 (the "1996 10-K"), the Company has never paid any cash
dividends on its Common Stock.
9. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ NATIONAL MARKET
LISTING; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS
The purchase of Shares by the Purchaser pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly, will reduce the number of
holders of Shares and could thereby adversely affect the liquidity and market
value of the remaining publicly held Shares.
Nasdaq National Market Listing.
Depending upon the number of Shares purchased pursuant to the Offer, the Shares
may no longer meet the standards for continued inclusion in the Nasdaq National
Market. According to the Nasdaq National Market's published guidelines, the
Shares would not be eligible to be included for listing if, among other things,
the number of publicly held Shares falls below 500,000, the number of holders of
Shares falls below 400 or the aggregate market value of such publicly held
Shares falls below $3,000,000. If these standards are not met, the Shares might
continue to be listed on The Nasdaq SmallCap Market, Inc., but if the number of
holders of the Shares falls below 300, or if the number of publicly held Shares
falls below 100,000, or if the aggregate market value of such publicly held
Shares falls below $200,000 or there are not at least two registered and active
market makers (one of which may be a market maker entering a stabilizing bid),
Nasdaq rules provide that the securities would no longer qualify for inclusion
in the Nasdaq, and Nasdaq would cease to provide any quotations. Shares held
directly or indirectly by an officer or director of the Company or by a
beneficial owner of more than 10% of the Shares will ordinarily not be
considered as being publicly held for purposes of these standards. In the event
the Shares are no longer eligible for Nasdaq quotation, quotations might still
be available from other sources. The extent of the public market for the Shares
and the availability of such quotations would, however, depend upon the number
of holders of such Shares remaining at such time, the interest in maintaining a
market in such Shares on the part of securities firms, the possible termination
of registration of such Shares under the Exchange Act as described below and
other factors. If registration of the Shares is not terminated prior to the
Merger, trading of the Shares on the Nasdaq National Market or Nasdaq will be
discontinued, and the registration of the Shares under the Exchange Act will be
terminated following the consummation of the Merger.
10
<PAGE>
The Purchaser has been advised by the Company that as of July 8, 1997, there
were approximately 14,500 holders of record of the Shares. The Company has
advised Purchaser that it believes that the number of beneficial owners of the
Shares as of July 8, 1997 is in excess of 25,000.
Exchange Act Registration.
The Shares are currently registered under the Exchange Act. Such registration
may be terminated upon application by the Company to the Commission if the
Shares are not listed on a national securities exchange and there are fewer than
300 record holders. The termination of the registration of the Shares under the
Exchange Act would substantially reduce the information required to be furnished
by the Company to holders of Shares and to the Commission and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), the requirement of furnishing a proxy statement in
connection with stockholders' meetings and the requirements of Rule 13e-3 under
the Exchange Act with respect to "going private" transactions, no longer
applicable to the Shares. In addition, "affiliates" of the Company and persons
holding "restricted securities" of the Company may be deprived of the ability to
dispose of such securities pursuant to Rule 144 under the Securities Act of
1933, as amended. If registration of the Shares under the Exchange Act were
terminated, the Shares would no longer be "margin securities" or be eligible for
Nasdaq reporting. Purchaser currently intends to seek to cause the Company to
terminate the registration of the Shares under the Exchange Act as soon after
consummation of the Offer as the requirements for termination of registration
are met.
Margin Regulations.
The Shares are currently "margin securities" under the regulations of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), which
has the effect, among other things, of allowing brokers to extend credit on the
collateral of such Shares for the purpose of buying, carrying or trading in
securities ("Purpose Loans"). Depending upon factors similar to those described
above regarding the continued listing, public trading and market quotations of
the Shares, it is possible that, following the purchase of the Shares pursuant
to the Offer, the Shares would no longer constitute "margin securities" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for Purpose Loans made by brokers.
10. SOURCE AND AMOUNT OF FUNDS
The Purchaser estimates that the total amount of funds required by Parent and
the Purchaser to acquire all of the outstanding Shares pursuant to the Offer and
the Merger and to pay fees and expenses to be incurred in connection with the
successful completion of the Offer and the Merger is approximately $280 million.
Investor Financing.
On July 8, 1997, the Investors delivered to Parent a letter (the "Investors'
Commitment Letter") confirming their commitment to provide or cause to be
provided up to an aggregate $300 million of financing to Parent, the proceeds of
which will be transferred to the Purchaser upon or prior to the consummation of
the Offer to the extent necessary to permit the Purchaser to pay for the Shares
accepted for payment, and to the Company upon or prior to the consummation of
the Merger, to the extent necessary to permit the Company to pay the amounts to
be paid to the holders of Shares in the Merger. The obligations of the Investors
to provide or cause to be provided such financing to Parent are subject to the
satisfaction or waiver of the Minimum Condition and all other conditions to the
Offer and the Merger and are subject to maximum amounts of $200 million in the
case of WCAS VII and $100 million in the case of WCAS CP III. A copy of the
Investors Commitment Letter is attached to this Statement as Exhibit (b)(1) and
incorporated herein by reference.
The terms of the Investors' Commitment Letter with respect to the provision of
such financing to Parent will be incorporated in a definitive Subscription
Agreement (the "Subscription Agreement").
11. CERTAIN INFORMATION CONCERNING THE COMPANY
General.
The following description of the Company's business has been taken from the 1996
10-K.
The Company is a global software and services company dedicated to helping
organizations develop the enterprise-wide systems required to create, transmit,
access and control business information. With its Rialto brand of
directory-enabled
11
<PAGE>
software tools and services, the Company is focused on the architecture,
implementation and lifetime support of digital commerce and enterprise-wide
client-server solutions for business and government.
The Company provides Enterprise Integration software and service solutions that
include network design, installation and maintenance; application re-hosting to
client-server architectures; the integration of disparate electronic messaging
systems; and corporate directory design and implementation. Its Technical
Services offerings include hardware and software maintenance services; rapid
technology deployment in distributed environments; and customer service hotline
support. The Company's Product Design software provides computer-aided design
(CAD) software and services, primarily to the discrete manufacturing industry.
Available Information.
The Company is subject to the information and reporting requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Certain information as of
particular dates concerning the Company's directors and officers (including
their remuneration and stock options granted to them), Shares held by them, the
principal holders of the Company's securities and any material interest of such
persons in transactions with the Company and certain other matters is required
to be disclosed in proxy statements and annual reports distributed to the
Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information are available for inspection and copying at the
public reference facilities of the Commission located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located in the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and in Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies also may be obtained, by mail, upon
payment of the Commission's customary charges by writing to the Commission's
principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains an Internet site on the
World Wide Web at [http://www.sec.gov] that contains reports, proxy statements
and other information. The information also should be available at the Nasdaq
National Market, 1735 K. Street, N.W., Washington, D.C. 20006-1506.
12. SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The selected consolidated financial data of the Company for the fiscal years
ended December 31, 1996, 1995 and 1994 have been taken or derived from the
audited consolidated financial statements of the Company and its subsidiaries
that are contained in the 1996 10-K and the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, as filed with the Commission. The
selected consolidated financial data of the Company for the three months ended
March 31, 1997 and 1996 have been taken or derived from the unaudited
consolidated financial statements of the Company and its subsidiaries that are
contained in the Company's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1997 and 1996, as filed with the Commission. More comprehensive
financial data concerning the Company and its subsidiaries are contained in the
reports filed by the Company with the Commission and the financial data below
are qualified by reference to such reports and all of the financial statements
and related notes contained therein. Such reports may be obtained from the
offices of the Commission and are available as described in Section 11 of the
Offer to Purchase ("Certain Information Concerning the Company").
12
<PAGE>
CONTROL DATA SYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------
(UNAUDITED)
1997 1996 1996 1995 1994
---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues .......................................... $ 60,953 $ 78,254 $305,696 $454,815 $ 524,227
Cost of revenues ................................. 39,800 52,588 201,369 330,380 382,528
Operating expenses ................................. 21,625 24,669 99,343 122,720 238,732
-------- -------- -------- --------- ----------
Earnings (loss) from operations .................. (472) 997 4,984 1,715 (97,033)
Nonoperating income, net ........................... 17,372 2,281 12,094 8,353 3,630
-------- -------- -------- --------- ----------
Earnings (loss) before income taxes ............... 16,900 3,278 17,078 10,068 (93,403)
Provision for income taxes ........................ 300 400 1,100 1,200 1,000
-------- -------- -------- --------- ----------
Net earnings (loss) .............................. $ 16,600 $ 2,878 $ 15,978 $ 8,868 $ (94,403)
======== ======== ======== ========= ==========
INCOME PER COMMON SHARE INFORMATION:
Primary earnings (loss) per common share and common
share equivalents ................................. $ 1.19 $ 0.20 $ 1.09 $ 0.67 $ (6.87)
Fully diluted earnings (loss) per common share and
common share equivalents ........................ $ 1.19 $ 0.20 $ 1.09 $ 0.62 $ (6.87)
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
--------------------- --------------------------------
(UNAUDITED)
1997 1996 1996 1995 1994
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments .................. $ 94,655 $ 79,475 $ 84,610 $ 84,034 $ 85,415
Total assets .................................... 216,786 218,012 220,297 227,485 300,568
Working capital ................................. 107,494 102,140 110,791 98,715 93,341
Stockholders' equity .............................. 110,765 88,798 109,020 83,498 82,306
</TABLE>
Certain Company Projections.
In the ordinary course of the Company's business planning and budgeting process,
the Company's management develops and presents to the Company Board projections
of the future performance of the Company. The Company provided WCAS with
projected results of operations derived from its current business plan for the
1997-1999 years. These results were not represented to WCAS as expected results
of operations, but rather as financial models for management's planning
decisions.
THE PROJECTIONS SET FORTH BELOW WERE DEVELOPED FOR PLANNING PURPOSES ONLY, ARE
NOT TO BE REGARDED AS FACTS AND SHOULD NOT BE RELIED UPON AS ACCURATE
REPRESENTATIONS OF FUTURE RESULTS. SUCH PROJECTIONS ARE BASED ON NUMEROUS
ESTIMATES AND ASSUMPTIONS WHICH THEMSELVES ARE BASED UPON EVENTS AND
CIRCUMSTANCES THAT HAVE NOT TAKEN PLACE AND ARE INHERENTLY SUBJECT TO
SIGNIFICANT FINANCIAL, MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE
BEYOND PARENT'S, THE PURCHASER'S AND THE COMPANY'S CONTROL. THEY ARE INHERENTLY
IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS CAN BE
REALIZED.
13
<PAGE>
THEREFORE, IT IS EXPECTED THAT THERE WILL BE DIFFERENCES BETWEEN THE ACTUAL AND
PROJECTED RESULTS AND THAT THE ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER
THAN THOSE PROJECTED. THE PROJECTIONS WERE NOT PREPARED IN CONTEMPLATION OF THE
OFFER OR THE MERGER AND, THEREFORE, DO NOT REFLECT ANY BENEFITS OR COSTS THAT
COULD RESULT AS A CONSEQUENCE OF CONSUMMATION OF THE OFFER OR THE MERGER. NONE
OF THE COMPANY, PARENT NOR ANY OTHER PARTY ASSUMES ANY RESPONSIBILITY FOR THE
ACCURACY OF SUCH INFORMATION. THE INCLUSION OF THE PROJECTIONS SET FORTH BELOW
SHOULD NOT BE REGARDED AS A REPRESENTATION BY PARENT OR THE PURCHASER OR ANY OF
THEIR AFFILIATES OR REPRESENTATIVES OR BY THE COMPANY OR ANY OF ITS AFFILIATES
OR REPRESENTATIVES THAT THE PROJECTED RESULTS WILL BE ACHIEVED. THE PROJECTIONS
SET FORTH BELOW WERE NOT PREPARED WITH A VIEW TOWARDS PUBLIC DISCLOSURE OR
COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR GUIDELINES ESTABLISHED
BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE PROJECTIONS HAVE
NOT BEEN EXAMINED, REVIEWED OR COMPILED BY THE COMPANY'S INDEPENDENT AUDITORS,
AND ACCORDINGLY THEY HAVE NOT EXPRESSED AN OPINION OR ANY OTHER ASSURANCE ON
THEM.
The projected business plan results are set forth below for each of the
Company's three principal product and services groups.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
($ IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Enterprise Integration Services ............... $ 175.8 $ 216.3 $ 274.1
Product Design and Information Services ......... 39.7 41.8 44.6
Technical Services .............................. 69.4 64.2 59.5
-------- -------- --------
Total .......................................... $ 284.8 $ 322.3 $ 378.2
======== ======== ========
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
Enterprise Integration Services ............... $ 5.6 $ 20.4 $ 38.7
Product Design and Information Services ......... 7.0 7.5 8.8
Technical Services .............................. 17.1 15.9 13.9
Selling, General and Administrative Costs ...... (17.1) (18.0) (18.9)
-------- -------- --------
Consolidated EBIT .............................. $ 12.6 $ 25.8 $ 42.5
======== ======== ========
</TABLE>
Parent believes that the foregoing projections are based upon certain
assumptions and estimates that are subject to considerable uncertainty. The
Purchaser did not rely on the Company's projections in formulating its bid for
the Company.
The Company's business plan was not prepared with a view to public disclosure or
compliance with published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections, and are included in this Offer to Purchase only because they were
provided to Parent and the Purchaser. None of Parent, the Purchaser, the
Investors, the Dealer Manager or the Company assumes any responsibility for the
accuracy of such information.
13. CERTAIN INFORMATION CONCERNING WCAS VII, WCAS CP III, PARENT AND THE
PURCHASER
WCAS VII and WCAS CP III.
WCAS VII and WCAS CP III are Delaware limited partnerships principally engaged
in the business of investing in and acquiring companies in the healthcare and
information processing industries. The sole general partners of WCAS VII and
WCAS CP III are, respectively, WCAS VII Partners, L.P., a Delaware limited
partnership ("VII Partners"), and WCAS CP III Associates L.L.C., a Delaware
limited liability company ("CP III Associates"). The business addresses of WCAS
VII, WCAS CP III, VII Partners and CP III Associates are c/o Welsh, Carson,
Anderson & Stowe, 320 Park Avenue, Suite 2500, New York, N.Y. 10022. WCAS CP III
is a newly organized limited partnership and it is contemplated that its
investment in Parent will be its initial investment.
14
<PAGE>
Parent.
Parent is a newly formed Delaware corporation organized at the direction of WCAS
VII and WCAS CP III in connection with the Offer and the Merger. The address of
Parent is 1013 Centre Road, Wilmington, Delaware 19805. Currently, WCAS VII owns
all of the issued and outstanding common stock of Parent. Until the first
acceptance for payment of Shares pursuant to the Offer, it is not anticipated
that Parent will have any significant assets or liabilities (other than those
arising under the Merger Agreement and the Subscription Agreement or in
connection with the transactions contemplated thereby) or engage in any other
activities than those incident to its formation and capitalization, the Offer,
the Merger Agreement, the Merger and the Subscription Agreement.
Parent is now, and after the consummation of the Offer and the Merger will be, a
privately held company. The directors and executive officers of Parent are
Patrick J. Welsh (Chairman), Thomas E. McInerney (President), and Rudolph E.
Rupert (Vice President, Secretary and Treasurer).
The Purchaser.
The Purchaser is a newly formed Delaware corporation organized at the direction
of Parent in connection with the Offer and the Merger. The address of the
Purchaser is 1013 Centre Road, Wilmington, Delaware 19805. Until the first
acceptance for payment of Shares pursuant to the Offer, it is not anticipated
that the Purchaser will have any significant assets or liabilities (other than
those arising under the Merger Agreement or in connection with the transactions
contemplated thereby) or engage in any activities other than those incident to
its formation and capitalization, the Subscription Agreement, the Offer, the
Merger Agreement and the Merger. As of the date of this Offer to Purchase, the
authorized capital stock of the Purchaser consists of 1,000 shares of common
stock, all of which are issued and outstanding and owned by Parent.
The directors and executive officers of the Purchaser are Patrick J. Welsh
(Chairman), Thomas E. McInerney (President), and Rudolph E. Rupert (Vice
President, Secretary and Treasurer).
The name, business address, current principal occupation or employment,
five-year employment history and citizenship of each executive officer and
director of Parent and the Purchaser, and of each general partner of VII
Partners and each managing member of CP III Associates, are set forth in
Schedule I hereto.
Except as set forth in this Offer to Purchase, neither Parent nor the Purchaser
nor, to the best knowledge of Parent and the Purchaser, any person named in
Schedule I hereto, or any associate or majority-owned subsidiary of any of the
foregoing or of any person so listed, beneficially owns or has a right to
acquire any equity securities of the Company, nor, except as set forth in this
Offer to Purchase, the Parent or the Purchaser, or, to the best knowledge of
Parent and the Purchaser or any of the persons or entities referred to above, or
any of the respective executive officers, directors or subsidiaries of any of
the foregoing, effected any transactions in the equity securities of the Company
during the past 60 days.
Except as described in this Offer to Purchase, neither Parent or the Purchaser
nor, to the best knowledge of Parent and the Purchaser, any person named in
Schedule I hereto, has any present or proposed contract, arrangement,
understanding or relationship (whether or not legally enforceable) with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any securities of the Company, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans, guaranties
against loss or the giving or withholding of proxies. Except as described in
this Offer to Purchase, there have been no contracts, negotiations or
transactions between Parent and the Purchaser or, to the best knowledge of
Parent and the Purchaser, any person named in Schedule I hereto, on the one
hand, and the Company or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of securities,
an election of directors or a sale or other transfer of a material amount of
assets. Except as set forth herein, neither of Parent nor the Purchaser nor, to
the best knowledge of Parent and the Purchaser any persons named in Schedule I
hereto, has had any business relationships or has entered into any transactions
with the Company or any of its executive officers, directors or has entered into
any transactions with the Company or any of its executive officers, directors or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Commission.
14. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
In November 1995, WCAS met with representatives of the Company's management
concerning the possibility of an acquisition of the Company by one of the WCAS
managed funds. On November 1, 1995, the Company and WCAS VII
15
<PAGE>
entered into a Confidentiality Agreement. Thereafter, representatives of WCAS
met with representatives of the Company and the Company provided WCAS with
certain business and financial information concerning the Company.
In December 1995, WCAS notified the Company orally that it was not interested in
pursuing an acquisition of the Company.
In March 1997, representatives of WCAS requested that the Company update the
business and financial information they had been provided earlier. In April
1997, Messrs. James E. Ousley, President and Chief Executive Officer of the
Company, and W. Douglas Hajjar, Chairman of the Board of the Company, met with
Messrs. Patrick J. Welsh, Thomas E. McInerney and Rudolph E. Rupert of WCAS to
discuss strategic plans and alternatives for the Company.
On May 21, 1997, representatives of WCAS again met with Messrs. Ousley and
Hajjar to discuss the possibility of WCAS purchasing the Company. After that
discussion, the Company provided the additional information WCAS had requested.
Subsequent to this meeting, the Company provided WCAS with background
information on technology and product development.
On June 11 and 12, 1997, WCAS reviewed with the Company various marketing,
technology and financial matters. The Company also gave WCAS permission to
contact selected customers.
On June 16, 1997, WCAS and its financial advisors commenced their due diligence
review of the Company and its subsidiaries. On June 18, 1997, in connection with
such review, Mr. Rudolph E. Rupert of WCAS met with selected representatives of
the Company's European subsidiaries. From June 26 through July 8, 1997, the
parties negotiated documentation for the contemplated transactions.
On July 8, 1997, discussions were held among representatives of WCAS and the
Company, regarding the price at which WCAS would be willing to acquire the
Shares. The purchase price of $20.25 per Share, in cash was presented to the
Company Board on behalf of the Purchaser in the early evening of July 8, 1997.
Following such discussions, Cowen & Company delivered its opinion to the Company
Board that, as of such date, the financial terms of the Offer and the Merger
were fair to the stockholders of the Company (other than Parent and its
affiliates) from a financial point of view as of the date of such opinion. Late
in the evening of July 8, 1997, the Company Board and the Boards of Directors of
Parent and the Purchaser each unanimously approved the Merger Agreement and the
other transactions contemplated thereby. Following such approvals, the Merger
Agreement was executed and delivered and the transaction was publicly announced
before the financial markets in the U.S. opened on July 9, 1997.
15. THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a copy
of which appears as Exhibit (c)(1) to the Schedule 14D-1 filed by the Purchaser
and Parent with the Commission in connection with the Offer. Such summary is
qualified in its entirety by reference to the Merger Agreement.
The Offer.
The Offer has been commenced pursuant to the Merger Agreement. The obligation of
the Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer is subject to the satisfaction or waiver of the Minimum Condition,
expiration or termination of all waiting periods imposed by the HSR Act and
certain other conditions that are described in Section 18 of the Offer to
Purchase ("Certain Conditions of the Offer"). The Purchaser has agreed not to
change the form of consideration to be paid pursuant to the Offer, decrease the
price per Share of the Offer or the number of Shares sought in the Offer or
impose any condition to the Offer in addition to those described in Section 18
of the Offer to Purchase ("Certain Conditions of the Offer"), but may waive any
of the conditions to the Offer or change any of the other terms or conditions of
the Offer in its sole discretion.
Initially, the Offer will expire twenty (20) business days after it is
commenced. The Purchaser has agreed, subject to the terms and conditions of the
Offer, to accept for payment and pay for all Shares validly tendered and not
withdrawn pursuant to the Offer promptly after the expiration of the Offer. If
all conditions of the Offer have not been satisfied or, to the extent permitted,
waived by the Purchaser as of any scheduled expiration date, the Purchaser may,
or if required to do so by law, will, extend the Offer from time to time.
16
<PAGE>
Parent has been advised by the Company that all of the Company's directors and
executive officers intend either to tender their Shares pursuant to the Offer or
to vote in favor of the Merger.
Directors.
The Merger Agreement provides that, effective upon the acceptance for payment by
the Purchaser of a majority of the outstanding Shares pursuant to the Offer (and
deposit with the Depositary of funds sufficient to make payment therefor), the
Purchaser has the right to designate such number of directors, rounded up to the
next whole number, on the Company Board as equals the product of (i) the number
of directors on the Company Board (after giving affect to any required increase
in the size of the Company Board) and (ii) the percentage that the number of
Shares owned by the Purchaser (including Shares accepted for payment for which
deposit has been made as aforesaid) bears to the total number of Shares then
outstanding. The Company has agreed, subject to Section 14(f) of the Exchange
Act, to take all action necessary to cause such designees to be elected or
appointed to the Company Board and the board of directors of each subsidiary of
the Company, either by increasing the size of the Company Board (or the size of
the boards of directors of such subsidiaries) or securing the resignations of
such number of directors as is necessary to provide the Purchaser with such
level of representation. The Company has further agreed to use its best efforts
to cause individuals designated by the Purchaser to constitute the same
percentage as they represent on the Company Board, on each committee of the
Company Board and of the board of each subsidiary of the Company.
Notwithstanding the foregoing, at all times prior to the Effective Time of the
Merger at least two directors on the Company Board will be directors in office
as of the date of the Merger Agreement who are not employees of the Company or
any of its subsidiaries or affiliates of Parent or the Purchaser ("Continuing
Directors").
In connection with the foregoing, the Purchaser has provided the Company with
information concerning Messrs. Patrick J. Welsh, Thomas E. McInerney and Rudolph
E. Rupert for inclusion in the Company's Schedule 14D-9 filed in connection with
the Offer.
The Merger.
The Merger Agreement provides that as soon as practicable after the satisfaction
or waiver (if permissible) of the conditions to the Merger and in accordance
with the relevant provisions of the DGCL, the Purchaser will be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the Surviving
Corporation and will become a wholly-owned subsidiary of Parent.
Conversion of Securities.
At the Effective Time, each Share issued and outstanding immediately prior to
the Effective Time (other than Shares owned by Parent, the Purchaser or any
subsidiary thereof or held in the treasury of the Company, or any subsidiary of
the Company and other than Shares held by stockholders who shall have properly
demanded and perfected appraisal rights under Section 262 of the DGCL) will be
canceled and converted at the Effective Time into the right to receive the
Merger Consideration.
The Purchaser or the designated paying agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of Shares such amounts that the Purchaser or the paying
agent is required to deduct and withhold with respect to the making of such
payment under the Code, the rules and regulations promulgated thereunder or any
other applicable law.
Pursuant to the Merger Agreement, each share of common stock of the Purchaser
issued and outstanding immediately prior to the Effective Time shall be
automatically converted into and become at the Effective Time one share of
common stock of the Surviving Corporation.
The Merger Agreement provides for the acceleration of the vesting of all
unvested stock options outstanding under the Company Stock Option Plan so that
each holder of an option thereunder will be entitled to receive from the
Company, as of the Effective Time, for each Share subject to such option, an
amount in cash in cancellation of such option equal to the excess, if any, of
the Merger Consideration over the per share exercise price of such option,
subject to applicable withholding, if any.
The Merger Agreement further provides that all options outstanding under the
Company Stock Purchase Plan immediately prior to the Effective Time shall become
exercisable to the extent of payroll deductions accumulated by participants as
of such date, and that each participant thereunder shall be deemed to have
purchased that number of whole Shares subject to
17
<PAGE>
the options held by such participant at a per Share price determined pursuant to
the provisions of such Plan and shall receive a cash payment equal to the
balance, if any, of such accumulated payroll deductions remaining after the
deemed purchase of such Shares. As of the Effective Time, each participant under
such Plan shall receive, for each Share such participant is deemed to have
purchased thereunder, the Merger Consideration. All such payments are subject to
applicable withholding taxes, if any.
The Company Stock Plans and all options issued and outstanding thereunder will
terminate effective as of the Effective Time.
Directors and Officers; Certificate of Incorporation and By-laws.
The Merger Agreement provides that the directors of the Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation, until
their respective successors are duly elected and qualified. The Merger Agreement
provides that, at the Effective Time, the certificate of incorporation and
By-laws of the Purchaser will become the certificate of incorporation and
By-laws of the Surviving Corporation.
Approvals Required under the DGCL and the Company Certificate.
Pursuant to the DGCL and the Company Certificate, the affirmative vote of a
majority of the outstanding Shares entitled to vote thereon is required to adopt
the Merger Agreement and approve the Merger.
Representations and Warranties.
The Merger Agreement contains various customary representations and warranties
of the parties thereto including, among others, representations by the Company,
Parent and the Purchaser as to corporate status and the enforceability of the
Merger Agreement against each such party and by the Company as to its
capitalization, compliance with law, the accuracy of financial statements and
filings with the Commission and the absence of certain material adverse changes
or events concerning the Company's business from December 31, 1996 to the date
of the Merger Agreement.
Stockholders' Meeting.
The Merger Agreement provides that the Company will take all action necessary to
call, give notice of and convene a meeting of its stockholders (the
"Stockholders' Meeting") to consider and vote upon the approval and adoption of
the Merger Agreement and the Merger as soon as reasonably practicable following
the acquisition by the Purchaser of a majority of the outstanding Shares (on a
fully diluted basis). Parent and the Purchaser have agreed to vote at the
Stockholders' Meeting all Shares owned or acquired pursuant to the Offer or
otherwise by them or any of their affiliates in favor of the Merger. In the
event that the Purchaser acquires such number of Shares as constitutes at least
90% of the outstanding Shares, the parties will take all necessary and
appropriate action to cause the Merger to become effective, in accordance with
Section 253 of the DGCL, as soon as reasonably practicable after such
acquisition, without a meeting of the stockholders of the Company.
The Merger Agreement provides that, in connection with the Stockholders'
Meeting, the Company will file a proxy statement with the Commission under the
Exchange Act (the "Proxy Statement"), and cause the definitive Proxy Statement
to be delivered to stockholders promptly following review by the Commission. The
Company has agreed not to distribute the Proxy Statement and each amendment and
supplement thereto without the prior consent of Parent and its counsel. Parent
and the Purchaser have agreed to cooperate fully with the Company in the
preparation of the Proxy Statement and any amendments and supplements thereto.
The Company has agreed to use its best efforts to have the Proxy Statement
cleared by the Commission and shall cause a definitive Proxy Statement to be
distributed to its stockholders entitled to vote upon the Merger as promptly as
practicable thereafter.
Conduct of the Company's Business.
In the Merger Agreement, the Company has agreed to conduct the business of the
Company and its subsidiaries only in the ordinary course of business and
consistent with past practice. In particular, the Company has covenanted, among
other things, not to do any of the following prior to the Effective Time: (i)
sell, pledge, dispose of or encumber (or permit any subsidiary of the Company to
sell, pledge, dispose of or encumber) any assets of the Company or any
subsidiary of the Company, except inventory and immaterial assets in the
ordinary course of business; (ii) amend or propose to amend its Certificate of
Incorporation or By-Laws; (iii) split, combine or reclassify any outstanding
shares of its capital stock, or declare, set aside or pay any dividend payable
in cash, stock, property or otherwise with respect to such shares (except for
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any dividends paid in the ordinary course to the Company or to any wholly-owned
subsidiary of the Company); (iv) redeem, purchase, acquire or offer to acquire
(or permit any subsidiary of the Company to redeem, purchase, acquire or offer
to acquire) any shares of its capital stock; (v) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing
matters; (vi) issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of, any additional shares of, or securities convertible or
exchangeable for, or any options, warrants or rights of any kind to acquire any
shares of, its capital stock of any class or other property or assets whether
pursuant to the Company Stock Option Plan or the Company Stock Purchase Plan
(except in respect of outstanding options under such Plans), or otherwise; (vii)
acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof
(except an existing wholly-owned subsidiary of the Company); (viii) incur any
indebtedness for borrowed money or issue any debt securities in an amount
exceeding $3,000,000 in the aggregate; (ix) enter into or modify any material
contract, lease, agreement or commitment, except in the ordinary course of
business and consistent with past practice; (x) terminate, modify, assign,
waive, release or relinquish any material contract rights or amend any material
rights or claims not in the ordinary course of business; (xi) settle or
compromise any material claim, action, suit or proceeding pending or threatened
against the Company, or, if the Company may be liable or obligated to provide
indemnification, against the Company's directors or officers, before any court,
governmental agency or arbitrator; (xii) grant any increase in the salary or
other compensation of its employees except (A) pursuant to the terms of
employment agreements in effect on the date of the Merger Agreement and
previously disclosed to Parent and (B) in the case of employees who are not
executive officers of the Company, in the ordinary course of business and
consistent with past practice; (xiii) grant any bonus to any employee or enter
into any employment agreement or make any loan to or enter into any material
transaction of any other nature with any employee of the Company or any
subsidiary of the Company; or (xiv) with certain exceptions, adopt or amend in
any respect, any welfare or benefit plan or arrangement for directors, officers
or employees.
Notification of Certain Matters.
The Company and Parent are each obligated under the Merger Agreement to give the
other prompt notice of (i) the occurrence, or failure to occur, of any event
that such party believes would be likely to cause any of its representations or
warranties contained in the Merger Agreement to be untrue or inaccurate in any
material respect at any time from the date thereof to the Effective Time and
(ii) any material failure of the Company, Parent or the Purchaser, as the case
may be, or any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under the Merger Agreement.
Indemnification and Insurance.
The Merger Agreement provides for the survival beyond the Merger, for a period
of not less than six years from the Effective Time, of all rights to
indemnification and exculpation from liability set forth in the Company
Certificate and By-laws as in effect on the date of the Merger Agreement. During
such period, such provisions may not be amended, repealed or otherwise modified
in any manner that would adversely affect the rights thereunder of individuals
who, on or prior to the Effective Time, were directors, officers, employees or
agents of the Company ("Indemnified Parties") unless such modification is
required by law. Parent has agreed to guarantee the performance of the Company's
obligations under the existing indemnification agreements with the Company's
directors and officers.
In addition, pursuant to the Merger Agreement, Parent has agreed to cause the
Surviving Corporation, for a period of two years after the expiration date of
the Company's current policy, to maintain officers' and directors' liability
insurance covering those Indemnified Parties who are currently covered by the
Company's directors' and officers' liability insurance policy, on terms that are
no less favorable to such Indemnified Parties than the terms of such current
coverage. The Surviving Corporation is not obligated to expend in any one year
an amount in excess of 150% of the annual premiums currently payable by the
Company for such insurance.
Further Assurances.
Pursuant to the terms of the Merger Agreement and subject to the conditions
thereof, each of the parties thereto has agreed to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by the Merger Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings. The foregoing does not obligate Parent or the Company
to make or agree to any divestiture of a significant asset in order to obtain
any waiver, consent or approval.
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Publicity.
Under the Merger Agreement, Parent and the Company have agreed, subject to the
requirements of law, not to issue any press release or make any other public
announcement concerning the Merger Agreement or the related transactions without
the prior consent of the other party.
Conditions to the Merger.
Under the Merger Agreement, the respective obligations of each party to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
the following conditions: (i) the Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company; (ii) any waiting period under the HSR Act shall have expired or earlier
terminated; (iii) no preliminary or permanent injunction or other order, decree
or ruling shall be in effect that would restrain the effective operation of the
business of the Company and its subsidiaries from and after the Effective Time,
and (iv) no proceeding challenging the Merger Agreement or the transactions
contemplated thereby or seeking to prohibit, alter, prevent or materially delay
the Merger shall be pending. The obligations of Parent and the Purchaser to
effect the Merger are also subject to the Purchaser having purchased Shares
pursuant to the Offer.
Inquiries and Negotiations.
Until termination of the Merger Agreement, neither the Company nor any of its
subsidiaries, nor any of their respective directors, officers, employees,
representatives or other agents, may, directly or indirectly, solicit or
initiate any discussions, submissions of proposals or offers or negotiations
with, or, subject to the fiduciary duties of the Company Board as advised by
counsel, participate in any negotiations or discussions with, or provide any
information or data of any nature whatsoever to, or otherwise cooperate in any
other way with, or assist or participate in, facilitate or encourage any effort
or attempt by, any person, corporation, entity or "group" (as defined in Section
13(d) of the Exchange Act) other than Parent and its affiliates, representatives
and agents (each, a "Third Party") in connection with any merger, consolidation,
sale of any substantial subsidiary or division that is material to the business
of the Company and its subsidiaries, sale of shares of capital stock or other
equity securities, tender or exchange offer, recapitalization, debt
restructuring or similar transaction involving the Company (such transactions
being defined in the Merger Agreement as "Alternative Transactions"). The
Company has agreed to notify Parent immediately if any proposal, offer, inquiry
or other contact is received by or continued with, the Company in respect of any
such transaction, and, in any such notice, to indicate the identity of the Third
Party and the terms and conditions of any proposals or offers or the nature of
any inquiries or contacts, and thereafter must keep Parent informed, on a
current basis, of the status and terms of any such proposals or offers and the
status of any such discussions or negotiations. The Company is required to give
Parent no less than two business days' notice prior to the execution of a
definitive agreement with respect to an Alternative Transaction and two days'
notice (or the longest legally permissible notice, if less than two days) of any
public announcement relating to any Alternative Transaction.
Prior to furnishing any non-public information to, or entering into negotiations
or discussions with, any Third Party, the Company is required to obtain an
executed confidentiality agreement from such Third Party on terms substantially
the same as, or no less favorable to the Company in any material respect than,
those contained in the Confidentiality Agreement. The Company is prohibited from
releasing any Third Party from, or waiving any provision of, any such
confidentiality agreement or any other confidentiality or standstill agreement
to which the Company is a party. As of the date of the Merger Agreement, the
Company was required to cease, and cause its subsidiaries and the officers,
directors, employees, representatives and other agents of the Company and its
subsidiaries to cease, all discussions, negotiations and communications with all
Third Parties and demand the immediate return of all confidential information
previously provided to Third Parties.
Termination; Fees and Expenses.
The Merger Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval thereof
by the stockholders of the Company:
(i) by mutual action of the Boards of Directors of Parent and the
Company;
(ii) by either Parent or the Company, if the Offer shall not have been
consummated on or before the close of business on October 31, 1997, or the
Merger shall not have been effected on or prior to the close of business on
December 31, 1997; unless, in either case, such event has been caused by the
breach of the Merger Agreement by the party seeking such termination.
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(iii) by Parent if (1) the conditions to Parent's obligation to consummate
the Merger shall not have been complied with or performed in any material
respect prior to December 31, 1997; (2) the Offer is terminated or expires
without the purchase of any Shares thereunder, unless such termination or
expiration has been caused by the failure of Parent or the Purchaser to
perform in any material respect its obligations under the Merger Agreement
and the Offer; (3) the Board of Directors of the Company shall have
withdrawn, modified or amended in a manner adverse to Parent and the
Purchaser its approval or recommendation of the Offer and the Merger or
approved, recommended or endorsed any proposal for, or authorized the Company
to enter into, an Alternative Transaction; or (4) Cowen & Company shall have
withdrawn its opinion at any time prior to the earlier of (A) acceptance for
payment of Shares by the Purchaser under the Offer and (B) the Effective
Time; or
(iv) by the Company if (1) the conditions to the Company's obligation to
consummate the Merger shall not have been complied with or performed in any
material respect prior to December 31, 1997; or (2) prior to the earlier of
(x) the acceptance for payment of Shares by the Purchaser under the Offer and
(y) stockholder approval of the Merger Agreement and the Merger, the Company
shall enter into a definitive written agreement with respect to an
Alternative Transaction with a Third Party, or a Third Party has commenced a
tender offer which, in either case, the Company Board believes in good faith
is more favorable to the Company's stockholders than the transactions
contemplated by the Merger Agreement, provided, that all amounts payable upon
the occurrence of a "Payment Event" (as defined) shall have been paid prior
to such termination (except that amounts due in respect of expenses may be
paid after termination, as soon as practicable after the delivery to the
Company of required documentation).
If the Merger Agreement is terminated due to a "Payment Event", the Company will
be required to pay to Parent, within two business days following such Payment
Event, (i) a fee of $8,200,000 in cash, plus (ii) all reasonable and documented
out-of-pocket costs and expenses of Parent and the Purchaser, including without
limitation fees and expenses of counsel, accountants, investment bankers and
other advisors and printing expenses. In the event that the Merger Agreement is
terminated for any other reason, and the Company shall have failed to comply
with or perform, or shall have breached, in any material respect, any of its
covenants or agreements contained in the Merger Agreement, the Company shall pay
to Parent, within two business days following such termination, the costs and
expenses referred to in clause (ii) of the preceding sentence, except that such
costs and expenses will not be payable if Parent or the Purchase has breached
any of its covenants or agreements in any material respect.
The Merger Agreement defines a "Payment Event" as (i) the termination of the
Merger Agreement by Parent for the reasons described in clause (iii)(3) or
clause (iii)(4) above; (ii) the termination of the Merger Agreement by the
Company for the reasons described in clause (iv)(2) above; or (iii) the
occurrence of any of the following events within 6 months of the date of
termination of the Merger Agreement (except in the event of termination due to
Parent's or the Purchaser's breach of any of its covenants or agreements in any
material respect), whereby stockholders of the Company receive, pursuant to such
event, cash, securities or other consideration having an aggregate value, when
taken together with the value of any securities of the Company or its
subsidiaries otherwise held by the stockholders of the Company after such event,
in excess of $20.90 per Share: (w) the Company is acquired by merger or
otherwise by a Third Party; (x) a Third Party acquires more than 50% of the
total assets of the Company and the subsidiaries of the Company, taken as a
whole; (y) a Third Party acquires more than 50% of the outstanding Shares; or
(z) the Company adopts and implements a plan of liquidation or share repurchase
relating to more than 50% of the outstanding Shares or an extraordinary dividend
relating to more than 50% of the assets of the Company and its subsidiaries,
taken as a whole.
If the Company fails to promptly pay any amounts owed to Parent or the Purchaser
under the foregoing provisions of the Merger Agreement, and Parent and/or the
Purchaser sue the Company for such amounts and obtain a judgment against the
Company, the Company must also pay Parent's and the Purchaser's costs and
expenses in connection with such litigation. However, in any suit over the
reasonableness and/or documentation of reimbursed expenses, each party will bear
its own expenses.
Except as set forth above, in the event that the transactions contemplated by
the Merger Agreement are not consummated, neither the Company, on the one hand,
nor Parent and the Purchaser, on the other hand, shall have any obligation to
pay any of the fees and expenses of the other.
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In the event that the transactions contemplated by the Merger Agreement are
consummated, Parent shall pay all of the fees and expenses of the Company
incident to the negotiation, preparation and execution of the Merger Agreement,
including the fees and expenses of counsel, accountants, investment bankers and
other advisors, as well as the fees and expenses incurred by Parent and the
Purchaser.
Amendment.
The Merger Agreement may be amended or supplemented at any time before or after
its approval and adoption by the stockholders of the Company by action of the
respective Boards of Directors of the Company, Parent and the Purchaser, without
action by the stockholders thereof, except that after approval and adoption of
the Merger Agreement by the Company's stockholders, no such amendment or
supplement shall, without consent of such stockholders, reduce the amount or
alter the form of the consideration that the holders of the capital stock of the
Company shall be entitled to receive at the Effective Time pursuant to the
Merger Agreement.
16. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND
THE PURCHASER FOR THE OFFER AND THE MERGER
Purpose and Structure.
The purpose of the Offer and the Merger is for Parent to acquire the entire
equity interest in the Company. The purpose of the Merger is for Parent to
acquire all the equity interest in the Company not acquired pursuant to the
Offer. Upon consummation of the Merger, the Company will become a wholly-owned
subsidiary of Parent. The acquisition of the entire equity interest in the
Company has been structured as a cash tender offer followed by a cash merger in
order to provide a prompt and orderly transfer of ownership of the equity
interest in the Company held by stockholders of the Company from such
stockholders to Parent and to provide the stockholders of the Company with cash
for all their Shares.
Under the DGCL if, following consummation of the Offer, the Purchaser owns at
least 90% of the Shares then outstanding, the Purchaser will be able to cause
the Merger to occur without a vote of the Company's stockholders. In such event,
Parent, the Purchaser and the Company have agreed to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after consummation of the Offer without a meeting of the Company's
stockholders.
In the Merger Agreement, the Company has agreed promptly after the commencement
of the Offer to take all action necessary to convene a special meeting of its
stockholders for the purpose of considering and taking action on the Merger
Agreement and the Merger and the transactions contemplated thereby. If,
following consummation of the Offer, a vote of the Company's stockholders is
required under the DGCL to approve the Merger, it is possible that a
significantly longer period of time will be required to effect the Merger. See
Section 18 of the Offer to Purchase ("Certain Conditions of the Offer").
17. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF
THE OFFER AND THE MERGER
Pursuant to the Merger Agreement, promptly upon completion of the Offer, Parent
and the Purchaser intend to effect the Merger in accordance with the terms of
the Merger Agreement. See Section 15 of the Offer to Purchase ("The Merger
Agreement").
Parent's management has begun, and intends to continue, a review of the Company
and its assets, corporate structure, capitalization, operations, properties,
policies, management and personnel to determine what changes, if any, would be
desirable in order best to organize and integrate the activities of the Company
and Parent. Parent expressly reserves the right to make any changes that it
deems necessary or appropriate in light of its review or in light of future
developments or that would be desirable to permit Parent to manage the Company.
The Merger Agreement provides that, promptly after the purchase by the Purchaser
of at least a majority of the outstanding Shares, Parent has the right to
designate such number of directors, rounded up to the next whole number, on the
Company's Board of Directors as is equal to the product of the total number of
directors on the Company's Board of Directors (giving effect to the directors
designated by Parent) multiplied by the percentage that the number of Shares so
accepted for payment bears to the total number of Shares then outstanding. The
Merger Agreement provides that the directors of the Purchaser immediately prior
to the Effective Time will be the directors of the Surviving Corporation, and
that the officers of the Company immediately prior to the Effective Time will be
the officers of the Surviving Corporation from and after the Effective Time.
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Except as disclosed in this Offer to Purchase, neither Parent nor the Purchaser
has any present plans or proposals that would result in an extraordinary
corporate transaction, such as a merger, reorganization, liquidation, relocation
of operations, or sale or transfer of assets, involving the Company or any of
its subsidiaries, or any material changes in the Company's corporate structure,
business or composition of its management or personnel.
The Shares are currently traded on the Nasdaq National Market. See Section 8 of
the Offer to Purchase ("Price Range of the Shares; Dividend Policy of the
Company"). Following the consummation of the Merger, the Shares will no longer
be included in the Nasdaq National Market and the registration of the Shares
under the Exchange Act will be terminated. Accordingly, after the Merger there
will be no publicly traded equity securities of the Company outstanding and the
Company will no longer be required to file periodic reports with the Commission.
See Section 9 of the Offer to Purchase ("Effect of the Offer on the Market for
the Shares; Nasdaq National Market Listing; Exchange Act Registration; Margin
Regulations"). It is expected that if Shares are not accepted for payment by the
Purchaser pursuant to the Offer and the Merger is not consummated, the Company's
current management, under the general direction of the Company Board, will
continue to manage the Company as an ongoing business.
18. CERTAIN CONDITIONS OF THE OFFER
The Purchaser is not required to accept for payment, purchase or pay for any
Shares tendered pursuant to the Offer and may terminate the Offer as to any
Shares not then accepted for payment, or may delay the acceptance for payment of
or payment for Shares tendered, if (1) prior to the expiration date of the Offer
(A) the number of Shares validly tendered and not withdrawn, together with any
Shares then owned by the Purchaser, shall not satisfy the Minimum Condition, or
(B) the applicable waiting period under the HSR Act shall not have expired or
been terminated; or (2) at any time after July 8, 1997, and prior to acceptance
for payment of or payment for Shares, any of the following conditions exist:
(a) there shall be instituted or pending any action or proceeding by any
government or governmental authority or agency, before any court or
governmental authority or agency, (i) challenging or seeking to make illegal,
to delay or otherwise directly or indirectly to restrain or prohibit the
making of the Offer, the acceptance for payment of or payment for some of or
all the Shares by the Purchaser or the consummation by the Purchaser or
Parent of the Merger, or seeking to obtain material damages relating to the
transactions contemplated by the Offer or the Merger, (ii) seeking to
restrain or prohibit Parent's or the Purchaser's full rights of ownership or
operation (or that of Parent's subsidiaries or affiliates) of a material
portion of the business or assets of the Company and its subsidiaries, taken
as a whole, or of Parent and its subsidiaries, taken as a whole, or any of
their respective affiliates or to compel Parent or any of its subsidiaries or
affiliates to dispose of or hold separate a material portion of the business
or assets of the Company and its subsidiaries, taken as a whole, or of Parent
and its subsidiaries, taken as a whole, or any of their respective
affiliates, (iii) seeking to impose material limitations on the ability of
Parent or any of its subsidiaries or affiliates effectively to exercise full
rights of ownership of the Shares, including, without limitation, the right
to vote any Shares acquired or owned by Parent or any of its subsidiaries or
affiliates on all matters properly presented to the Company's stockholders,
(iv) seeking to require divestiture by Parent or any of its subsidiaries or
affiliates of any Shares, (v) prohibiting the financing of the Offer, or (vi)
that otherwise would reasonably expected to have a material adverse effect on
the Company and its subsidiaries, taken as a whole; or
(b) there shall have been any action taken or any statute, rule,
regulation, judgment, administrative interpretation, injunction, order or
decree proposed, enacted, enforced, promulgated, issued or deemed applicable
to the Offer, the acceptance for payment of or payment for any Shares or the
Merger, by any court, government or governmental authority or agency (other
than the application of the waiting period provisions of the HSR Act to the
Offer, the acceptance for payment of or payment for any Shares or the
Merger), that has, directly or indirectly, resulted, or is reasonably likely
to, directly or indirectly, result in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above; or
(c) any change shall have occurred or been threatened (or any development
shall have occurred or been threatened involving a prospective change) in the
business, assets, liabilities, financial condition, capitalization,
operations or results of operations of the Company or any of its subsidiaries
or affiliates that have had or would reasonably be expected to have a
material adverse effect on the Company and its
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subsidiaries, taken as a whole, or Parent and the Purchaser shall have become
aware of any facts that have had or are reasonably likely to have such a
material adverse effect; or
(d) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for securities on any national securities exchange or in
the over-the-counter market, (ii) any decline in either the Dow Jones
Industrial Average or the Standard and Poor's Index of 500 Industrial
Companies by an amount in excess of 15%, measured from July 8, 1997, (iii)
the declaration of any banking moratorium or any suspension of payments in
respect of banks or any material limitation (whether or not mandatory) on the
extension of credit by lending institutions in the United States, (iv) the
commencement of a war, material armed hostilities or other material
international or national calamity directly or indirectly involving the
United States or having a significant adverse effect on the functioning of
the financial markets in the United States, or (v) in the case of any of the
foregoing existing at the time of execution of the Merger Agreement, a
material acceleration or worsening thereof; or
(e) it shall have been publicly disclosed or Parent or the Purchaser shall
have otherwise learned that (i) any Third Party shall have acquired
beneficial ownership of more than 10% of any class or series of capital stock
of the Company (including the Shares), through the acquisition of stock, the
formation of a group or otherwise, or shall have been granted any option,
right or warrant, conditional or otherwise, to acquire beneficial ownership
of more than 10% of any class or series of capital stock of the Company
(including the Shares) other than acquisitions for bona fide arbitrage
purposes only and other than as disclosed in a Schedule 13D or 13G on file
with the Commission prior to the date of the Merger Agreement, (ii) any Third
Party that, prior to the date of the Merger Agreement, had filed such a
Schedule with the Commission shall have acquired beneficial ownership of
additional shares of any class or series of capital stock of the Company
(including the Shares), through the acquisition of stock, the formation of a
group or otherwise, constituting an additional 5% or more of any such class
or series, or shall have been granted any option, right or warrant,
conditional or otherwise, to acquire beneficial ownership of additional
shares of any class or series of capital stock of the Company (including the
Shares) constituting and additional 5% or more of any such class or series,
or (iii) any Third Party shall have entered into a definitive agreement or an
agreement in principle with respect to a merger, consolidation or other
business combination with the Company; or
(f) the Company shall have breached or failed to perform in any of its
covenants or agreements under the Merger Agreement, or any of the
representations and warranties of the Company set forth in the Merger
Agreement shall not have been true when made, or at any time prior to
consummation of the Offer, as if made at and as of such time, provided that
representations and warranties made as of a particular date need be true only
as of such date (for the purpose of this paragraph (f), representations and
warranties of the Company that are expressly qualified by a materiality
qualification shall be true and correct subject to such materiality
qualification, and all other representations and warranties shall be true and
correct in all material respects); and in any such case, such breach, failure
or untruth would reasonably be expected to materially influence the
investment decision of a reasonable purchaser of the all or a substantial
portion of the Company's outstanding securities; or
(g) all consents, approvals, licenses, certificates, accreditations,
authorizations or orders of any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the Merger Agreement and for the Surviving Corporation and its
subsidiaries to conduct business in substantially the manner conducted by the
Company and its subsidiaries as of the date of the Merger Agreement, shall
not have been obtained, except for any of the same, the failure to obtain
which would not reasonably be expected to have a material adverse effect on
the Company and its subsidiaries, taken as a whole, after giving effect to
the transactions contemplated by the Merger Agreement; or
(h) the Merger Agreement shall have been terminated in accordance with its
terms or amended in accordance with its terms to provide for such termination
or amendment of the Offer; or
(i) all members of the Board of Directors of the Company, other than two
Continuing Directors, shall not have resigned, effective upon and subject
only to the acceptance for payment by the Purchaser of, and
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deposit by the Purchaser with the depositary for the Offer of funds
sufficient to make payment for, a majority of the outstanding Shares pursuant
to the Offer, or the Board of Directors of the Company shall not have
elected, effective upon and subject only to such acceptance and deposit, at
least three individuals designated by Parent as directors of the Company,
effective upon such consummation,
which, in the sole judgment of the Purchaser in any such case, and regardless of
the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may be
asserted or waived by the Purchaser in whole or in part at any time and from
time to time in its sole discretion. The failure by the Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right and may be asserted
at any time and from time to time. The failure by Parent or the Purchaser at any
time to exercise any of the foregoing rights will not be deemed a waiver of any
such right, and each such right will be deemed an ongoing right that may be
asserted at any time and from time to time.
19. CERTAIN LEGAL MATTERS
General.
Except as described in this section, based on its review of publicly available
filings of the Company with the Commission and other publicly available
information regarding the Company, the Purchaser is not aware of any license or
regulatory permit that appears to be material to the business of the Company and
its subsidiaries, taken as a whole, that might be adversely affected by the
Purchaser's acquisition of Shares (and/or the indirect acquisition of the stock
of the Company's subsidiaries) as contemplated herein or of any approval or
other action by or with any domestic, foreign, or international government
authority or administrative or regulatory agency that would be required for the
acquisition or ownership of the Shares (and/or the indirect acquisition of the
stock of the Company's subsidiaries) by the Purchaser. Should any such approval
or other action be required, the Purchaser currently contemplates that such
approval or other action will be sought, except as described below under "State
Takeover Laws". While, except as otherwise expressly described in this section,
the Purchaser does not presently intend to delay the acceptance for payment of
or payment for Shares tendered pursuant to the Offer pending the outcome of any
such matter, there can be no assurance that any such approval or other action,
if needed, would be obtained without substantial conditions or that failure to
obtain any such approval or other action might not result in consequences
adverse to the Company's business or that certain parts of the Company's
business might not have to be divested of if such approvals were not obtained or
such other actions were not taken, any of which could cause the Purchaser to
decline to accept for payment or pay for any Shares tendered. The Purchaser's
obligations to accept for payment or pay for the Shares tendered pursuant to the
Offer is subject to the certain conditions set forth in this Offer, including
the conditions set forth above in this paragraph and with respect to litigation
and governmental action as contemplated herein. See Section 18 of the Offer to
Purchase ("Certain Conditions of the Offer").
State Takeover Laws.
The Company is incorporated under the laws of the State of Delaware. In general,
Section 203 of the DGCL prevents an "interested stockholder" (generally, a
person who owns or has the right to acquire 15% or more of a corporation's
outstanding voting stock, or an affiliate or associate thereof) from engaging in
a "business combination" (defined to include mergers and certain other
transactions) with a Delaware corporation for a period of three years following
the date such person became an interested stockholder unless, among other
things, prior to such date the board of directors of the corporation approved
either the business combination or the transaction in which the interested
stockholder became an interested stockholder. Since the Company Board has
approved the Offer and the Merger, Section 203 is inapplicable to this
transaction.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In Edgar V. Mite Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. In 1987, however, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without the prior approval of
25
<PAGE>
the remaining stockholders. The state law before the Supreme Court was by its
terms applicable only to corporations that had a substantial number of
stockholders in the state and were incorporated there.
The Purchaser has not currently complied with any state takeover statute or
regulation (except pursuant to Minnesota Statutes Chapter 80B). The Purchaser
reserves the right to challenge the applicability or validity of any state law
purportedly applicable to the Offer or the Merger and nothing in this Offer to
Purchase or any action taken in connection with the Offer or the Merger is
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer or the Merger and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer or the
Merger, the Purchaser might be required to file certain information with, or to
receive approvals from, the relevant state authorities, and the Purchaser might
be unable to accept for payment or pay for Shares tendered pursuant to the
Offer, or be delayed in consummating the Offer or the Merger. See Section 18 of
the Offer to Purchase ("Certain Conditions of the Offer").
Antitrust.
The Offer and the Merger are subject to the HSR Act, which provides that certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC") and certain
waiting period requirements have been satisfied.
Parent and the Company expect to file soon their Notification and Report Forms
with respect to the Offer under the HSR Act. The waiting period under the HSR
Act with respect to the Offer will expire at 11:59 p.m., New York City time, on
the fifteenth day after the date Parent's form is filed unless early termination
of the waiting period is granted. However, the Antitrust Division or the FTC may
extend the waiting period by requesting additional information or documentary
material from Parent or the Company. If such a request is made, such waiting
period will expire at 11:59 p.m., New York City time, on the tenth day after
substantial compliance by Parent with such request. Only one extension of the
waiting period pursuant to a request for additional information is authorized by
the HSR Act. Thereafter, such waiting period may be extended only by court order
or with the consent of Parent. In practice, complying with a request for
additional information or material can take a significant amount of time. In
addition, if the Antitrust Division or the FTC raises substantive issues in
connection with a proposed transaction, the parties frequently engage in
negotiations with the relevant governmental agency concerning possible means of
addressing those issues and may agree to delay consummation of the transaction
while such negotiations continue. The Purchaser will not accept for payment
Shares tendered pursuant to the Offer unless and until the waiting period
requirements imposed by the HSR Act with respect to the Offer have been
satisfied. See Section 18 of the Offer to Purchase ("Certain Conditions of the
Offer").
As discussed below, the HSR Act requirements with respect to the Merger will not
apply if certain conditions are met. In particular, the Merger may not be
consummated until thirty days after receipt by the Antitrust Division and the
FTC of the Notification and Report Forms of both Parent and the Company unless
the Purchaser acquires 50% or more of the outstanding Shares pursuant to the
Offer or the thirty-day period is earlier terminated by the Antitrust Division
and the FTC. Within such thirty-day period, the Antitrust Division or the FTC
may request additional information or documentary materials from Parent and/or
the Company. The Merger may not be consummated until twenty days after such
requests are substantially complied with by both Parent and the Company.
Thereafter, the waiting periods may be extended only by court order or with the
consent of Parent and the Company.
The FTC and the Antitrust Division frequently scrutinize the legality under the
antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Parent or its subsidiaries.
Private parties, as well as state governments, may also bring legal action under
the antitrust laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which Parent and
the Company are engaged, Parent and the Purchaser believe that the acquisition
of Shares by the Purchaser will not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition of
Shares by the Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result. See Section 18 of the Offer to Purchase
("Certain Conditions of the Offer") for certain conditions to the Offer,
including conditions with respect to litigation and certain governmental
actions.
26
<PAGE>
Foreign Antitrust Approvals
The Purchaser has been advised that certain filing obligations and review
procedures exist in certain other jurisdictions in which the Company and its
subsidiaries own property or conduct business, including Germany and possibly
others.
Under the German Act Against Restraints of Competition, certain acquisition
transactions may not be consummated unless certain information has been filed
with the German Federal Cartel Office (the "Cartel Office") and the Cartel
Office has either issued a clearance letter or certain waiting period
requirements have been satisfied. Purchaser expects to file a Pre-Merger
Notification with the Cartel Office as soon as possible after the commencement
of the Offer and the normal waiting period will expire one month from the date
of such filing, or may be extended by the Cartel Office for a total of four
months after the filing. The Purchaser intends to request early termination of
the waiting period, but there can be no assurance that such request will be
granted. If the waiting period has not expired or been terminated prior to the
satisfaction or waiver (if permissible) of all other conditions to the Offer,
the Purchaser may, at its option, elect to purchase and pay for the Shares
tendered nothwithstanding the pendency of the waiting period, postpone
acceptance for payment and payment for the Shares until such time as the waiting
period has expired or permit the Offer the expire without acceptance for payment
of any Shares. At the present time, the Purchaser has not made any determination
as to which of the alternatives it would exercise if such a situation were to
arise.
Should Parent or the Purchaser become aware of other filings in or consents of
foreign jurisdictions that are necessitated by the Merger Agreement, it will
review such requirements at the time and take such action as it deems
appropriate.
Federal Reserve Board Regulations.
Regulations G, U and X (the "Margin Regulations") of the Federal Reserve Board
restrict the extension or maintenance of credit for the purpose of buying or
carrying margin stock, including the Shares, if the credit is secured directly
or indirectly by margin stock. Such secured credit may not be extended or
maintained in an amount that exceeds the maximum loan value of the collateral
securing the credit (currently 50% of the current market value of the margin
stock securing the credit). The acquisition of the Shares pursuant to the Offer
will be structured so as to be in compliance with the Margin Regulations.
20. FEES AND EXPENSES
JP Morgan is acting as Dealer Manager in connection with the Offer and has acted
as financial adviser to Parent and the Purchaser in connection with the
acquisition of the Company. Parent has agreed to pay JP Morgan, for its
services, a fee of $1,000,000 upon consummation of the Offer for acting as
Dealer Manager of the Offer and for its financial advisory services. Parent has
also agreed to reimburse JP Morgan for its reasonable out-of-pocket expenses,
including the fees and disbursements of its legal counsel, in connection with
the Offer, and to indemnify it against certain liabilities and liabilities under
the federal securities laws. In addition, WCA Management Corporation, an
affiliate of WCAS, will be paid a fee of $1.5 million for its services in
connection with the Merger.
The Purchaser and Parent have retained Georgeson & Company Inc. to be the
Information Agent and The Bank of New York to be the Depositary in connection
with the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telecopy, telegraph and personal interview and may request banks,
brokers, dealers and other nominee stockholders to forward materials relating to
the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the Offer,
Georgeson & Company Inc. will be paid a fee of $7,500 and will also be
reimbursed for certain expenses and may be indemnified against certain
liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws. The Purchaser will pay the
Depositary reasonable and customary compensation for its services in connection
with the Offer, plus reimbursement for out-of-pocket expenses, and will
indemnify the Depositary against certain liabilities and expenses in connection
therewith, including certain liabilities under federal securities laws. Brokers,
dealers, commercial banks and trust companies will be reimbursed by the
Purchaser for customary handling and mailing expenses incurred by them in
forwarding material to their customers.
The Purchaser will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of Shares pursuant to the Offer, except as
set forth above.
27
<PAGE>
21. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on behalf
of) holders of Shares in any jurisdiction in which the making of the Offer or
the acceptance thereof would not be in compliance with the securities, blue sky
or other laws of such jurisdiction. The Purchaser may, in its discretion,
however, take such action as it may deem necessary to make the Offer in any
jurisdiction and extend the Offer to holders of Shares in any such jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Purchaser by JP Morgan or one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized. Neither the delivery of this Offer
to Purchase nor any purchase pursuant to the Offer shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Purchaser or the Company since the date as of which information
is furnished or the date of this Offer to Purchase.
Parent and the Purchaser have filed with the Commission a Tender Offer Statement
on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 under the
Exchange Act, in connection with the Offer. In addition, the Company has filed
with the Commission a Solicitation/Recommendation Statement Schedule 14D-9,
together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting
forth the recommendations of the Company Board with respect to the Offer and the
reasons for such recommendations and furnishing certain additional related
information. The Company's Schedule 14D-9 is being distributed to stockholders
of the Company with this Offer to Purchase. The Schedule 14D-1 of Parent and the
Purchaser and the Schedule 14D-9 of the Company, and any amendments thereto,
including exhibits, may be inspected and copies may be obtained from the
Commission and Nasdaq National Market in the manner set forth under Section 10
of the Offer to Purchase ("Certain Information Concerning the Company") (except
that they will not be available at the regional offices of the Commission).
CDSI HOLDING CORPORATION
CDSI ACQUISITION CORP.
JULY 15, 1997
28
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF PARENT AND THE PURCHASER; GENERAL PARTNERS OF
VII PARTNERS; AND MANAGING MEMBERS OF CP III ASSOCIATES
The following table sets forth the name, business or residence address,
principal occupation or employment at the present time and during the last five
years, and the name and business address of any corporation or other
organization in which such employment is conducted or was conducted of each
director and executive officer of Parent and the Purchaser and of each general
partner or managing member of VII Partners and CP III Associates. Each such
person is a citizen of the United States. The business address of each such
person is 320 Park Avenue, Suite 2500, New York, New York 10022.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------- ------------------------------------------------------------
<S> <C>
Patrick J. Welsh ......... Chairman and director of each of Parent and the Purchaser.
General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
Thomas E. McInerney ...... President and director of each of Parent and the Purchaser.
General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
Rudolph E. Rupert ......... Vice President, Secretary and Treasurer, and director of
each of Parent and the Purchaser. Vice President of WCAS.
Associate, General Atlantic Partners, L.L.P., a private
investment group focused on software and information
technology, from September, 1994 to March, 1997. Consultant,
Onex Investment Corp., a public holding company, from
February, 1993 to September 1994 and Associate, Lazard
Freres, an investment bank, from January, 1987, to May 1992.
Russell L. Carson ......... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
Bruce K. Anderson ......... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
Richard H. Stowe ......... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
Andrew M. Paul ............ General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
Laura M. VanBuren ......... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates.
James B. Hoover ......... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates, since
November, 1992. General Partner, Robertson Stephens & Co.,
an investment bank, from February, 1984 to November, 1992.
Robert A. Minicucci ...... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates, since August,
1993. Senior Vice President and Chief Financial Officer,
First Data Corporation, a provider of information and
transaction processing for credit card issuers, from
February, 1992 to August, 1993.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------- -----------------------------------------------------------------------------
<S> <C>
Anthony J. deNicola ...... General partner or managing member of the sole general
partner of several investment funds affiliated with WCAS,
including VII Partners and CP III Associates, since April,
1994. Associate, William Blair & Associates, an investment
firm, from September, 1990 to April, 1994.
Paul B. Queally ......... General partner of VII Partners since February, 1996 and
managing member of CP III Associates. General Partner at The
Sprout Group, an investment partnership, from September,
1986 to February, 1996.
</TABLE>
30
<PAGE>
ANNEX A
RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE DGCL
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DGCL, ANY STOCKHOLDER WHO
IS CONSIDERING EXERCISING DISSENTERS' RIGHTS SHOULD CONSULT HIS OR HER LEGAL
ADVISOR.
STATUTORY APPRAISAL PROCEDURES. The following is a brief summary of the
statutory procedures to be followed by a holder of Shares at the Effective Time
who does not wish to accept the per Share cash consideration pursuant to the
Merger (a "Remaining Stockholder") in order to dissent from the Merger and
perfect appraisal rights under Delaware law. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262 OF THE
DGCL, THE TEXT OF WHICH IS SET FORTH IN THIS ANNEX B. ANY REMAINING STOCKHOLDER
CONSIDERING DEMANDING APPRAISAL IS ADVISED TO CONSULT LEGAL COUNSEL. APPRAISAL
RIGHTS WILL NOT BE AVAILABLE UNLESS AND UNTIL THE MERGER (OR A SIMILAR BUSINESS
COMBINATION) IS CONSUMMATED.
Remaining stockholders of record who desire to exercise their appraisal rights
must fully satisfy all of the following conditions. A written demand for
appraisal of Shares must be delivered to the Secretary of the Company (x) before
the taking of the vote on the approval and adoption of the Merger Agreement if
the Merger is not being effected as a "short-form" merger pursuant to Section
253 of the DGCL but, rather, is being consummated following approval thereof at
a meeting of the Company's stockholders (a "long-form" merger) or (y) within 20
days after the date that the Surviving Corporation mails to the Remaining
Stockholders a notice (the "Notice of Merger") to the effect that the Merger is
effective and that appraisal rights are available (and includes in such notice a
copy of Section 262 of the DGCL and any other information required thereby) if
the Merger is being effected as a "short-form" merger without a vote or meeting
of the Company's stockholders. If the Merger is effected as a "long-form"
merger, this written demand for appraisal of Shares must be in addition to and
separate from any proxy or vote abstaining from or against the approval and
adoption of the Merger Agreement, and neither voting against, abstaining from
voting, nor failing to vote on the Merger Agreement will constitute a demand for
appraisal within the meaning of Section 262 of the DGCL. In the case of a
"long-form" merger, any stockholder seeking appraisal rights must hold the
Shares for which appraisal is sought on the date of the making of the demand,
continuously hold such Shares through the Effective Time, and otherwise comply
with the provisions of Section 262 of the DGCL.
In the case of both a "short-form" and a "long-form" merger, a demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary. If Shares
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that in exercising the demand, he
or she is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others, may
exercise appraisal rights with respect to the Shares held for all or less than
all beneficial owners of Shares as to which the holder is the record owner. In
such case the written demand must set forth the number of Shares covered by such
demand. Where the number of Shares is not expressly stated, the demand will be
presumed to cover all Shares outstanding in the name of such record owner.
Beneficial owners who are not record owners and who intend to exercise appraisal
rights should instruct the record owner to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights before the date of
any meeting of stockholders of the Company called to approve the Merger in the
case of a "long-form" merger and within 20 days following the mailing of the
Notice of Merger in the case of a "short-form" merger.
Remaining Stockholders who elect to exercise appraisal rights must mail or
deliver their written demands to: Secretary, Control Data Systems, Inc., 4201
Lexington Avenue North, Arden Hills, Minnesota 55126. The written demand for
appraisal should specify the stockholder's name and mailing address, the number
of Shares covered by the demand and that the stockholder is thereby demanding
appraisal of such Shares. In the case of a "long-form" merger, the Company must,
within ten days after the Effective Time, provide notice of the Effective Time
to all stockholders who have complied with Section 262 of the DGCL and have not
voted for approval and adoption of the Merger Agreement.
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<PAGE>
In the case of a "long-form" merger, Remaining Stockholders electing to exercise
their appraisal rights under Section 262 must not vote for the approval and
adoption of the Merger Agreement or consent thereto in writing. Voting in favor
of the approval and adoption of the Merger Agreement, or delivering a proxy in
connection with the stockholders meeting called to approve the Merger Agreement
(unless the proxy votes against, or expressly abstains from the vote on, the
approval and adoption of the Merger Agreement), will constitute a waiver of the
stockholder's right of appraisal and will nullify any written demand for
appraisal submitted by the stockholder.
Regardless of whether the Merger is effected as a "long-form" merger or a
"short-form" merger, within 120 days after the Effective Time, either the
Company or any stockholder who has complied with the required conditions of
Section 262 and who is otherwise entitled to appraisal rights may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the Shares of the dissenting stockholders. If a petition for an
appraisal is timely filed, after a hearing on such petition, the Delaware Court
of Chancery will determine which stockholders are entitled to appraisal rights
and thereafter will appraise the Shares owned by such stockholders, determining
the fair value of such Shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value.
The cost of the appraisal proceeding may be determined by the Delaware Court of
Chancery and taxed upon the parties as the Delaware Court of Chancery deems
equitable in the circumstances. Upon application of a dissenting stockholder,
the Delaware Court of Chancery may order that all or a portion of the expenses
incurred by any dissenting stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all
Shares entitled to appraisal. In the absence of such determination or
assessment, each party bears its own expenses.
Any Remaining Stockholder who has duly demanded appraisal in compliance with
Section 262 of the DGCL will not, after the Effective Time, be entitled to vote
for any purpose the Shares subject to such demand or to receive payment of
dividends or other distributions on such Shares, except for dividends or other
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any former holder of Shares
shall have the right to withdraw his or her demand for appraisal and to accept
the per Share cash consideration pursuant to the Merger, without interest
thereon. After this period, such holder may withdraw his or her demand for
appraisal only with the consent of the Surviving Corporation. If no petition for
appraisal is filed with the Delaware Court of Chancery within 120 days after the
Effective Time, stockholders' rights to appraisal shall cease and all
stockholders shall be entitled to receive the per Share cash consideration
pursuant to the Merger, without interest thereon.
Failure to take any required step in connection with the exercise of appraisal
rights may result in the termination or waiver of such rights.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET FORTH
ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES AVAILABLE
TO STOCKHOLDERS IF THE MERGER (OR ANY SIMILAR BUSINESS COMBINATION) IS
CONSUMMATED. STOCKHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION
WITH THE MERGER WILL RECEIVE ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS
AND THE PROCEDURES TO BE FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH
STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING THERETO. STOCKHOLDERS WHO SELL
SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH
RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID IN THE OFFER THEREFOR.
A-2
<PAGE>
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to Section 251 (other than a merger effected pursuant to subsection (g)
of Section 251, 252, 254, 257, 258, 263 or 264) of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
holders of the surviving corporation as provided in subsection (f) of Section
251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the
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<PAGE>
corporation. If the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within twenty days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any
A-4
<PAGE>
stockholder shall have the right to withdraw his demand for appraisal and to
accept the terms offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an
A-5
<PAGE>
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
A-6
<PAGE>
Facsimile copies of the Letters of Transmittal will be accepted. The Letter of
Transmittal, Share Certificates for your Shares, and other required documents
should be sent or delivered by you, your broker, dealer, commercial bank or
trust company to the Depositary at its addresses set forth below.
THE DEPOSITARY:
THE BANK OF NEW YORK
-----------------
<TABLE>
<S> <C> <C>
By Hand or
By Mail: By Facsimile Transmission: Overnight Courier:
The Bank of New York (for Eligible Institutions Only) The Bank of New York
Tender & Exchange (212) 815-6213 Tender & Exchange
Department For Confirmation Telephone: Department
P.O. Box 11248 (800) 507-9357 101 Barclay Street
Church Street Station Receive and Deliver
New York, New York 10286-1248 Window
New York, New York 10286
</TABLE>
Stockholders should contact the Information Agent, the Dealer Manager or their
broker, dealer, commercial bank or trust company for assistance concerning the
Offer. Requests for additional copies of the Offer to Purchase and Letters of
Transmittal may also be directed to the Information Agent.
THE INFORMATION AGENT:
(LOGO FOR GEORGESON COMPANY, INC.)
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
Call Toll Free: (800) 223-2064
THE DEALER MANAGER FOR THE OFFER IS:
J.P. MORGAN & CO.
60 Wall Street
Mail Stop 25RY
New York, New York 10260
(888) 576-5626 (toll free)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, AUGUST 11, 1997 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS
EXTENDED.
LETTER OF TRANSMITTAL
TO TENDER SHARES
OF
COMMON STOCK
OF
CONTROL DATA SYSTEMS, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED JULY 15, 1997
BY
CDSI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
CDSI HOLDING CORPORATION
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or
The Bank of New York (for Eligible Institutions Only) Overnight Courier:
Tender & Exchange (212) 815-6213 The Bank of New York
Department Tender & Exchange
P.O. Box 11248 For Confirmation Telephone: Department
Church Street Station (800) 507-9357 101 Barclay Street
New York, New York 10286-1248 Receive and Deliver
Window
New York, New York 10286
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set forth
above will not constitute a valid delivery.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
<PAGE>
This Letter of Transmittal is to be completed by stockholders if
certificates for Shares (as defined in the Offer to Purchase, dated July 15,
1997 (the "Offer to Purchase")), are to be forwarded herewith or, unless an
Agent's Message (as defined in the Offer to Purchase) is utilized, if tenders of
shares are made by book-entry transfer to an account maintained by The Bank of
New York (the "Depositary") at The Depository Trust Company ("DTC") or
Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer
Facility" and collectively referred to as the "Book-Entry Transfer Facilities"),
pursuant to the procedures set forth in Section 3 of the Offer to Purchase.
Stockholders who tender Shares by book-entry transfer are referred to herein as
"Book-Entry Stockholders".
Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available, or who cannot deliver their Share
Certificates and all other required documents to the Depositary on or prior to
the Expiration Date, must tender their Shares according to the guaranteed
delivery procedures set forth in Section 3 of the Offer to Purchase. See
Instruction 2.
NOTE: SIGNATURES MUST BE PROVIDED ON THE INSIDE AND REVERSE BACK COVER.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------------------
Check Box of Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account No.
-----------------------------------------------------------------
Transaction Code No.
--------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
-------------------------------------------
Window Ticket Number (if any):
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------
Name of Institution which Guaranteed Delivery:
----------------------------
2
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARE(S) TENDERED
APPEAR(S) ON SHARES CERTIFICATES) (ATTACH ADDITIONAL LIST, IF NECESSARY)
TOTAL NUMBER
OF SHARES
SHARE REPRESENTED NUMBER OF
CERTIFICATE BY SHARE SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
---------- --------------- ----------
<S> <C> <C> <C>
------------- --------------- ----------
------------- --------------- ----------
------------- --------------- ----------
------------- --------------- ----------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, it will be assumed that all Shares represented
by certificates delivered to the Depositary are being tendered. See
Instruction 4.
</TABLE>
3
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to CDSI Acquisition Corp. (the "Purchaser"),
a Delaware corporation and a wholly owned subsidiary of CDSI Holding Corporation
, a Delaware corporation ("Parent"), the described shares of Common Stock, par
value $.01 per share (the "Shares"), of Control Data Systems, Inc., a Delaware
corporation (the "Company"), at a price of $20.25 per Share, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated July 15, 1997 (the "Offer to Purchase"),
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which together with the Offer to Purchase constitute the "Offer"). The
undersigned understands that the Purchaser reserves the right to transfer or
assign, in whole or from time to time in part, to Parent or one or more of
Parent's subsidiaries or affiliates, the right to purchase all or any portion of
the Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), the undersigned hereby
sells, assigns, and transfers to, or upon the order of, the Purchaser all right,
title and interest in and to all of the Shares that are being tendered hereby
and any and all dividends on the Shares or any distribution (including, without
limitation, the issuance of additional Shares pursuant to a stock dividend or
stock split, the issuance of other securities or the issuance of rights for the
purchase of any securities) with respect to the Shares that is declared or paid
by the Company on or after July 15, 1997 and is payable or distributable to
stockholders of record on a date prior to the transfer into the name of the
Purchaser or its nominees or transferees on the Company's stock transfer records
of the Shares purchased pursuant to the Offer (a "Distribution"), and
constitutes and irrevocably appoints the Depositary the true and lawful agent,
attorney-in-fact and proxy of the undersigned to the full extent of the
undersigned's rights with respect to such Shares (and any Distributions) with
full power of substitution (such power of attorney and proxy being deemed to be
an irrevocable power coupled with an interest), to (i) deliver Share
Certificates (and any Distributions) or transfer ownership of such Shares on the
account books maintained by the Book-Entry Transfer Facilities, together in
either such case with all accompanying evidences of transfer and authenticity,
to or upon the order of the Purchaser upon receipt by the Depositary, as the
undersigned's agent, of the purchase price, (ii) present Shares (and any
Distributions) for transfer on the books of the Company and (iii) receive all
benefits and otherwise exercise all rights of beneficial ownership of Shares
(and any Distributions), all in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Patrick J. Welsh and Thomas E.
McInerney, and each of them individually, the attorneys-in-fact and proxies of
the undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall, in his sole discretion,
deem proper, and otherwise act (including pursuant to written consent) with
respect to all of the Shares tendered hereby which have been accepted for
payment by the Purchaser prior to the time of such vote or action (and any
Distributions) which the undersigned is entitled to vote at any meeting of
stockholders (whether annual or special and whether or not an adjourned or
postponed meeting) of the Company, or by consent in lieu of such meeting, or
otherwise. This power of attorney and proxy is coupled with an interest in the
tendered Shares and is irrevocable and is granted in consideration of, and is
effective upon, the acceptance for payment of such Shares by the Purchaser in
accordance with the terms of the Offer. Such acceptance for payment shall
revoke, without further action, any other power of attorney or proxy granted by
the undersigned at any time with respect to the Shares (and any Distributions)
and no subsequent powers of attorney or proxies will be given (and if given will
be deemed not to be effective) with respect thereto by the undersigned. The
undersigned understands that the Purchaser reserves the right to require that,
in order for Shares to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares, the Purchaser or its
designees is able to exercise full voting rights with respect to such Shares and
other securities, including voting at any meeting of stockholders.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distributions) and that, when the same are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver all additional documents
deemed by the Depositary or the Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the Shares tendered hereby (and
any Distributions). In addition, the undersigned shall promptly remit and
transfer to the Depositary for the account of the Purchaser any and all other
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer and, pending such remittance or
appropriate assurance thereof, the Purchaser shall be entitled to all rights and
privileges as owner of any such Distributions, and may withhold the entire
purchase price or deduct from the purchase price of Shares tendered hereby the
amount or value thereof, as determined by the Purchaser in its sole discretion.
All authority herein conferred or herein agreed to be conferred shall not
be affected by, and shall survive, the death or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates not tendered or accepted for payment in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates not tendered or accepted for payment (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature. In the event that either or both the "Special Delivery
Instructions" and the "Special Payment Instructions" are completed, please issue
the check for the purchase price and/or return any Share Certificates not
tendered or accepted for payment in the name(s) of, and deliver said check
and/or return Share Certificates to, the person or persons so indicated. The
undersigned recognizes that the Purchaser has no obligation pursuant to the
"Special Payment Instructions" to transfer any Shares from the name of the
registered holder thereof if the Purchaser does not accept for payment any of
such Shares.
4
<PAGE>
<TABLE>
<CAPTION>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
<S> <C>
To be completed ONLY if certificates for To be completed ONLY if certificates for
Shares not tendered or not purchased Shares not tendered or not purchased
and/or the check for the purchase price of and/or the check for the purchase price of
Shares purchased are to be issued in the Shares purchased are to be sent to someone
name of someone other than the other than the undersigned or to the
undersigned. undersigned at an address other than that
shown above.
Mail Check [ ] and/or Certificates [ ] to: Issue Check [ ] and/or Certificates [ ] to:
Name______________________________________ Name_______________________________________
(Please Print) (Please Print)
Address___________________________________ Address____________________________________
__________________________________________ ____________________________________________
(Include Zip Code) (Include Zip Code)
__________________________________________ ____________________________________________
(Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
(See Substitute Form W-9 below) (See Substitute Form W-9 below)
</TABLE>
SIGN HERE
PLEASE ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW
_______________________________________________________________________________
SIGN HERE- - SIGN HERE
_______________________________________________________________________________
(SIGNATURE(S) OF OWNER(S))
Dated: ___________________________________, 1997
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on the
Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the necessary information.
See Instruction 5.)
Name(s)_________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (Full Title)___________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
(Area Code and Telephone No.)___________________________________________________
(Tax Identification or Social Security No.)_____________________________________
(SEE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED - SEE INSTRUCTIONS 1 AND 5)
(Authorized Signature(s))_______________________________________________________
(Name)__________________________________________________________________________
(Name of Firm)__________________________________________________________________
(Address Including Zip Code)____________________________________________________
(Area Code and Telephone Number)________________________________________________
(Dated)___________________________________, 1997
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required (a) if this Letter of Transmittal is signed by the
registered holder of the Shares tendered herewith, unless such holder has
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" or (b) if such Shares are tendered for
the account of a bank or trust company in the United States or by a firm that is
a member of the National Association of Securities Dealers, Inc. or of a
registered national securities exchange which is a member of a recognized member
of a Medallion Signature Guarantee Program (an "Eligible Institution"). In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates. This Letter of
Transmittal is to be used if Share Certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in Section 3 of the Offer
to Purchase. Share Certificates, or timely confirmation (a "Book-Entry
Confirmation") of a book-entry transfer of such Shares into the Depositary's
account at a Book-Entry Transfer Facility, as well as this Letter of Transmittal
(or a facsimile hereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry transfer, and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth herein prior to the Expiration Date and, if
later, stockholders who cannot deliver their Share Certificates and all other
required documents to the Depositary prior to the Expiration Date or who cannot
complete the procedures for delivery by book-entry transfer on a timely basis
must tender their Shares by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender
must be made by or through an Eligible Institution; (b) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form made
available by the Purchaser, must be received by the Depositary on or prior to
the Expiration Date; and (c) the Share Certificates (or a Book-Entry
Confirmation) representing all tendered Shares, in proper form for transfer
together with a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile hereof), with any required signature guarantees (or,
in the case of a book-entry transfer, an Agent's Message) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three Nasdaq National Market trading days after the date of
execution of such Notice of Guaranteed Delivery as provided in Section 3 of the
Offer to Purchase. If Share Certificates are forwarded separately to the
Depositary, a properly completed and duly executed Letter of Transmittal (or
facsimile hereof) must accompany each such delivery.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THIS LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal or facsimile
hereof, waive any right to receive any notice of the acceptance of their Shares
for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares and any other required information should be listed on a separate
schedule attached hereto and separately signed on each page thereof in the same
manner as this Letter of Transmittal is signed.
4. Partial Tenders (Not Applicable to Stockholders who Tender by Book-Entry
Transfer). If fewer than all the Shares evidenced by any certificate submitted
are to be tendered, fill in the number of Shares which are to be tendered in the
box entitled "Number of Shares Tendered." In such case, new certificate(s) for
the remainder of the Shares that were evidenced by your old certificate(s) will
be sent to you, unless otherwise provided in the appropriate box marked "Special
Payment Instructions" and/or "Special Delivery Instructions" on this Letter of
Transmittal, as soon as practicable after the Expiration Date. All Shares
represented by certificates delivered to the Depositary will be deemed to have
been tendered unless otherwise indicated.
5. Signatures of Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
6
<PAGE>
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or purchased are to be issued in the name
of, a person other than the registered holder(s). Signatures on such Share
Certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares listed, the Share Certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered holder(s) appear(s) on the
certificates. Signatures on such Share Certificates or stock powers must be
guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of purchased Shares to it or its order pursuant to the
Offer. If, however, payment of the purchase price is to be made to, or if
certificates for Shares not tendered or purchased are to be registered in the
name of, any person other than the registered holder, or if tendered Share
Certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder or such person) payable on account of
the transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES LISTED IN THIS
LETTER OF TRANSMITTAL.
7. Special Payment and Delivery Instructions. If a check is to be issued in
the name of and/or certificates for unpurchased Shares are to be returned to a
person other than the signer of this Letter of Transmittal or if a check is to
be sent and/or such Share Certificates are to be returned to someone other than
the signer of this Letter of Transmittal or to an address other than that shown
on the front cover hereof, the appropriate boxes on this Letter of Transmittal
should be completed. See Instruction 1.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance may be directed to the Information Agent at its address or telephone
number set forth below. Requests for additional copies of the Offer to Purchase
and this Letter of Transmittal may be directed to the Information Agent or to
brokers, dealers, commercial banks or trust companies.
9. 31% Backup Withholding, Substitute Form W-9. Under U.S. Federal income
tax law, a stockholder whose tendered Shares are accepted for payment is
required to provide the Depositary with such stockholder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Depositary is
not provided with the correct TIN, the Internal Revenue Service may subject the
stockholder or other payee to a $50 penalty. In addition, payments that are made
to such stockholder or other payee with respect to Shares purchased pursuant to
the Offer may be subject to 31% backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
10. Lost, Destroyed or Stolen Certificates. If any certificate(s)
representing Shares has (have) been lost, destroyed or stolen, the stockholder
should promptly notify the Transfer Agent for the Company, The Bank of New York.
The stockholder will then be instructed as to the steps that must be taken in
order to replace the certificate(s). This Letter of Transmittal and related
documents cannot be processed until the procedures for replacing lost or
destroyed certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE COPY
HEREOF) OR AN AGENT'S MESSAGE TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION
OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE
DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE.
7
<PAGE>
<TABLE>
<CAPTION>
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(SEE INSTRUCTION 9)
Part 1 - PLEASE PROVIDE YOUR TIN IN Social Security Number
SUBSTITUTE THE BOX AT RIGHT AND CERTIFY BY or Employer Identification Number
FORM W-9 SIGNING AND DATING BELOW.
------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Part 2 - Certification-Under penalties of perjury, I certify that:
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE (1) (1) The number shown on this form is my correct (or I am waiting for a number to
be issued to me) and
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION (2) I am not subject to backup withholding because: (a) I am exempt from backup
NUMBER "TIN" withholding, or (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding. Certification Instructions - You must
cross out item (2) above if you have been notified by the IRS that you are
currently subject to backup withholding because of under-reporting interest or
dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding, you received another notification from
the IRS that you are no longer subject to backup withholding, do not cross out
such Item (2).
- ---------------------------------------------------------------------------------------------------------------------------
Part 3
SIGNATURE: _____________________________ DATE: ________ Awaiting
TIN [ ]
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE
BOX IN PART 3 OF SUBSTITUTE FORM W-9.
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a Taxpayer Identification Number by the time of payment, 31% of all
reportable payments made to me will be withheld, but that such amounts will be
refunded to me if I then provide a Taxpayer Identification Number within sixty
(60) days.
- ------------------------------------------ ------------------------------, 1997
Signature Date
Any questions or requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of the
Offer to Purchase, this Letter of Transmittal and other tender offer materials
may be obtained from the Information Agent as set forth below, and will be
furnished promptly at the Purchaser's expense. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
(LOGO)
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
The Dealer Manager for the Offer is:
J.P. MORGAN & CO.
60 Wall Street
Mail Stop 25RY
New York, New York 10260
(888) 576-5626
Arden Hills, Minnesota, July 9 -- Control Data Systems, Inc.
(Nasdaq: CDAT) and CDSI Holding Corporation (CDSI Holding), a company formed at
the direction of Welsh, Carson, Anderson & Stowe (WCAS), jointly announced today
that they have signed a definitive merger agreement for CDSI Holding to acquire
all of the outstanding common shares of Control Data at a price of $20.25 per
share.
Under the terms of the merger agreement, which was unanimously
approved by the boards of directors of Control Data Systems and CDSI Holding,
CDSI Holding, through a subsidiary, will promptly commence a tender offer to
purchase all of the outstanding shares of Control Data. The cash tender offer
will be followed by a cash merger to acquire all shares not tendered, also at a
price of $20.25 per share.
The tender offer is expected to commence on July 15, 1997. The
cash tender offer is subject to receipt by the offeror of at least 51 percent of
the fully diluted shares of common stock of Control Data Systems, as well as the
satisfaction of various other conditions, including expiration of the waiting
period under the Hart-Scott-Rodino Act.
"The board and management of Control Data Systems fully
endorse this proposed acquisition," said Jim Ousley, Control Data president and
CEO. Control Data Systems was formed in August 1992 through a stock dividend to
the shareholders of the original Control Data Corporation, now Ceridian
Corporation.
Control Data Systems is a global software and services company
dedicated to helping organizations integrate the enterprise-wide systems
required to create, transmit, access and control electronic information. With
its Rialto brand of directory-enabled software tools and services, the company
is focused on the architecture, implementation and lifetime support of digital
commerce and enterprise-wide client-server solutions for business and
government.
WCAS is one of the country's leading private investment firms.
It focuses on two primary industries: health care and information services. The
companies in its portfolio have combined revenues of more than $9 billion.
Contact: Tom Charland, Media Relations, 612-415-4229, or Jim
McLendon, Investor Relations, 612-415-4469, both of Control Data Systems, Inc.
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
CDSI HOLDING CORPORATION,
CSDI ACQUISITION CORP.
and
CONTROL DATA SYSTEMS, INC.
Dated as of July 8, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER
SECTION 1.01 The Offer.................................................... 1
SECTION 1.02 Company Action............................................... 2
SECTION 1.03 Directors.................................................... 3
ARTICLE II
THE MERGER
SECTION 2.01 The Merger................................................... 4
SECTION 2.02 Effect of the Merger......................................... 4
SECTION 2.03 Consummation of the Merger................................... 4
SECTION 2.04 Certificate of Incorporation; By-Laws;
Directors and Officers.................................. 5
SECTION 2.05 Conversion of Securities..................................... 5
SECTION 2.06 Stock Options................................................ 5
SECTION 2.07 Payment for Shares........................................... 6
SECTION 2.08 Dissenting Shares............................................ 8
SECTION 2.09 Dissenting Shares After Payment of
Fair Value.............................................. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification............................... 9
SECTION 3.02 Subsidiaries................................................. 9
SECTION 3.03 Authority Relative to Agreement.............................. 10
SECTION 3.04 Non-Contravention............................................ 10
SECTION 3.05 Capitalization............................................... 10
SECTION 3.06 SEC Filings.................................................. 11
SECTION 3.07 Financial Statements......................................... 11
SECTION 3.08 Absence of Certain Changes or Events......................... 12
SECTION 3.09 Governmental Approvals....................................... 12
SECTION 3.10 Compliance with Laws......................................... 13
SECTION 3.11 Disclosure Documents......................................... 13
SECTION 3.12 Litigation................................................... 14
SECTION 3.13 Software..................................................... 14
SECTION 3.14 Trade Secrets................................................ 15
SECTION 3.15 Severance Arrangements....................................... 15
SECTION 3.16 Taxes........................................................ 16
SECTION 3.17 Employee Benefit Plans....................................... 17
SECTION 3.18 Environmental Matters........................................ 18
SECTION 3.19 Customer Relationships....................................... 18
SECTION 3.20 Certain Transactions......................................... 19
SECTION 3.21 State Takeover Statute Inapplicable.......................... 19
SECTION 3.22 Brokers...................................................... 19
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 4.01 Organization and Qualification............................... 19
SECTION 4.02 Authority Relative to Agreement.............................. 20
SECTION 4.03 Non-Contravention............................................ 20
SECTION 4.04 Governmental Approvals....................................... 20
SECTION 4.05 Disclosure Documents......................................... 20
SECTION 4.06 Brokers...................................................... 21
SECTION 4.07 Financing.................................................... 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
SECTION 5.01 Organization and Qualification............................... 22
SECTION 5.02 Authority Relative to Agreement.............................. 22
SECTION 5.03 Non-Contravention............................................ 22
SECTION 5.04 Governmental Approvals....................................... 22
ARTICLE VI
CERTAIN AGREEMENTS
SECTION 6.01 Conduct of the Company's Business............................ 23
SECTION 6.02 Stockholder Approval......................................... 25
SECTION 6.03 Access to Information........................................ 26
SECTION 6.04 Further Assurances........................................... 26
SECTION 6.05 Inquiries and Negotiations; Certain
Payments................................................ 26
SECTION 6.06 Notification of Certain Matters.............................. 29
SECTION 6.07 Indemnification.............................................. 29
SECTION 6.08 Voting of Shares............................................. 30
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Merger Relating
to Parent and Acquisition............................... 30
SECTION 7.02 Conditions to the Merger Relating
to the Company.......................................... 31
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination and Abandonment.................................. 31
SECTION 8.02 Effect of Termination........................................ 32
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Nonsurvival of Representations and
Warranties.............................................. 32
SECTION 9.02 Expenses, Etc................................................ 33
ii
<PAGE>
SECTION 9.03 Publicity.................................................... 33
SECTION 9.04 Execution in Counterparts.................................... 33
SECTION 9.05 Notices...................................................... 33
SECTION 9.06 Waivers...................................................... 34
SECTION 9.07 Entire Agreement............................................. 34
SECTION 9.08 Applicable Law............................................... 35
SECTION 9.09 Binding Effect, Benefits..................................... 35
SECTION 9.10 Assignability................................................ 35
SECTION 9.11 Amendments................................................... 35
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 8, 1997, among
CDSI HOLDING CORPORATION, a Delaware corporation ("Parent"), CDSI ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of Parent
("Acquisition"), and CONTROL DATA SYSTEMS, INC., a Delaware corporation (the
"Company"). The Company and Acquisition are hereinafter sometimes referred to as
the "Constituent Corporations" and the Company as the "Surviving Corporation."
WHEREAS the respective Boards of Directors of Parent,
Acquisition and the Company have each approved, upon the terms and subject to
the conditions hereinafter provided, the acquisition of the Company by
Acquisition pursuant to a tender offer by Acquisition for all the outstanding
shares of Common Stock, $.01 par value ("Company Common Stock"), of the Company,
followed by a merger of Acquisition with and into the Company;
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants, agreements and conditions contained
herein, and in order to set forth the terms and conditions of the Merger and the
mode of carrying the same into effect, the parties hereto hereby agree as
follows:
ARTICLE I
THE OFFER
SECTION 1.01 The Offer. (a) Provided that nothing shall have
occurred that, had the Offer referred to below been commenced, would give rise
to a right to terminate the Offer under any of the conditions set forth in Annex
I hereto, Acquisition shall, as promptly as practicable after the date hereof,
but in no event later than five business days following the public announcement
of the terms of this Agreement, commence an offer (the "Offer") to purchase all
of the outstanding shares (the "Shares" of Company Common Stock at a price of
$20.25 per Share, net to the seller in cash (or at such higher price as
Acquisition, in its sole discretion, elects to offer), but subject to any
withholding required by law. The Offer shall be subject to the condition that
there shall be validly tendered prior to the expiration date of the Offer and
not withdrawn a number of Shares representing at least 51% of the Shares
outstanding on a fully diluted basis (the "Minimum Condition") and to the other
conditions set forth in Annex I hereto. For purposes of determining the Minimum
Condition, (i) Shares tendered subject to guaranteed delivery shall not be
considered validly tendered unless and until delivery shall have been completed
and (ii) Shares out-
<PAGE>
standing on a fully-diluted basis shall mean all Shares actually outstanding
plus all Shares issuable upon exercise, conversion or exchange of
then-outstanding options, warrants and other rights to purchase, or other
securities convertible into or exchangeable for, Company Common Stock, including
any Shares issuable pursuant to the Company Stock Purchase Plan or the Company
Stock Option Plan (each as defined in Section 3.05). Acquisition expressly
reserves the right to waive the Minimum Condition or any of the other conditions
to the Offer and to make any change in the terms or conditions of the Offer;
provided that no change may be made that changes the form of consideration to be
paid or decreases the price per Share or the number of Shares sought in the
Offer or which imposes conditions to the Offer in addition to those set forth in
Annex I.
(b) As soon as practicable on the date of commencement of the
Offer, Acquisition shall file with the Securities and Exchange Commission
("SEC") a Tender Offer Statement on Schedule 14D-1 with respect to the Offer
which will contain the offer to purchase and form of the related letter of
transmittal (together with any supplements or amendments thereto, collectively
the "Offer Documents"). Acquisition and the Company each agrees promptly to
correct any information provided by it for use in the Offer Documents if and to
the extent that it shall have become false or misleading in any material
respect. Acquisition agrees to take all steps necessary to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given a reasonable
opportunity to review and comment on the Offer Documents prior to their being
filed with the SEC.
SECTION 1.02 Company Action. (a) The Company hereby consents
to the Offer and represents that its Board of Directors, at a meeting duly
called and held, has (i) unanimously determined that this Agreement and the
transactions contemplated hereby, including the Offer and the Merger (as defined
in Section 2.01), are fair to and in the best interest of the Company's
stockholders, (ii) unanimously approved this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, which approval
constituted approval of the Offer, the Merger and this Agreement for purposes of
Sections 203 and 251 of the General Corporation Law of the State of Delaware
(the "Delaware GCL"), and (iii) unanimously resolved to recommend acceptance of
the Offer and approval and adoption of this Agreement and the Merger by its
stockholders. The Company further represents that Cowen & Company has delivered
to the Company's Board of Directors its written opinion that, as of the date of
such opinion, the consideration to be paid in the Offer and the Merger is fair
to the holders of Shares (other than Parent and its affiliates) from a financial
point of view. The Company has been advised that all of its directors and
executive officers intend either to tender
2
<PAGE>
their Shares pursuant to the Offer or to vote in favor of the Merger. The
Company will promptly furnish Acquisition with a list of its stockholders,
mailing labels and any available listing or computer file containing the names
and addresses of all record holders of Shares and lists of securities positions
of Shares held in stock depositories, in each case true and correct as of the
most recent practicable date, and will provide to Acquisition such additional
information (including, without limitation, updated lists of stockholders,
mailing labels and lists of securities positions) and such other assistance as
Acquisition may reasonably request in connection with the Offer.
(b) As soon as practicable on the day that the Offer
is commenced, the Company will file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D- 9"), which shall reflect the
recommendations of the Company's Board of Directors referred to above. The
Company and Acquisition each agree promptly to correct any information provided
by it for use in the Schedule 14D-9 if and to the extent that it shall have
become false or misleading in any material respect. The Company agrees to take
all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Parent, Acquisition and
their counsel shall be given an opportunity to review and comment on the
Schedule 14D-9 prior to its being filed with the SEC.
SECTION 1.03 Directors. (a) Effective upon the acceptance for
payment by Acquisition of, and deposit by Acquisition with the depositary for
the Offer of funds sufficient to make payment for, a majority of the outstanding
Shares pursuant to the Offer, Acquisition shall be entitled to designate the
number of directors, rounded up to the next whole number, on the Company's Board
of Directors that equals the product of (i) the total number of directors on the
Company's Board of Directors (giving effect to the election of any additional
directors pursuant to this Section) and (ii) the percentage that the number of
Shares owned by Acquisition (including Shares accepted for payment and for which
deposit has been made as aforesaid) bears to the total number of Shares
outstanding, and the Company shall take all action necessary to cause
Acquisition's designees to be elected or appointed to the Company's Board of
Directors, including, without limitation, increasing the number of directors and
seeking and accepting resignations of incumbent directors. At such times, the
Company will use its best efforts to cause individuals designated by Acquisition
to constitute the same percentage as such individuals represent on the Company's
Board of Directors of (A) each committee of the Board (other than any committee
of the Board established to take action under this Agreement), (B) each board of
directors of each Subsidiary (as defined in Section 3.02) and (C) each committee
of each such
3
<PAGE>
board. Notwithstanding the foregoing, at all times prior to the Effective Time
the Board shall include at least two directors in office as of the date hereof
who are not employees of the Company or any of its subsidiaries or affiliates of
Parent or Acquisition (any such director remaining in office being a "Continuing
Director").
(b) The Company's obligations to appoint designees to the
Board of Directors shall be subject to Section 14(f) of the Exchange Act (as
defined in Section 3.06) and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section and shall include
in the Schedule 14D-9 such information with respect to the Company and its
officers and directors as is required under Section 14(f) and Rule 14f-1 to
fulfill its obligations under this Section 1.03. Acquisition will supply to the
Company in writing and be solely responsible for any information with respect to
itself and its nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. As promptly as reasonably practicable
after consummation of the Offer, subject to the terms and conditions of this
Agreement, at the Effective Time (as hereinafter defined), in accordance with
this Agreement and the Delaware GCL, Acquisition shall be merged with and into
the Company (the "Merger"), the separate existence of Acquisition (except as it
may be continued by operation of law) shall cease, and the Company shall
continue as the surviving corporation.
SECTION 2.02 Effect of the Merger. Upon the effectiveness of
the Merger, the Surviving Corporation shall succeed to and assume all the rights
and obligations of the Company and Acquisition in accordance with the Delaware
GCL and the Merger shall otherwise have the effects set forth in Section 259 of
the Delaware GCL.
SECTION 2.03 Consummation of the Merger. As soon as
practicable after the satisfaction or waiver of the conditions to the
obligations of the parties to effect the Merger set forth herein, provided that
this Agreement has not been terminated previously, the parties hereto will cause
the Merger to be consummated by filing with the Secretary of State of the State
of Delaware a properly executed certificate of merger in accordance with the
Delaware GCL, which shall be effective upon filing or on such later date as may
be specified therein (the time of such effectiveness being the "Effective
Time").
4
<PAGE>
SECTION 2.04 Certificate of Incorporation; By-Laws; Directors
and Officers. The Certificate of Incorporation of Acquisition in effect at the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until thereafter amended in accordance with the provisions thereof
and as provided by the Delaware GCL. The By-Laws of Acquisition in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation, until
thereafter amended in accordance with the provisions thereof and the Certificate
of Incorporation of the Surviving Corporation and as provided by the Delaware
GCL. From and after the Effective Time and until their respective successors are
duly elected or appointed and qualified, (a) the directors of Acquisition at the
Effective Time shall be the directors of the Surviving Corporation and (b) the
officers of the Company at the Effective Time shall be the officers of the
Surviving Corporation.
SECTION 2.05 Conversion of Securities. By virtue of the Merger
and without any action on the part of either Constituent Corporation or any
holder of the capital stock thereof, at the Effective Time:
(a) Each share of Common Stock, $.01 par value, of
Acquisition issued and outstanding immediately prior to the Effective
Time shall be converted into and become one validly issued, fully paid
and nonassessable share of Common Stock of the Surviving Corporation;
(b) Each share of Company Common Stock that is held
in the treasury of the Company or of any Subsidiary, or by Parent,
Acquisition or any of their subsidiaries, shall be canceled and retired
and no consideration shall be paid or delivered in exchange therefor;
and
(c) Each remaining share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares, as defined in Section 2.08) shall be converted
into the right to receive an amount in cash, without interest, equal to
the $20.25 or any higher price paid for each Share in the Offer (the
"Merger Consideration").
SECTION 2.06 Stock Options. (a) All stock options out-
standing at the Effective Time under the Company Stock Option Plan (as defined
in Section 3.05) shall, whether or not exercisable or vested, become fully
exercisable and vested, and each holder of an option thereunder shall be
entitled to receive from the Company, as of the Effective Time, for each share
of Company Common Stock subject to an option an amount in cash in cancellation
of such option equal to the excess, if any, of the Merger Consideration over the
per share exercise price of such option, subject to applicable withholding, if
any. The Company Stock Option Plan
5
<PAGE>
and all options issued and outstanding thereunder shall terminate effective as
of the Effective Time.
(b) Immediately prior to the Effective Time, all options
outstanding under the Company Stock Purchase Plan (as defined in Section 3.05)
shall become exercisable to the extent of payroll deductions accumulated by
participants as of such date, and each participant shall be deemed to have
purchased the number of whole Shares subject to the options held by such
participant at a per Share price determined pursuant to the provisions of the
Company Stock Purchase Plan, and each participant shall receive a cash payment
equal to the balance, if any, of such accumulated payroll deductions remaining
after the deemed purchase of such Shares. As of the Effective Time, each
participant shall receive, for each Share such participant is deemed to have
purchased, the Merger Consideration. The Company Stock Purchase Plan and all
options issued and outstanding thereunder shall terminate effective as of the
Effective Time.
SECTION 2.07 Payment for Shares. (a) Prior to the Effective
Time, Parent shall designate a bank or trust company to act as exchange agent
(the "Exchange Agent") for the purpose of exchanging certificates representing
Shares for the Merger Consideration. At the Effective Time, Parent and
Acquisition shall cause such funds as are required for the conversion of the
Shares pursuant to Section 2.05(c) hereof (the "Exchange Fund") to be deposited
with the Exchange Agent.
(b) Promptly after the Effective Time, the Surviving
Corporation shall instruct the Exchange Agent to mail to each holder of record
of one or more shares of Company Common Stock, (i) a letter of transmittal,
which shall specify that delivery shall be effected, and risk of loss and title
to the certificates that immediately prior to the Effective Time represented
outstanding Shares (each, a "Certificate") shall pass, only upon proper delivery
of the Certificate to the Exchange Agent and have such other provisions as
Parent shall specify, and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for Merger Consideration. Until surrendered as
contemplated by this Section 2.07, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive the Merger
Consideration. No interest will be paid or accrued on the Merger Consideration.
(c) Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, and such other documents
as may reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration payable in respect of the Shares previously represented by such
Certificate, after giving effect to any applicable withholding
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tax, and the Certificate so surrendered shall forthwith be canceled.
(d) If Merger Consideration is to be paid to any person other
than the person in whose name the Certificates for Shares surrendered for
conversion are registered, it shall be a condition of the payment that such
Certificates be properly endorsed and the signatures thereon properly guaranteed
and otherwise in proper form for transfer and that the person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required by
reason of the delivery of Merger Consideration to a person other than the
registered holder of such Certificate, or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
(e) Any portion of the Exchange Fund held by the Exchange
Agent for delivery pursuant to this Section 2.07 and unclaimed at the end of six
months after the Effective Time shall be repaid or redelivered to Parent, upon
demand, and any holders of Certificates who have not theretofore complied with
this Section 2.07 shall, subject to applicable law, thereafter look only to the
Surviving Corporation for payment of the Merger Consideration in respect of such
holders' Shares. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation or the Exchange Agent shall be liable to any holder of Shares of
Company Stock for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any amounts unclaimed by
holders of Shares two years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become the property of any governmental entity) shall, to the extent permitted
by applicable law, become the property of the Surviving Corporation free and
clear of any claims or interest of any person previously entitled thereto.
(f) The Exchange Agent shall invest any cash in the Exchange
Fund, as directed by Parent, in (i) direct obligations of the United States of
America, (ii) obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest or (iii) commercial paper rated, at the time of purchase, in either of
the two highest quality categories by both Moody's Investors Services Inc. and
Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., and any net
earnings with respect thereto shall be paid to Parent as and when requested by
Parent. In the event the Exchange Fund shall realize a loss on any such
investment, Parent shall promptly thereafter deposit in the Exchange Fund cash
in an amount sufficient to enable the Exchange Fund to satisfy all remaining
obligations originally contemplated to be paid out of the Exchange Fund.
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(g) At and after the Effective Time, the stock transfer books
of the Company shall be closed, and there shall be no further registrations of
transfers of shares of Company Common Stock thereafter on the records of the
Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, Parent or the Exchange Agent for any reason, they shall
be canceled and exchanged for Merger Consideration as provided in this Section
2.07.
SECTION 2.08 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, Shares that are outstanding immediately prior to
the Effective Time and that are held by stockholders who have not voted such
Shares in favor of the approval and adoption of this Agreement and who shall
have delivered a written demand for appraisal of such shares in the manner
provided in Section 262 of the Delaware GCL ("Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration, but the holders of
such Shares shall be entitled to payment of the appraised value of such Shares
in accordance with the provisions of Section 262 of the Delaware GCL; provided,
however, that (i) if any holder of Dissenting Shares shall subsequently deliver
a written withdrawal of such holder's demand for appraisal of such shares (with
the written approval of the Surviving Corporation, if such withdrawal is not
tendered within 60 days after the Effective Time), or (ii) if any holder fails
to perfect or loses such holder's appraisal rights as provided in Section 262 of
the Delaware GCL, or (iii) if any holder of Dissenting Shares fails to demand
payment within the time period provided in Section 262 of the Delaware GCL, such
holder shall forfeit the right to appraisal of such shares and such shares shall
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive the Merger Consideration, without any interest thereon. The
Company shall give Acquisition prompt notice of any demands received by the
Company for appraisal of Shares, and the Company shall not, except with the
written consent of Acquisition, make any payment with respect to, or settle or
offer to settle, any such demands.
SECTION 2.09 Dissenting Shares After Payment of Fair Value.
Dissenting Shares, if any, shall be canceled after payments of fair value in
respect thereto have been made to dissenting stockholders of the Company
pursuant to the Delaware GCL.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition
as follows:
SECTION 3.01 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect (as
hereinafter defined) on the Company. As used herein, "Material Adverse Effect"
shall mean, with respect to any party, a material adverse effect on the
business, assets, condition (financial or other) or operating results of such
party and its subsidiaries, taken as a whole.
SECTION 3.02 Subsidiaries. (a) Except for shares of the
Subsidiaries (as hereinafter defined), and except as set forth in Section 3.02
of the Disclosure Schedule delivered by the Company to Parent and Acquisition on
the date hereof (the "Disclosure Schedule"), the Company does not own of record
or beneficially, directly or indirectly, (i) any shares of outstanding capital
stock or securities convertible into capital stock of any other corporation or
(ii) any participating interest in any partnership, joint venture or other
non-corporate business enterprise. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as it is now being conducted. Each Subsidiary is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction in which the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified would not reasonably be expected to have a Material
Adverse Effect on the Company. Each Subsidiary and its jurisdiction of formation
is identified in Section 3.02 of the Disclosure Schedule.
(b) Except as set forth in Section 3.02 of the Disclosure
Schedule, all the outstanding shares of capital stock of each Subsidiary are
validly issued, fully paid and nonassessable and are owned by the Company or by
a wholly-owned Subsidiary of the Company, free and clear of any liens, claims,
charges, encum-
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brances or adverse claims, and there are no proxies outstanding or restrictions
on voting with respect to any such shares.
(c) For purposes of this Agreement, the term "Subsidiary"
shall mean any corporation or other business entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
owned by the Company and/or one or more other Subsidiaries.
SECTION 3.03 Authority Relative to Agreement. The Company has
all requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by the Company's
Board of Directors, and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement and the transactions
contemplated hereby, other than the approval and adoption of this Agreement by a
majority of the stockholders of the Company. This Agreement has been duly
executed and delivered by the Company and, subject to such stockholder approval,
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
SECTION 3.04 Non-Contravention. Except as set forth in Section
3.04 of the Disclosure Schedule, the execution and delivery of this Agreement by
the Company do not and the consummation by the Company of the transactions
contemplated hereby will not (i) conflict with any provision of the Amended and
Restated Certificate of Incorporation or By-Laws of the Company; (ii) result
(with the giving of notice or the lapse of time or both) in any violation of or
default or loss of a benefit under, or permit the acceleration of any obligation
under, any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any Subsidiary or
their respective properties; or (iii) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any asset of the
Company or any Subsidiary; other than (in the cases of clauses (ii) and (iii)
above) such as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company.
SECTION 3.05 Capitalization. The authorized capital stock of
the Company consists of (i) 50,000,000 shares of Company Common Stock, and (ii)
5,000,000 shares of preferred stock, $.01 par value ("Preferred Stock"). As of
July 7, 1997, 12,622,359 shares of Company Common Stock are issued and
outstanding, all of which were duly and validly issued, fully paid and
nonassessable,
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and no shares of Preferred Stock are outstanding or have ever been issued.
Except for options to purchase an aggregate 1,688,490 shares of Company Common
Stock granted pursuant to the Company's 1992 Equity Incentive Plan (the "Company
Stock Option Plan"), and options to purchase, depending on the extent of payroll
deductions, up to an aggregate 65,000 shares of Company Common Stock granted
pursuant to the Company's 1993 Employee Stock Purchase Plan (the "Company Stock
Purchase Plan"), no subscription, warrant, option, convertible security, stock
appreciation or other right (contingent or other) to purchase or acquire, or any
securities convertible into or exchangeable for, any shares of any class of
capital stock of the Company or any Subsidiary is authorized or outstanding and
there is not any commitment of the Company or any Subsidiary to issue any
shares, warrants, options or other such rights or to distribute to holders of
any class of its capital stock any evidences of indebtedness or assets. Neither
the Company nor any Subsidiary has any obligation (contingent or other) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
SECTION 3.06 SEC Filings. The Company has provided to Parent
and Acquisition true and complete copies of (i) the Annual Reports of the
Company on Form 10-K for the years ended December 31, 1994, 1995 and 1996, (ii)
the Quarterly Report of the Company on Form 10-Q for the three months ended
March 31, 1997, (iii) its proxy or information statements relating to meetings
of, or actions taken without a meeting by, the stockholders of the Company since
January 1, 1994, and (iv) all other reports, statements and registration
statements filed by the Company with the SEC since January 1, 1994
(collectively, the "Company SEC Filings"). The Company SEC Filings (including,
without limitation, any financial statements or schedules included therein) (i)
were prepared in compliance with the requirements of the Securities Act of 1933,
as amended (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be, in all material respects and
(ii) did not at the time of filing (or if amended, supplemented or superseded by
a filing prior to the date hereof, on the date of that filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Subsidiaries is required to file any forms, reports or other documents with
the SEC.
SECTION 3.07 Financial Statements. The consolidated financial
statements of the Company included in the Company SEC Filings have been prepared
in accordance with generally accepted accounting principles consistently applied
and consistent with prior periods, subject, in the case of unaudited interim
consoli-
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dated financial statements, to year-end adjustments (which consist of normal
recurring accruals) and the absence of certain footnote disclosures. The
consolidated balance sheets of the Company included in the Company SEC Filings
fairly present in all material respects the financial position of the Company
and the Subsidiaries as of their respective dates, and the related consolidated
statements of operations, stockholders' equity and cash flows included in the
Company SEC Filings fairly present in all material respects the results of
operations of the Company and the Subsidiaries for the respective periods then
ended, subject, in the case of unaudited interim financial statements, to
year-end adjustments (which consist of normal recurring accruals) and the
absence of certain footnote disclosures.
SECTION 3.08 Absence of Certain Changes or Events. Except as
set forth in Section 3.08 of the Disclosure Schedule, since December 31, 1996,
neither the Company nor any Subsidiary has (i) issued any stock, bonds or other
corporate securities, (ii) borrowed any material amount or incurred any material
liabilities (absolute or contingent), except in the ordinary course of business,
(iii) discharged or satisfied any material lien or incurred or paid any material
obligation or liability (absolute or contingent) other than current liabilities
shown on the consolidated balance sheet of the Company and the Subsidiaries as
of December 31, 1996 and current liabilities incurred since the date of such
balance sheet in the ordinary course of business, (iv) declared or made any
payment or distribution to stockholders or purchased or redeemed any shares of
its capital stock or other securities, (v) mortgaged, pledged or subjected to
lien any of its material assets, tangible or intangible, other than liens for
current real property taxes not yet due and payable (and liens that,
individually and in the aggregate, could not materially impair the use or value
of the assets subject thereto), (vi) sold, assigned or transferred any of its
tangible assets, or canceled any debts or claims, except in the ordinary course
of business, in immaterial amounts or as otherwise contemplated hereby, (vii)
sold, assigned or transferred any patents, trademarks, trade names, copyrights,
trade secrets or other intangible assets, (viii) made any changes in officer or
executive compensation, (ix) agreed, in writing or otherwise, to take any of the
actions listed in clauses (i) through (viii) above, (x) suffered any Material
Adverse Effect or waived any rights of substantial value, whether or not in the
ordinary course of business, or (xi) entered into any transaction, except in the
ordinary course of business or as otherwise contemplated hereby; which, with
respect to any of the above, was or would reasonably be expected to be material
to any of the three business segments described in the Company's annual report
to stockholders for the year ended December 31, 1996 (each, a "Business
Segment").
SECTION 3.09 Governmental Approvals. No consent, approval,
order or authorization of, or registration, declaration
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or filing with, any federal, state, local or foreign governmental or regulatory
authority is required to be made or obtained by the Company in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for (i)
compliance by the Company with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"), (ii) filings pursuant to the Exchange Act and the rules
and regulations promulgated by the SEC thereunder, as contemplated by Sections
1.02 and 6.02 hereof, (iii) the filing of a certificate of merger with the
Secretary of State of the State of Delaware in accordance with the Delaware GCL,
(iv) such as are listed in Section 3.09 of the Disclosure Schedule and (v) such
consents, approvals, orders or authorizations which if not obtained, or
registrations, declarations or filings which if not made, would not materially
adversely affect the ability of the Company to consummate the transactions
contemplated hereby or the ability of the Surviving Corporation or any Business
Segment to conduct its business after the Effective Time substantially as
currently conducted by the Company or such Business Segment.
SECTION 3.10 Compliance with Laws. Except as set forth in
Section 3.10 of the Disclosure Schedule, neither the Company nor any Subsidiary
is in default under or in violation of any order of any court, governmental
authority or arbitration board or tribunal to which the Company or such
Subsidiary is or was subject or in violation of any laws, ordinances,
governmental rules or regulations (including, but not limited to, those relating
to export controls, labor and employment matters and foreign corrupt practices)
to which the Company or any Subsidiary is or was subject, except for such
defaults or violations that, in the aggregate, would not reasonably be expected
to have a Material Adverse Effect. Except as set forth in said Section 3.10,
neither the Company nor any Subsidiary has failed to obtain any licenses,
permits, franchises or other governmental authorizations necessary to the
ownership of its properties or to the conduct of its business, which failure
would reasonably be expected to have a Material Adverse Effect, and, after
giving effect to the transactions contemplated hereby, all such licenses,
permits, franchises and other governmental authorizations will continue to be
valid and in full force and effect, except where the failure to have such
licenses, permits, franchises and other governmental authorizations would not
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.11 Disclosure Documents. (a) Each document required
to be filed by the Company with the SEC in connection with the transactions
contemplated hereby (collectively, the "Company Disclosure Documents"),
including, without limitation, the Schedule 14D-9, the Proxy Statement (as
defined in Section 6.03 hereof), if any, and any amendments or supplements
thereto
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will, when filed, comply as to form in all material respects with the
requirements of the Exchange Act.
(b) The Proxy Statement (as defined in Section 6.02 hereof)
will not (i) at the time it or any amendment or supplement is first mailed to
stockholders of the Company, at the time such stockholders vote on adoption of
this Agreement and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (ii) at the time of such stockholder vote or at the Effective
Time, omit any information necessary to correct any statement that has become
materially false or misleading in any earlier communication with respect to the
solicitation of any proxy for such meeting. At the time of the filing of any
Company Disclosure Document other than the Proxy Statement and at the time of
distribution thereof, such Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, no representation is
made by the Company with respect to information supplied by Parent or
Acquisition specifically for inclusion in the Proxy Statement or any other
Company Disclosure Document that relates to Parent or any affiliate or associate
of Parent.
(c) The information with respect to the Company or any
Subsidiary that the Company furnishes to Parent in writing specifically for use
in the Offer Documents, or that is incorporated therein by reference to any of
the Company SEC Filings, will not, at the time of the filing of the Offer
Documents, at the time of any distribution thereof and at the time of the
consummation of the Offer, contain any untrue statement of a material fact or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 3.12 Litigation. Except as set forth in Section 3.12
of the Disclosure Schedule, there is no action, suit, investigation, proceeding
or claim pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary, or their respective properties or
rights, before any governmental body or arbitration board or tribunal, either
alone or together with other similar actions, the outcome of which would
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.13 Software. (a) Except as set forth in Section
3.13(a) of the Disclosure Schedule, the Company and each of the Subsidiaries has
valid licenses to all copies of all software that is not owned by it and is used
by it in connection with the conduct of its business ("Third Party Software"),
and
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the use by the Company or such Subsidiary of such Third Party Software,
including without limitation all modifications and enhancements thereto (whether
or not created by the Company), complies with such license (except for such
noncompliance as could not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company). Except as set forth
in Section 3.13(a) of the Disclosure Schedule, the Company owns all right, title
and interest in and to all software marketed or licensed by the Company and the
Subsidiaries to customers or held for use or in development for marketing and
licensing to customers (collectively, the "Proprietary Software").
(b) Except as set forth in Section 3.13(b) of the Disclosure
Schedule, to the Company's knowledge, none of the Third Party Software or
Proprietary Software, no use thereof by the Company or any Subsidiary, and no
permitted use thereof by any licensee infringes upon or violates any patent,
copyright, trade secret or other intellectual property right of any person or
entity. No claim or demand with respect to any such infringement or violation
has been made or, to the knowledge of the Company, threatened.
(c) To the knowledge of the Company, there are no viruses in
the Proprietary Software and there are no defects in the Proprietary Software
that would prevent such software from performing in all material respects the
tasks and functions that it was intended to perform except those that can be
cured without a Material Adverse Effect on the Company.
SECTION 3.14 Trade Secrets. No third party has claimed or
notified the Company or any Subsidiary that any person employed by or otherwise
affiliated with the Company or any Subsidiary has, in respect of his or her
activities to date, violated any of the terms or conditions of his or her
employment contract with any third party, or disclosed or utilized any trade
secrets or proprietary information or documentation of any third party, or
interfered in the employment relationship between any third party and any of its
employees, and to the knowledge of the Company, no person employed by or
otherwise affiliated with the Company or any Subsidiary has employed any trade
secrets or any information or documentation proprietary to any former employer,
or violated any confidential relationship which such person may have had with
any third party, in connection with the development or sale of any products of
the Company or any Subsidiary.
SECTION 3.15 Severance Arrangements. Except as set forth in
Section 3.15 of the Disclosure Schedule, neither the Company nor any Subsidiary
is party to any agreement with any employee (i) the benefits of which
(including, without limitation, severance benefits) are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction
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involving the Company or any Subsidiary of the nature of any of the transactions
contemplated by this Agreement or (ii) providing severance benefits in excess of
those generally available under the Company's severance policies as in effect on
the date hereof (which are described in Section 3.15 of the Disclosure
Schedule), or which are conditioned upon a change of control, after the
termination of employment of such employees regardless of the reason for such
termination of employment. Except as set forth in Section 3.15 of the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to any employment
agreement or compensation guarantee extending for a period longer than one year
from the date hereof.
SECTION 3.16 Taxes. (a) Except as set forth in Section 3.16 of
the Disclosure Schedule, each of the Company, the Subsidiaries and any
affiliated, combined or unitary group of which any such corporation is or was a
member has (i) timely filed all Federal, state, local and foreign returns,
declarations, reports, estimates, information returns and statements ("Returns")
required to be filed by it in respect of any Taxes (as hereinafter defined),
which Returns correctly reflect the facts regarding the income, business,
assets, operations, activities and status of the Company and the Subsidiaries,
(ii) timely paid or withheld all Taxes that are due and payable with respect to
the Returns referred to in clause (i) (other than Taxes that are being contested
in good faith by appropriate proceedings and are adequately reserved for in the
Company's most recent consolidated financial statements described in Section
3.07 hereof), (iii) established reserves that are adequate for the payment of
all Taxes not yet due and payable with respect to the results of operations of
the Company and the Subsidiaries through the date hereof, and (iv) to the
knowledge of the Company, complied in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes and
has timely withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over.
(b) Except as set forth in Section 3.16 of the Disclosure
Schedule, (i) there is no deficiency, claim, audit, action, suit, proceeding, or
investigation now pending or, to the knowledge of the Company, threatened
against or with respect to the Company or any Subsidiary in respect of any
Taxes; and (ii) there are no requests for rulings or determinations in respect
of any Taxes pending between the Company or any Subsidiary and any taxing
authority.
(c) Except as set forth in Section 3.16 of the Disclosure
Schedule, neither the Company nor any Subsidiary has executed or entered into
(or prior to the Effective Time will execute or enter into) with the Internal
Revenue Service or any taxing authority (i) any agreement or other document
extending or having
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the effect of extending the period for assessments or collection of any Taxes
for which the Company or any Subsidiary would be liable or (ii) a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any predecessor provision thereof or any similar
provision of foreign, state or local Tax law that relates to the assets or
operations of the Company or any Subsidiary.
(d) For purposes of this Agreement, "Tax" (and with
correlative meaning, "Taxes") shall mean all federal, state, local, foreign or
other taxing authority net income, franchise, sales, use, ad valorem, property,
payroll, withholding, excise, severance, transfer, employment, alternative or
add-on minimum, stamp, occupation, premium, environmental or windfall profits
taxes, and other taxes, charges, fees, levies, imposts, customs, duties,
licenses or other assessments, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority.
SECTION 3.17 Employee Benefit Plans. (a) Except as set forth
in Section 3.17(a) of the Disclosure Schedule, each of the Company and the
Subsidiaries has complied and currently is in compliance in all material
respects, both as to form and operation, with the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code, with respect to each "employee benefit plan" as defined under Section 3(3)
of ERISA ("Plan") which the Company or any Subsidiary (i) has ever adopted,
maintained, established or to which any of the same has been required to
contribute to or has ever contributed or (ii) currently maintains or to which
any of the same currently contributes or is required to contribute or (iii)
currently participates in or is required to participate in.
(b) Except as set forth in Section 3.17(b) of the Disclosure
Schedule, neither the Company nor any Subsidiary has ever maintained, adopted or
established, contributed or been required to contribute to, or otherwise
participated in or been required to participate in, a "multiemployer plan" (as
defined in Section 3(37) of ERISA). No amount is due or owing from the Company
or any of its subsidiaries on account of a multiemployer plan or on account of
any withdrawal therefrom.
(c) Notwithstanding anything else set forth herein, other than
routine claims for benefits and liability for premiums due to the Pension
Benefit Guaranty Corporation and underfunded pension liabilities previously
disclosed to Parent, neither the Company nor any Subsidiary has incurred any
material liability with respect to a Plan that is currently due and owing and
has not yet been satisfied, including without limitation under ERISA (including
without limitation Title I or Title IV thereof), the Code or other applicable
law, and, to the knowledge of the Company, no event has occurred and no
condition or set of cir-
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cumstances currently exists (other than the accrual of benefits under the normal
terms of the Plans), that would reasonably be expected to result in the
imposition of any material liability on the Company or any Subsidiary with
respect to a Plan, including without limitation under ERISA (including without
limitation Title I or Title IV of ERISA), the Code or other applicable law with
respect to a Plan.
(d) Except as required by applicable law or as set forth in
Section 3.17(d) of the Disclosure Schedule, neither the Company nor any
Subsidiary has committed itself, orally or in writing, (x) to provide or cause
to be provided to any person any payments or provision of any "welfare" or
"pension" benefits (as defined in Sections 3(1) and 3(2) of ERISA) in addition
to, or in lieu of, those payments or benefits set forth under any Plan, (y) to
continue the payment of, or accelerate the payment of, benefits under any Plan,
except as expressly set forth thereunder or (z) to provide or cause to be
provided any severance or other post-employment benefit, salary continuation,
termination, disability, death, retirement, health or medical benefit to any
person (including without limitation any former or current employee) except as
set forth under any Plan.
SECTION 3.18 Environmental Matters. The Company and each
Subsidiary conducts its business and operations in compliance with all
applicable environmental laws, ordinances and regulations, and neither the
Company nor any Subsidiary has received notice of any claim, action, suit,
proceeding, hearing or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, or hazardous or toxic material or
waste (collectively, an "Environmental Event") by the Company or any Subsidiary,
except for such as, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company. To the knowledge of
the Company, no notice of any Environmental Event was given to any person or
entity that occupied any of the premises occupied by or used by the Company or
any Subsidiary prior to the date such premises were so occupied. Without
limiting the generality of the foregoing, to the knowledge of the Company,
neither the Company nor any Subsidiary has disposed of or placed on or in any
property or facility used in its business any waste materials, hazardous
materials or hazardous substances in violation of law.
SECTION 3.19 Customer Relationships. Neither the Company nor
any Subsidiary has, since December 31, 1996, lost, or been notified that it will
lose or suffer material diminution in, and to the knowledge of the Company no
representative of any customer has notified the Company or any Subsidiary that
in the event of a change of ownership of the Company such as contem-
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plated by this Agreement the Company or any Subsidiary would, lose or suffer
material diminution in, its relationship with any customer or customers that
are, individually or in the aggregate, material to the Company or any Business
Segment.
SECTION 3.20 Certain Transactions. Except as disclosed in the
Company SEC Filings or as set forth in Section 3.20 of the Disclosure Schedule,
there are no existing or proposed material transactions or arrangements between
the Company or any Subsidiary and (i) any person or entity controlling or under
common control with the Company or (ii) Ceridian Corporation or any of its
subsidiaries or affiliates.
SECTION 3.21 State Takeover Statute Inapplicable. The Board of
Directors of the Company has approved the Offer, the Merger Agreement and the
Merger in accordance with paragraph (a)(1) of Section 203 of the Delaware GCL.
SECTION 3.22 Brokers. No person is entitled to any brokerage
or finder's fee or commission in connection with the transactions contemplated
by this Agreement as a result of any action taken by or on behalf of the
Company. Cowen & Company, pursuant to an engagement letter dated June 20, 1997,
a copy of which has been furnished to Parent, has performed services to the
Company and is entitled to compensation from the Company in connection with the
transactions contemplated hereby, including its fairness opinion with respect
thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
SECTION 4.01 Organization and Qualification. (a) Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. Parent is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction in which the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not have a Material Adverse Effect on Parent.
(b) Since the date of its incorporation, Parent has not
engaged in any activity other than in connection with or as contemplated by this
Agreement, the Offer and the Merger or in
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connection with arranging financing required to consummate the transactions
contemplated hereby.
SECTION 4.02 Authority Relative to Agreement. Parent has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent, and no other corporate proceedings on the part of Parent (including,
without limitation, any action by its stockholders) are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Parent and constitutes the legal, valid and
binding obligation of Parent, enforceable against Parent in accordance with its
terms.
SECTION 4.03 Non-Contravention. The execution and delivery of
this Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby will not (i) conflict with any provision of the Certificate
of Incorporation or By-Laws of Parent or (ii) result (with the giving of notice
or the lapse of time or both) in any violation of or default or loss of a
benefit under, or permit the acceleration of any obligation under, any mortgage,
indenture, lease, agreement or other instrument, permit, concession, grant,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or any of its properties, other than any such
violation, default, loss or acceleration that would not materially adversely
affect the ability of Parent to consummate the transactions contemplated hereby.
SECTION 4.04 Governmental Approvals. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Federal, state, local or foreign governmental or regulatory authority is
required to be made or obtained by Parent in connection with the execution and
delivery of this Agreement by Parent or the consummation by Parent of the
transactions contemplated hereby, except for (i) compliance by Parent with the
HSR Act, (ii) filings pursuant to the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, as contemplated by Sections 1.01 and 6.02
hereof, (iii) the filing of a certificate of merger with the Secretary of State
of the State of Delaware in accordance with the Delaware GCL, and (iv) such
consents, approvals, orders or authorizations which if not obtained, or
registrations, declarations or filings which if not made, would not materially
adversely affect the ability of Parent to consummate the transactions
contemplated hereby.
SECTION 4.05 Disclosure Documents. (a) Each of the Offer
Documents, when filed with the SEC in connection with the
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transactions contemplated hereby, will comply as to form in all material
respects with the requirements of the Exchange Act.
(b) At the time of filing with the SEC, none of the Offer
Documents will contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, no representation is made by Parent or Acquisition with respect to
information supplied by the Company specifically for inclusion in any Offer
Document that relates to the Company or any Subsidiary, affiliate or associate
of the Company. None of the information relating to Parent or Acquisition
included in the Proxy Statement will, at the time the Proxy Statement is
distributed to the Company's stockholders, at the time of the meeting of
stockholders to which the Proxy Statement relates or at the Effective Time, as
then amended or supplemented, be false or misleading with respect to any
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
SECTION 4.06 Brokers. No person is entitled to any brokerage
or finder's fee or commission in connection with the transactions contemplated
by this Agreement as a result of any action taken by or on behalf of Parent or
Acquisition, other than J.P. Morgan Securities Inc.
SECTION 4.07 Financing. The Company has received a copy of the
commitment letter dated July 8, 1997, from Welsh, Carson, Anderson & Stowe VII,
L.P., WCAS Capital Partners III, L.P. and certain affiliates (collectively, the
"Financing Entities"), pursuant to which the Financing Entities have committed,
subject to the terms and conditions set forth therein, to provide Parent with up
to an aggregate $300 million of financing (the "Financing") and, subject to the
terms and conditions of this Agreement, to ensure Parent's performance of its
obligations hereunder. Parent believes that the aggregate proceeds of the
Financing will be sufficient to pay all amounts to be paid pursuant to the
Offer, the Merger Consideration, to pay related fees and expenses and to provide
a reasonable amount of working capital for the Surviving Corporation
(collectively, the "Required Amounts"). Such commitment letter has not been
withdrawn as of the date hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition represents and warrants to the Company as follows:
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SECTION 5.01 Organization and Qualification. (a) Acquisition
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own or lease and operate its properties and assets and to carry on
its business as it is now being conducted.
(b) Since the date of its incorporation, Acquisition has not
engaged in any activity other than in connection with or as contemplated by this
Agreement, the Offer and the Merger or in connection with arranging financing
required to consummate the transactions contemplated hereby.
SECTION 5.02 Authority Relative to Agreement. Acquisition has
all requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by Acquisition and the consummation by Acquisition of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Acquisition and by Parent as its sole stockholder, and no other
corporate proceedings on the part of Acquisition are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Acquisition and constitutes the legal, valid and
binding obligation of Acquisition, enforceable against Acquisition in accordance
with its terms.
SECTION 5.03 Non-Contravention. The execution and delivery of
this Agreement by Acquisition and the consummation by Acquisition of the
transactions contemplated hereby will not (i) conflict with any provision of the
Certificate of Incorporation or By-Laws of Acquisition or (ii) result (with the
giving of notice or the lapse of time or both) in any violation of or default or
loss of a benefit under, or permit the acceleration of any obligation under, any
mortgage, indenture, lease, agreement, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquisition or its
properties, other than any such violation, default, loss or acceleration that
would not materially adversely affect the ability of Acquisition to consummate
the transactions contemplated hereby.
SECTION 5.04 Governmental Approvals. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Federal, state, local or foreign governmental or regulatory authority is
required to be made or obtained by Acquisition in connection with the execution
and delivery of this Agreement by Acquisition or the consummation by Acquisition
of the transactions contemplated hereby, except for (i) compliance by
Acquisition with the HSR Act, (ii) filings pursuant to Securities Act and the
Exchange Act and the rules and regulations promulgated by the SEC thereunder, as
contemplated by Sections 1.01 and 6.02 hereof, (iii) the filing of a certificate
of merger
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with the Secretary of State of the State of Delaware in accordance with the
Delaware GCL, and (iv) such consents, approvals, orders or authorizations which
if not obtained, or registrations, declarations or filings which if not made,
would not materially adversely affect the ability of Acquisition to consummate
the transactions contemplated hereby.
ARTICLE VI
CERTAIN AGREEMENTS
SECTION 6.01 Conduct of the Company's Business. The Company
covenants and agrees that, prior to the Effective Time, unless Parent shall
otherwise consent in writing or as otherwise expressly contemplated by this
Agreement:
(a) the business of the Company and the Subsidiaries
shall be conducted only in, and the Company and the Subsidiaries shall
not take any action except in, the ordinary course of business and
consistent with past practice; and
(b) neither the Company nor any Subsidiary shall,
directly or indirectly, do any of the following: (i) sell, pledge,
dispose of or encumber (or permit any Subsidiary to sell, pledge,
dispose of or encumber) any assets of the Company or any Subsidiary,
except inventory and immaterial assets in the ordinary course of
business; (ii) amend or propose to amend its Certificate of
Incorporation or By-Laws; (iii) split, combine or reclassify any
outstanding shares of its capital stock, or declare, set aside or pay
any dividend payable in cash, stock, property or otherwise with respect
to such shares (except for any dividends paid in the ordinary course to
the Company or to any wholly-owned Subsidiary); (iv) redeem, purchase,
acquire or offer to acquire (or permit any Subsidiary to redeem,
purchase, acquire or offer to acquire) any shares of its capital stock;
or (v) enter into any contract, agreement, commitment or arrangement
with respect to any of the matters set forth in this paragraph (b);
(c) neither the Company nor any Subsidiary shall (i)
issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or securities convertible or
exchangeable for, or any options, warrants or rights of any kind to
acquire any shares of, its capital stock of any class or other property
or assets whether pursuant to the Company Stock Option Plan, the
Company Stock Purchase Plan, or otherwise, provided that the Company
may issue shares of Company Common Stock upon the exercise of currently
outstanding options referred to in
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Section 3.05 hereof; (ii) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof (except an existing
wholly-owned Subsidiary); (iii) incur any indebtedness for borrowed
money or issue any debt securities in an amount exceeding $3,000,000 in
the aggregate; (iv) enter into or modify any material contract, lease,
agreement or commitment, except in the ordinary course of business and
consistent with past practice; (v) terminate, modify, assign, waive,
release or relinquish any material contract rights or amend any
material rights or claims not in the ordinary course of business or
(vi) settle or compromise any material claim, action, suit or
proceeding pending or threatened against the Company, or, if the
Company may be liable or obligated to provide indemnification, against
the Company's directors or officers, before any court, governmental
agency or arbitrator; provided that nothing herein shall require any
action that might impair or otherwise affect the obligation of any
insurance carrier under any insurance policy maintained by the Company;
(d) neither the Company nor any Subsidiary shall
grant any increase in the salary or other compensation of its employees
except (i) pursuant to the terms of employment agreements in effect on
the date hereof and previously disclosed to Parent and (ii) in the case
of employees who are not executive officers of the Company, in the
ordinary course of business and consistent with past practice, or grant
any bonus to any employee or enter into any employment agreement or
make any loan to or enter into any material transaction of any other
nature with any employee of the Company or any Subsidiary;
(e) neither the Company nor any Subsidiary shall
(except in the case of employees who are not executive officers of the
Company, for salary increases in the ordinary course of business and
consistent with past practice) adopt or amend, in any respect, except
as contemplated hereby or as may be required by applicable law or
regulation, any collective bargaining, bonus, profit sharing,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, fund, plan or arrangement for the benefit or welfare
of any directors, officers or employees (including, without limitation,
any such plan or arrangement relating to severance or termination pay);
(f) neither the Company nor any Subsidiary shall take
any action that would make any representation or warranty of the
Company hereunder inaccurate in any material respect at, or as of any
time prior to, the Effective Time,
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or omit to take any action necessary to prevent any such representation
or warranty from being inaccurate in any material respect at any such
time; and
(g) each of the Company and the Subsidiaries shall
use its best efforts, to the extent not prohibited by the foregoing
provisions of this Section 6.01, to maintain its relationships with its
suppliers and customers, and if and as requested by Parent or
Acquisition, (i) the Company shall use its best efforts to make
reasonable arrangements for representatives of Parent or Acquisition to
meet with customers and suppliers of the Company or any Subsidiary and
(ii) the Company shall schedule, and the management of the Company
shall participate in, meetings of representatives of Parent or
Acquisition with employees of the Company or any Subsidiary.
SECTION 6.02 Stockholder Approval. (a) As soon as reasonably
practicable following the acquisition by Acquisition of a majority of the
outstanding Shares (on a fully diluted basis), the Company shall take all action
necessary in accordance with the Delaware GCL and its Certificate of
Incorporation and By-Laws to call, give notice of and convene a meeting (a
"Meeting") of its stockholders to consider and vote upon the approval and
adoption of this Agreement and the Merger and for such other purposes as may be
necessary or desirable. The Board of Directors of the Company has determined
that the Merger is advisable and in the best interests of the stockholders of
the Company and shall, subject to fiduciary duties as advised by counsel,
recommend that the stockholders of the Company vote to approve and adopt this
Agreement and the Merger and any other matters to be submitted to stockholders
in connection therewith.
(b) As promptly as reasonably practicable following the
acquisition by Acquisition of a majority of the outstanding Shares (on a fully
diluted basis), the Company shall file a proxy or information statement
pertaining to the Merger (the "Proxy Statement"). Parent and Acquisition shall
cooperate fully with the Company in the preparation of the Proxy Statement and
any amendments and supplements thereto. The Proxy Statement shall not be
distributed, and no amendment or supplement thereto shall be made by the
Company, without the prior consent of Parent and its counsel. The Company shall
use its best efforts to have the Proxy Statement cleared by the SEC and shall
cause a definitive Proxy Statement to be distributed to its stockholders
entitled to vote upon the Merger as promptly as practicable thereafter.
(c) The Company shall notify Parent of the receipt of the
comments of the SEC and of any requests by the SEC for amendments or supplements
to the Proxy Statement or for additional information, and shall promptly supply
Parent with copies of all correspondence between the Company (or its
representatives)
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and the SEC (or its staff) with respect thereto. If, at any time prior to the
Meeting, any event should occur relating to or affecting the Company, Parent or
Acquisition, or to their respective officers or directors, which event should be
described in an amendment or supplement to the Proxy Statement, the parties
shall promptly inform one another and shall cooperate in promptly preparing,
filing and clearing with the SEC and, if required by applicable securities laws,
distributing to the Company's stockholders such amendment or supplement.
SECTION 6.03 Access to Information. (a) The Company shall, and
shall cause the Subsidiaries and its and their respective officers, directors,
employees, representatives and agents to, afford, from the date hereof to the
Effective Time, the officers, employees, representatives and agents of Parent
reasonable access during regular business hours to its officers, employees,
agents, properties, books, records and workpapers, and shall promptly furnish
Parent all financial, operating and other information and data as Parent,
through its officers, employees or agents, may reasonably request.
(b) Except as required by law, Parent shall hold, and will
cause its respective officers, employees, representatives and agents to hold,
any confidential information in accordance with the Confidentiality Agreement
dated November 1, 1995 between the Company and Welsh, Carson, Anderson & Stowe
VII, L.P. (the "Confidentiality Agreement").
(c) No investigation pursuant to this Section 6.03 shall
affect, add to or subtract from any representations or warranties of the parties
hereto or the conditions to the obligations of the parties hereto to consummate
the Offer or effect the Merger.
SECTION 6.04 Further Assurances. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, including, without limitation, using all reasonable efforts to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings (including without limitation any necessary filings
under the HSR Act); provided that the foregoing shall not require Parent or the
Company to make, or agree to make, or require Parent to permit the Company or
any the Subsidiaries to make, any divestiture of a significant asset in order to
obtain any waiver, consent or approval.
SECTION 6.05 Inquiries and Negotiations; Certain Payments. (a)
From the date hereof until the termination hereof, the Company, the Subsidiaries
and their respective
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officers, directors, employees, representatives and other agents will not,
directly or indirectly, solicit or initiate any discussions, submissions of
proposals or offers or negotiations with or, subject to the fiduciary duties of
the Company's Board of Directors as advised by counsel, participate in any
negotiations or discussions with, or provide any information or data of any
nature whatsoever to, or otherwise cooperate in any other way with, or assist or
participate in, facilitate or encourage any effort or attempt by, any person,
corporation, entity or "group" (as defined in Section 13(d) of the Exchange Act)
other than Parent and its affiliates, representatives and agents (each, a "Third
Party") in connection with any merger, consolidation, sale of any Subsidiary or
division that is material to the business of the Company and the Subsidiaries,
sale of shares of capital stock or other equity securities, tender or exchange
offer, recapitalization, debt restructuring or similar transaction involving the
Company (such transactions being hereinafter referred to as "Alternative
Transactions"), provided, however, that nothing contained in this Agreement
shall prohibit the Company Board from taking and disclosing a position required
by Rule 14e-2 under the Exchange Act. The Company shall immediately notify
Parent if any proposal, offer, inquiry or other contact is received by, any
information is requested from, or any discussions or negotiations are sought to
be initiated or continued with, the Company in respect of an Alternative
Transaction, and shall, in any such notice to Parent, indicate the identity of
the Third Party and the terms and conditions of any proposals or offers or the
nature of any inquiries or contacts, and thereafter shall keep Parent informed,
on a current basis, of the status and terms of any such proposals or offers and
the status of any such discussions or negotiations. Without limiting the
generality of the foregoing, the Company shall provide Parent with not less then
(i) two business days' notice prior to the execution by the Company of any
definitive agreement with respect to any Alternative Transaction and (ii) two
days' notice (or the longest notice legally permissible in the reasonable
determination of counsel for the Company, if less than two days) of any public
announcement relating to any Alternative Transaction. Prior to furnishing any
non-public information to, or entering into negotiations or discussions with,
any Third Party, the Company will obtain an executed confidentiality agreement
from such Third Party on terms substantially the same as, or no less favorable
to the Company in any material respect than, those contained in the
Confidentiality Agreement. The Company shall not release any Third Party from,
or waive any provision of, any such confidentiality agreement or any other
confidentiality or standstill agreement to which the Company is a party. As of
the date hereof, the Company shall cease, and shall cause its subsidiaries and
the officers, directors, employees, representatives and other agents of the
Company and its subsidiaries to cease all discussions, negotiations and
communications with all Third Parties and demand the immediate
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return of all confidential information previously provided to Third Parties.
(b) If a Payment Event (as hereinafter defined) occurs, the
Company shall pay to Parent, within two business days following such Payment
Event, (i) a fee of $8,200,000 in cash, plus (ii) all reasonable and documented
out-of-pocket costs and expenses of Parent and Acquisition, including without
limitation fees and expenses of counsel, accountants, investment bankers and
other advisors and printing expenses. In the event that this Agreement shall be
terminated for any other reason and the Company shall have failed to comply with
or perform, or shall have breached, in any material respect, any of its
covenants or agreements contained herein, the Company shall pay to Parent,
within two business days following such termination, the fees and expenses
referred to in clause (ii) of the preceding sentence; provided that such fees
and expenses shall not be so payable if Parent or Acquisition shall have failed
to comply with or perform, or shall have breached, in any material respect, any
of its covenants or agreements contained herein.
(c) "Payment Event" means (i) the termination of this
Agreement by Parent pursuant to Section 8.01(e); (ii) the termination of this
Agreement by the Company pursuant to Section 8.01(d) or (iii) the occurrence of
any of the following events within 6 months after the date of termination of
this Agreement (other than by reason of Parent's or Acquisition's failure to
comply with or perform, or breach, in any material respect, of any of its
covenants or agreements contained herein) whereby stockholders of the Company
receive, pursuant to such event, cash, securities or other consideration having
an aggregate value, when taken together with the value of any securities of the
Company or its subsidiaries otherwise held by the stockholders of the Company
after such event, in excess of $20.90 per Share: (w) the Company is acquired by
merger or otherwise by a Third Party; (x) a Third Party acquires more than 50%
of the total assets of the Company and the Subsidiaries, taken as a whole; (y) a
Third Party acquires more than 50% of the outstanding Shares or (z) the Company
adopts and implements a plan of liquidation or share repurchase relating to more
than 50% of the outstanding Shares or an extraordinary dividend relating to more
than 50% of the assets of the Company and the Subsidiaries, taken as a whole.
(d) The Company acknowledges that the agreements contained in
this Section 6.05 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Acquisition would not
enter into this Agreement; accordingly, if the Company fails to promptly pay any
amount due pursuant to this Section 6.05, and, in order to obtain such payment,
Parent and/or Acquisition commences a suit which results in a judgment against
the Company for the fee and
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expenses set forth in this Section 6.05, the Company shall also pay to Parent
and Acquisition their costs and expenses incurred in connection with such
litigation. Notwithstanding the foregoing, each party shall bear its own costs
and expenses incurred in connection with any litigation over the reasonableness
and/or documentation of any expenses submitted for reimbursement hereunder.
(e) This Section 6.05 shall survive any termination of this
Agreement, however caused.
SECTION 6.06 Notification of Certain Matters. The Company
shall give prompt notice to Parent and Acquisition, and Parent and Acquisition
shall give prompt notice to the Company, of (i) the occurrence, or failure to
occur, of any event that such party believes would be likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time and (ii) any material failure of the Company, Parent or
Acquisition, as the case may be, or any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that failure to
give such notice shall not constitute a waiver of any defense that may be
validly asserted.
SECTION 6.07 Indemnification. (a) The Certificate of
Incorporation and By-Laws of the Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation from liability set
forth in the Company's Certificate of Incorporation and By-Laws as in effect on
the date hereof, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who, on or prior to
the Effective Time, were directors, officers, employees or agents of the Company
(collectively, the "Indemnified Parties"), unless such modification is required
by law. Parent shall guarantee the obligations of the Surviving Corporation with
respect to indemnification of the Indemnified Parties under such provisions and
under the Company's indemnification agreements with its directors and officers.
(b) For a period of two years after the expiration date of the
Company's current policy, the Surviving Corporation shall maintain officers' and
directors' liability insurance covering those Indemnified Parties who are
currently covered by the Company's directors' and officers' liability insurance
policy, a copy of which has heretofore been delivered to Parent, on terms no
less favorable than the terms of such current insurance coverage, provided,
however, that in no event shall the Surviving Corporation be required to expend
in any one year an amount in excess of 150% of the annual premiums currently
payable
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by the Company for such insurance, provided, further, however, that if the
annual premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall obtain a policy with the greatest coverage available for a
cost not exceeding such amount.
(c) This Section 6.07 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Parent, the
Surviving Corporation and the Indemnified Parties, and shall be binding on the
successors and assigns of
the Surviving Corporation.
SECTION 6.08 Voting of Shares. Each of Parent and Acquisition
agrees to vote all Shares beneficially owned by it in favor of adoption of this
Agreement and approval of the Merger.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Merger Relating to Parent and
Acquisition. The obligation of Parent and Acquisition to effect the Merger shall
be subject, at their option, to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) this Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockhold-
ers of the Company;
(b) the expiration or earlier termination of any
waiting period under the HSR Act shall have occurred;
(c) no preliminary or permanent injunction or other
order, decree or ruling issued by any court of competent jurisdiction
nor any statute, rule, regulation or order entered, promulgated or
enacted by any governmental, regulatory or administrative agency or
authority shall be in effect that would restrain the effective
operation of the business of the Company and the Subsidiaries from and
after the Effective Time, and no proceeding challenging this Agreement
or the transactions contemplated hereby or seeking to prohibit, alter,
prevent or materially delay the Merger shall be pending before any
court, arbitrator or governmental agency, body or official; and
(d) Acquisition shall have purchased Shares pursuant
to the Offer (provided that this condition shall be deemed fulfilled if
Acquisition shall have failed to purchase Shares in violation of the
Offer).
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SECTION 7.02 Conditions to the Merger Relating to the Company.
The obligation of the Company to effect the Merger shall be subject, at its
option, to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the Merger shall have been approved
and adopted by the requisite vote of the stockhold- ers of the
Company;
(b) the expiration or earlier termination of any waiting
period under the HSR Act shall have occurred; and
(c) no preliminary or permanent injunction or other order,
decree or ruling issued by any court of competent jurisdiction
nor any statute, rule, regulation or order entered, promulgated
or enacted by any governmental, regulatory or administrative
agency or authority shall be in effect that would prevent the
consummation of the Merger as contemplated hereby.
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination and Abandonment. This Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the stockholders of the Company:
(a) by mutual action of the Boards of Directors of Parent and
the Company;
(b) by either Parent or the Company, if (i) the Offer shall
not have been consummated on or prior to the close of business on October 31,
1997; (ii) the conditions to its obligations under Section 7.01 or Section 7.02,
as the case may be, shall not have been complied with or performed in any
material respect and such noncompliance or nonperformance shall not have been
cured or eliminated (or by its nature cannot be cured or eliminated) by the
other party on or before December 31, 1997; or (iii) the Merger shall not have
been effected on or prior to the close of business on December 31, 1997; unless,
in any case, such event has been caused by the breach of this Agreement by the
party seeking such termination;
(c) by Parent, if the Offer is terminated or expires without
the purchase of any Shares thereunder, unless such termination or expiration has
been caused by the failure of Parent or Acquisition to perform in any material
respect its obligations under this Agreement and the Offer;
31
<PAGE>
(d) by the Company if, prior to the earlier of (i) the
acceptance for payment of Shares by Acquisition under the Offer and (ii)
stockholder approval of this Agreement and the Merger, the Company shall enter
into a definitive written agreement with respect to an Alternative Transaction
with a Third Party, or a Third Party has commenced a tender offer which, in
either case, the Board of Directors of the Company believes in good faith is
more favorable to the Company's stockholders than the transactions contemplated
by this Agreement; provided, that all amounts payable under Section 6.05 hereof
shall have been paid prior to such termination (except for any amounts due in
respect of expenses for which documentation shall not have been provided prior
to such termination, which amounts shall be paid as promptly as practicable
after delivery to the Company of required documentation thereof); or
(e) by Parent, if (i) the Board of Directors of the Company
shall have withdrawn, modified or amended in a manner adverse to Parent and
Acquisition its approval or recommendation of the Offer and the Merger or
approved, recommended or endorsed any proposal for, or authorized the Company to
enter into, an Alternative Transaction, or (ii) Cowen & Company shall have
withdrawn its opinion at any time prior to the earlier of (A) acceptance for
payment of Shares by Acquisition under the Offer and (B) the Effective Time.
Any party desiring to terminate this Agreement pursuant to this Section 8.01
shall give notice to the other party in accordance with Section 9.05.
SECTION 8.02 Effect of Termination. Except as provided in
Sections 6.05 and 9.02 hereof, in the event of the termination of this Agreement
and the abandonment of the Merger pursuant to Section 8.01, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to any other party hereto or its stockholders or directors or officers
in respect thereof, except that nothing herein shall relieve any party from
liability for any willful breach hereof.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant hereto shall survive the Effective Time, provided
that this Section 9.01 shall not limit any covenant or agreement of the parties
that by its terms contemplates performance after the Effective Time.
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<PAGE>
SECTION 9.02 Expenses, Etc. (a) In the event that the
transactions contemplated by this Agreement are not consummated, then, except as
set forth in Section 6.05(b), neither the Company, on the one hand, nor Parent
and Acquisition, on the other hand, shall have any obligation to pay any of the
fees and expenses of the other incident to the negotiation, preparation and
execution of this Agreement, including the fees and expenses of counsel,
accountants, investment bankers and other experts.
(b) In the event that the transactions contemplated by this
Agreement are consummated, Parent shall pay all of the fees and expenses of the
Company incident to the negotiation, preparation and execution of this
Agreement, including the fees and expenses of counsel, accountants, investment
bankers and other advisors, and Parent shall pay all such fees and expenses
incurred by Acquisition and Parent.
SECTION 9.03 Publicity. The Company and Parent agree that they
will not issue any press release or make any other public announcement
concerning this Agreement or the transactions contemplated hereby without the
prior consent of the other party, except that the Company or Parent may make
such public disclosure that it believes in good faith to be required by law (in
which event such party shall consult with the other prior to making such
disclosure).
SECTION 9.04 Execution in Counterparts. For the convenience of
the parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument, and may be delivered in person or by facsimile
transmission.
SECTION 9.05 Notices. All notices that are required or may be
given pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or national
overnight courier service, transmitted by telecopy or mailed by registered or
certified mail, postage prepaid, as follows:
If to Parent to it:
In care of Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, N.Y. 10022
Attention: Patrick J. Welsh
33
<PAGE>
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, N.Y. 10111
Attention: William J. Hewitt
If to the Company, to:
Control Data Systems, Inc.
4201 Lexington Avenue North
Arden Hills, MN 55126-6198
Attention: Chief Executive Officer
with a copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Keith A. Libbey
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 9.06 Waivers. The Company, on the one hand, and Parent
and Acquisition, on the other hand, may, by written notice to the other, (i)
extend the time for the performance of any of the obligations or other actions
of the other under this Agreement; (ii) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement or in any
document delivered pursuant to this Agreement; (iii) waive compliance with any
of the conditions of the other contained in this Agreement; or (iv) waive
performance of any of the obligations of the other under this Agreement. Except
as provided in the preceding sentence, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
SECTION 9.07 Entire Agreement. This Agreement, the Disclosure
Schedule, the documents executed at the Effective Time in connection herewith
and the Confidentiality Agreement constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, among the parties hereto
34
<PAGE>
with respect to the subject matter hereof. The Company may, in its discretion
and for its convenience, include in the Disclosure Schedule items that are not
material, and such inclusions shall not be deemed to be an agreement or
admission by the Company that such items are material or otherwise be used to
interpret the meaning of such term for purposes of this Agreement or otherwise.
The parties agree that no representation, warranty, promise, inducement or
statement of intention made by any party that is not embodied in this Agreement
or such other documents may be relied upon for any purpose by any party, and
none of the parties shall be bound by, or be liable for, any alleged
representation, warranty, promise, inducement or statement of intention not
embodied herein or therein. The projections and budgets furnished by the Company
to Parent are arithmetically accurate, based on the assumptions set forth
therein; it being understood that, while facts and circumstances resulting in a
Material Adverse Effect on the Company may also result or be reflected in the
Company's failure to achieve such projected or budgeted results, such failure
shall not, in and of itself, be deemed to be a Material Adverse Effect on the
Company.
SECTION 9.08 Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, without
regard to principles of conflict of laws.
SECTION 9.09 Binding Effect, Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective permitted successors and assigns. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement; provided,
however, that the provisions of Section 6.07 hereof shall accrue to the benefit
of, and shall be enforceable by, each of the current and former directors and
officers of the Company.
SECTION 9.10 Assignability. Neither this Agreement nor any of
the parties' rights hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
SECTION 9.11 Amendments. This Agreement may be varied, amended
or supplemented at any time before or after the approval and adoption of this
Agreement by the stockholders of the Company by action of the respective Boards
of Directors of the Company, Parent and Acquisition, without action by the
stockholders thereof; provided that, after approval and adoption of this
Agreement by the Company's stockholders, no such variance, amendment or
supplement shall, without consent of such
35
<PAGE>
stockholders, reduce the amount or alter the form of the consideration that the
holders of the capital stock of the Company shall be entitled to receive upon
the Effective Time pursuant to Section 2.05 hereof. Without limiting the
generality of the foregoing, this Agreement may only be amended, varied or
supplemented by an instrument in writing, signed by the parties hereto.
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement and Plan of Merger as of the day and year first above written.
CDSI HOLDING CORPORATION
By /s/ Thomas E. McInerney
----------------------------------
Name: Thomas E. McInerney
Title: President
CDSI ACQUISITION CORP.
By /s/ Thomas E. McInerney
----------------------------------
Name: Thomas E. McInerney
Title: President
CONTROL DATA SYSTEMS, INC.
By /s/ James E. Ousley
----------------------------------
Name: James E. Ousley
Title: President and
Chief Executive Officer
37
<PAGE>
INDEX TO DEFINED TERMS
THIS INDEX IS INCLUDED FOR CONVENIENCE ONLY AND
DOES NOT CONSTITUTE A PART OF THE AGREEMENT
Term Section Reference
---- -----------------
"Acquisition" Recitals
"Alternative Transactions" 6.05(a)
"Business Segment" 3.08
"Certificate" 2.07(b)
"Code" 3.17(a)
"Company" Recitals
"Company Common Stock" Recitals
"Company Disclosure Documents" 3.11(a)
"Company SEC Filings" 3.06
"Company Stock Option Plan" 3.05
"Company Stock Purchase Plan" 3.05
"Confidentiality Agreement" 6.03(c)
"Constituent Corporations" Recitals
"Continuing Director" 1.03(a)
"Delaware GCL" 1.02(a)
"Disclosure Schedule" 3.02
"Dissenting Shares" 2.08
"Effective Time" 2.01
"Environmental Event" 3.18
"ERISA" 3.17(a)
"Exchange Act" 3.06
"Exchange Agent" 2.07(a)
"Exchange Fund" 2.07(a)
"Financing" 4.07
"Financing Entities" 4.07
"HSR Act" 3.09
"Indemnified Parties" 6.07(a)
"Material Adverse Effect" 3.01
"Meeting" 6.02(a)
"Merger" 2.01
"Merger Consideration" 2.05(c)
"Minimum Condition" 1.01
"Offer" 1.01
"Parent" Recitals
"Payment Event" 6.05(c)
"Plans" 3.17(a)
"Preferred Stock" 3.05
"Proprietary Software" 3.13(a)
"Proxy Statement" 6.02(b)
"Returns" 3.16(a)
"Required Amounts" 4.07
"SEC" 1.01
"Securities Act" 3.06
"Schedule 14D-9" 1.02(b)
<PAGE>
Term Section Reference
---- -----------------
"Shares" 1.01
"Subsidiary" 3.02(c)
"Surviving Corporation" Recitals
"Third Party" 6.05(a)
"Third Party Software" 3.13(a)
"Tax" 3.16(d)
<PAGE>
ANNEX I
CONDITIONS TO THE OFFER
Capitalized terms used in this Annex I shall have the meanings
assigned to them in the Agreement to which it is attached (the "Merger
Agreement").
Notwithstanding any other provision of the Offer, Acquisition
shall not be required to accept for payment or pay for any Shares, and may
terminate the Offer, if (1) prior to the expiration date of the Offer (A) the
number of Shares validly tendered and not withdrawn, together with any Shares
then owned by Acquisition, shall not satisfy the Minimum Condition, or (B) the
applicable waiting period under the HSR Act shall not have expired or been
terminated; or (2) at any time on or after July 8, 1997, and prior to acceptance
for payment of or payment for Shares, any of the following conditions exist:
(a) there shall be instituted or pending any action or
proceeding by any government or governmental authority or agency,
before any court or governmental authority or agency, (i) challenging
or seeking to make illegal, to delay or otherwise directly or
indirectly to restrain or prohibit the making of the Offer, the
acceptance for payment of or payment for some of or all the Shares by
Acquisition or the consummation by Acquisition or Parent of the Merger,
or seeking to obtain material damages relating to the transactions
contemplated by the Offer or the Merger, (ii) seeking to restrain or
prohibit Parent's or Acquisition's full rights of ownership or
operation (or that of Parent's subsidiaries or affiliates) of a
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or of Parent and its subsidiaries,
taken as a whole, or any of their respective affiliates or to compel
Parent or any of its subsidiaries or affiliates to dispose of or hold
separate a material portion of the business or assets of the Company
and its subsidiaries, taken as a whole, or of Parent and its
subsidiaries, taken as a whole, or any of their respective affiliates,
(iii) seeking to impose material limitations on the ability of Parent
or any of its subsidiaries or affiliates effectively to exercise full
rights of ownership of the Shares, including, without limitation, the
right to vote any Shares acquired or owned by Parent or any of its
subsidiaries or affiliates on all matters properly presented to the
Company's stockholders, (iv) seeking to require divestiture by Parent
or any of its subsidiaries or affiliates of any Shares, (v) prohibiting
the financing of the Offer, or (vi) that otherwise would reasonably
expected to have a Material Adverse Effect on the Company; or
<PAGE>
(b) there shall have been any action taken or any statute,
rule, regulation, judgment, administrative interpretation, injunction,
order or decree proposed, enacted, enforced, promulgated, issued or
deemed applicable to the Offer, the acceptance for payment of or
payment for any Shares or the Merger, by any court, government or
governmental authority or agency (other than the application of the
waiting period provisions of the HSR Act to the Offer, the acceptance
for payment of or payment for any Shares or the Merger), that has,
directly or indirectly, resulted, or is reasonably likely to, directly
or indirectly, result in any of the consequences referred to in clauses
(i) through (vi) of paragraph (a) above; or
(c) any change shall have occurred or been threatened (or any
development shall have occurred or been threatened involving a
prospective change) in the business, assets, liabilities, financial
condition, capitalization, operations or results of operations of the
Company or any of its subsidiaries or affiliates that has had or would
reasonably be expected to have a Material Adverse Effect, or Parent and
Acquisition shall have become aware of any facts that have had or are
reasonably likely to have a Material Adverse Effect; or
(d) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for securities on any national
securities exchange or in the over-the-counter market, (ii) any decline
in either the Dow Jones Industrial Average or the Standard and Poor's
Index of 500 Industrial Companies by an amount in excess of 15%,
measured from July 8, 1997, (iii) the declaration of any banking
moratorium or any suspension of payments in respect of banks or any
material limitation (whether or not mandatory) on the extension of
credit by lending institutions in the United States, (iv) the
commencement of a war, material armed hostilities or other material
international or national calamity directly or indirectly involving the
United States or having a significant adverse effect on the functioning
of the financial markets in the United States, or (v) in the case of
any of the foregoing existing at the time of execution of the Merger
Agreement, a material acceleration or worsening thereof; or
(e) it shall have been publicly disclosed or Parent or
Acquisition shall have otherwise learned that (i) any Third Party shall
have acquired beneficial ownership of more than 10% of any class or
series of capital stock of the Company (including the Shares), through
the acquisition of stock, the formation of a group or otherwise, or
shall have been granted any option, right or warrant, conditional or
otherwise, to acquire beneficial ownership of more than 10% of
2
<PAGE>
any class or series of capital stock of the Company (including the
Shares) other than acquisitions for bona fide arbitrage purposes only
and other than as disclosed in a Schedule 13D or 13G on file with the
Commission prior to the date of the Merger Agreement, (ii) any Third
Party that, prior to the date of the Merger Agreement, had filed such a
Schedule with the Commission shall have acquired beneficial ownership
of additional shares of any class or series of capital stock of the
Company (including the Shares), through the acquisition of stock, the
formation of a group or otherwise, constituting an additional 5% or
more of any such class or series, or shall have been granted any
option, right or warrant, conditional or otherwise, to acquire
beneficial ownership of additional shares of any class or series of
capital stock of the Company (including the Shares) constituting and
additional 5% or more of any such class or series, or (iii) any Third
Party shall have entered into a definitive agreement or an agreement in
principle with respect to a merger, consolidation or other business
combination with the Company; or
(f) the Company shall have breached or failed to perform any
of its covenants or agreements under the Merger Agreement, or any of
the representations and warranties of the Company set forth in the
Merger Agreement shall not have been true when made, or at any time
prior to consummation of the Offer, as if made at and as of such time,
provided that representations and warranties made as of a particular
date need be true only as of such date (for the purpose of this
paragraph (f), representations and warranties of the Company that are
expressly qualified by a materiality qualification shall be true and
correct subject to such materiality qualification, and all other
representations and warranties shall be true and correct in all
material respects); and in any such case, such breach, failure or
untruth would reasonably be expected to materially influence the
investment decision of a reasonable purchaser of all or a substantial
portion of the Company's outstanding securities; or
(g) all consents, approvals, licenses, certificates,
accreditations, authorizations or orders of any governmental
commission, board or other regulatory body required in connection with
the execution, delivery and performance of the Merger Agreement and for
the Surviving Corporation and the Subsidiaries to conduct business in
substantially the manner conducted by the Company and the Subsidiaries
as of the date of the Merger Agreement, shall not have been obtained,
except for any of the same, the failure to obtain which would not
reasonably be expected to have a Material Adverse Effect on the Company
after giving effect to the transactions contemplated by the Merger
Agreement; or
3
<PAGE>
(h) the Merger Agreement shall have been terminated in
accordance with its terms or amended in accordance with its terms to
provide for such termination or amendment of the Offer; or
(i) all members of the Board of Directors of the Company,
other than two Continuing Directors, shall not have resigned, effective
upon and subject only to the acceptance for payment by Acquisition of,
and deposit by Acquisition with the depositary for the Offer of funds
sufficient to make payment for, a majority of the outstanding Shares
pursuant to the Offer, or the Board of Directors of the Company shall
not have elected, effective upon and subject only to such acceptance
and deposit, at least three individuals designated by Parent as
directors of the Company, effective upon such consummation,
which, in the sole judgment of Acquisition in any such case, and regardless of
the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Acquisition and may be
asserted or waived by Acquisition in whole or in part at any time and from time
to time in its sole discretion. The failure by Acquisition at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right and may be asserted
at any time and from time to time.
4
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
WCAS CAPITAL PARTNERS III, L.P.
July 8, 1997
CDSI Holding Corporation
320 Park Avenue, Suite 2500
New York, N.Y. 10022
Control Data Systems, Inc.
--------------------------
Dear Sirs:
We refer to the Agreement and Plan of Merger dated as of the
date hereof (the "Merger Agreement") among CDSI Holding Corporation, a Delaware
corporation ("Holding"), CDSI Acquisition Corp., a Delaware corporation
("Acquisition"), and Control Data Systems, Inc., a Delaware corporation (the
"Company"), providing for a tender offer by Acquisition for all the issued and
outstanding capital stock of the Company and the subsequent merger of
Acquisition with and into the Company. Terms used herein which are defined in
the Merger Agreement and not otherwise defined herein shall have the respective
meanings assigned to them therein. The undersigned, Welsh, Carson, Anderson &
Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), is the sole
stockholder of Holding, and Acquisition is a wholly-owned subsidiary of Holding.
The undersigned WCAS Capital Partners III, L.P., a Delaware corporation ("WCAS
CP III" and, collectively with WCAS VII, the Partnerships) is under common
control with WCAS VII.
This will confirm our agreement that, (i) subject to
satisfaction of the Minimum Condition and the other conditions set forth in
Annex I to the Merger Agreement, the Partnerships will provide (or cause to be
provided) cash financing to Holding, for transfer to Acquisition, in an amount
sufficient to permit Acquisition to purchase and pay for all Shares tendered in
the Offer, and (ii) subject to satisfaction of the conditions to the obligations
of Holding and Acquisition contained in Section 7.01 of the Merger Agreement,
the Partnerships will provide (or cause to be provided) cash financing to
Holding in an amount sufficient to permit it to convert the Shares (other than
Shares then held by Acquisition) to cash in the Merger, in each case up to the
maximum amount of financing for each Partnership hereinbelow provided.
<PAGE>
The form of the securities to be acquired by the Partnerships
in connection with such financing shall be determined by the Partnerships and
CDSI in their discretion, subject to compliance with applicable laws, but the
amount of financing so provided (or caused to be provided) by WCAS VII shall not
exceed $200 million, and the amount so provided (or caused to be provided) by
WCAS CP III shall not exceed $100 million. The obligation of the Partnerships to
provide (or cause to be provided) such financing shall be several and not joint,
but no failure by one Partnership shall relieve the other of its obligations
hereunder. In the event that WCAS VII or WCAS CP III shall arrange for other
parties to provide a portion of the financing committed for by it hereunder, any
such arrangement shall not relieve such Partnership from its obligations
hereunder, subject only to the conditions hereinbefore stated, to provide (or
cause to be provided) such financing.
This letter is intended to be for the benefit of the Company,
and may be enforced by the Company as a third-party beneficiary. This letter
shall be governed by and construed in accordance with the laws of the State of
New York.
Very truly yours,
WELSH, CARSON, ANDERSON & STOWE
VII, L.P.
By WCAS VII PARTNERS, L.P., General
Partner
By /s/ Thomas E. McInerney
------------------------------------------
General Partner
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III ASSOCIATES L.L.C.,
General Partner
By /s/ Thomas E. McInerney
------------------------------------------
Managing Member
